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SunEdison, Enphase, SolarCity.. what in the world is going on here?!?

For those who like to keep tabs on the larger / publically traded companies in the solar business, you may have noticed some really strange goings on over the last several months.  Investors in the public markets seem to be giving solar companies a real rough ride, and so today we’ll explore some of the reasons why:


The short of it, SunEdison is worth 6 times LESS than it was just 4 months ago.  Stock closed at $31.66 on July 20, 2015.  Today it closed at $4.93.  What on earth happened?!?

There were a few small problems at SunEdison that have now turned into big BIG problems.  First, their business is too complicated for most investors to understand, and their growth potential is too small for investors to take the time to understand.  Case in point, you can watch this interview with SunEdison CFO Brian Wuebbels where he answers the question of, “Why is your business so complicated” with a long, complicated answer.

And then there’s the problem that SunEdison needed to maintain high valuations in their own stock to keep their financials appearing stable.  They were in effect leveraging the success of their own stock (or stock of their holding companies) to power their future momentum.  This was best described in detail in this Nov 11 article by author Travis Hoium at Fool.com.

Then there is the widely held view that their acquisition of Vivint was WAAAY overpriced, at $2.2 billion, which is now WAAY over the current market value of the entire company, at $1.4 billion.  Talk about a rough few weeks at the office!


Enphase IPO’ed to great fanfare in March of 2012 at a stock price of $7.34/share and market cap north of $300 million.  Today their market cap sits at $84 million.  Even with the announcement that they are moving towards becoming an “energy company”, working to integrate battery storage into their product line, the issue is simply that the solar business is a very tough business for equipment manufacturers.  Their core micro-inverter business has intense competition from the likes of SolarEdge which has an unreal valuation of over $600 million with virtually the same 2014 annual revenue ($325 mil) to Enphase ($343 mil), and everyone and their mother has announced a battery storage product, so don’t expect ENPH to rake in the profits their either.  Partner this with uncertainty over the future of the US solar market post-2016, the small size of the current storage market and you get a company that public investors just are not that hot on.


Ahh, SolarCity, the largest US solar installer and largest owner of green table cloths at Home Depot.  When you spend $1.50 to attract every $1.00 of new revenue, then you have a problem similar to SolarCity right now.  They are a bit like the Groupon of solar, but at least they know it, announcing recently that they will be slowing the top line growth in order to show better cost control.

Furthermore, the solar lease is simply becoming less popular as costs continue to fall, and the reality of a 20 yr relationship in anything starts to sink in.  The precipitous drop in oil prices (and likelihood to stay there) have no direct relationship to the solar business, but it does have a psychological relationships, reminding people that energy prices are volatile and it is not always true electricity costs go up year over year (as projected in most solar lease sales materials).   In the most recent ASES Solar Today issue, EnergySage reports that 90% of online solar comparative shoppers are opting to purchase their solar system over a 20 yr lease. 

So what companies are actually going to do well over the next several years in solar??  Unfortunately, for most investors, the opportunities lie in small, private companies which have interesting growth, acquisition and exit opportunities in front of them.   These are companies chasing far more strategic business than general market business, so they are smaller but often more profitable (or less un-profitable) and with better value appreciation.

Case in point?  Single axis tracker manufacturer Nextracker, which formally started 21 months ago, was sold to Flextronics earlier this year for $300 million, which will certainly be the exit of the year for the industry.  

~Adam, Managing Director, OC Renewables
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I visited California ISO. I saw the future. It was awesome.

Do you know who California ISO is?  Its OK if you don't, but the truth be told, if you live in California then California ISO is a BIG part of your life.. every .. single ... day.

California ISO is the California Independent System Operator, it is a mandated non-profit entity headquartered in Folsom, California with the specific purpose of managing the bulk of the California electricity grid.  This means managing where electricity is being generated, where and how it is routed, what loads are serviced and the overall health of entire system, 24 hours a day, 7 days a week.  It is the brain center of the entire operation.

For anyone who is interested in Energy, especially Renewable energy and how it is affecting the entire grid system, CAISO is a bit of a magical place.  The incredibly bright staff at this facility are not only required to manage the day to day integration of all varieties of generation and loads, but also be a big part of the planning process for the future of the grid.  My esteemed colleague Russ Jones (a thanks to him for setting up the visit) and I had a wonderful tour of CAISO and met with some of their top grid operators on Oct 2, 2015.  Below are a few of most interesting parts of the visit.

What is CAISO and what do they do?

Formally, CAISO is a rate-payer funded, non-profit, public benefit corporation.  Their "boss" is FERC (...I guess everyone really does have a boss...:/) and CAISO has several responsibilities.  CAISO runs the wholesale energy market here in California, which is basically split into two segments 1) the day-ahead market, and 2) the real time market.  In aggregate, the total size of the California energy market is $10.2 - $10.4 billion / year, and the historically highest amount of power on the California grid was July, 2006, at 50,270 MW.  50 GW!  That's a lot of juice!

What is the Day - Ahead Market for energy?

The day-ahead energy energy market sets prices for energy in California for the following day, and it is done through a "bid stack process" by which owners of generating assets quote CAISO what they are going to charge to use their generation for the next day.  CAISO collects all of the bids, looks at their forecast and then sums / stacks the bid generation from lowest cost to highest cost until the entire day-ahead forecast is met, for some $/kWh price of X.  Then, everyone who bid at or below X will receive the business for the following day, which then sets the market price and clears the bids. Everyone who bid > X loses out, and their generation will not work the next day.  The day-ahead bidding ends at 10AM everyday, for generation the following day.

A few other interesting facts, the smallest generation asset on the CAISO system is 10MW.  Basically, you don't exist to them unless you are at least 10MW, which gives a real sense for the scale of the operation.  Also, renewable energy providers in CA above 10 MW often bid a price of $0.00 for their generation, all but guaranteeing purchase of their energy.  Why? Because the wind is going to blow, and the sun is going to shine, there a'int nuttin' to be gained by not using deployed renewable energy assets, so they will take it at any price.  

By far the biggest players in the CAISO process are the utility companies and the IPPs with generating assets in the State, which contract with other asset owners / operators through frameworks such as Power Purchase Agreements.

What is the Energy Imbalance Market / Real Time Market?

CAISO's goal is to be so good at predicting energy needs day-ahead that the real-time market for energy is very very small.  In actuality, the real time market is about 10% the size of the day-ahead, so it still a sizable chunk.

The real time market exists to fill the hole in generation between forecast demand and actual demand, and the price for energy on this market is higher than in the day-ahead, because it is required to be very flexible.  It needs to come on fast, stay on to service real time need, and then go off fast.  Batteries in grid-sized energy projects look to be one of the newest players in this market, with resources that can react quicker than natural gas peaker plants and the like.

Where is CAISO?

CAISO headquarters is in Folsom, CA.  No cameras are allowed inside the facility, but here is a picture of your truly at the front, and a picture of the control room from the CAISO website.  They have a very nice LEED Platinum office building with about 600 employees.

What are the tools of the trade in grid management?

The grid operators at CAISO exist to make sure all users are receiving high quality, stable electricity from the system.  But when you process over 27,000 transactions a day and are managing an infinitely complicated mix of generation and load, there are several tools that operators depend upon for load and generation management.  For example, CAISO has about 1400 MW of demand response, or loads which they can control as they see fit.  They also have the real time energy market, to provide generation in short notice when needed.  They also have more exotic options, such as a pumped hydro storage facility (pumping water up a hill) and a big resistor bank they call "the toaster" to burn off excess energy if needed.  No comment from them on if it actually makes toast.  

As explained, CAISO works hard to keep the frequency of the grid within a narrowly specified range.  Too much generation on the grid pushes the frequency higher.  Too much load will push it down.  CAISO has the ability every 4 seconds to make an adjustment and keep things in control.  Its like they can drop an oar in the water every 4 seconds to finely adjust the speed and direction of one of the world's largest aircraft carriers.  

At a top level, the CAISO website shows real time the generation, load and renewables mix on the grid in California.  It is beautiful.  

What is the current and future impact of renewables on the grid?

In just PV alone, California has about 6,000 MW of solar in the form of utility scale / larger scale solar power plants.  In behind-the-meter rooftop, CAISO estimates another 3,000 MW total.  In aggregate, that is already 20% of the states generating assets!  And the amount installed is only getting bigger.  CAISO estimates another 3,000 MW of behind-the-meter rooftop installed by 2020.

Dealing with this much PV is already proving tricky.  CAISO has doubled down on high tech weather forecasting efforts to help predict the availability of renewables.  But in talking about the future, CAISO is far more excited about "smart inverter" technology to smooth the impact of renewables than other techniques, such as battery energy storage.

PV inverters connected to the grid today are required to comply with "anti-islanding" regulations, which means if connection with the grid drops, then the inverter needs to stop generating and wait for the grid connection to return.  This is primarily for the safety of line workers.  But CAISO would prefer more dynamic inverters that can read the condition of the grid, such as an elevated frequency, and respond accordingly.  Because individual nodes would help in stabilizing the system at many points, this would make it easier for CAISO to complete the overall mission.

I think this is a terrific bit of insight and I would expect leading inverter companies to respond accordingly over the next several years with dynamic frequency response and the like.

When asked about how their strategies for managing large renewable penetration compare to other operators / countries, such as Denmark, staff at CAISO made two great points.  First, the CA grid is much larger and more complex than other grids with deep penetration.  Second, the "quality" of the electricity CAISO is required to deliver is often much more stringent than other countries and grid operators.  The frequency and voltage bands are often much tighter and require much finer control.  Its an altogether different type of beast.

What about battery energy storage?

There are certainly places in the world where large amounts of battery storage makes great economic sense today.  However, CAISO sees grid-connected battery storage as fairly small potatoes for the next 5 - 10 years, with only about ~20MW of experimental systems connected to the grid here in California, and maybe another 100 - 200 MW by 2020.

A recent report from IEEE to the DOE also echoes that other techniques in managing larger renewable penetration may be more cost effective than battery storage for the forseeable future.

So whats the final word?

My big take away from the visit, other than just being totally impressed with the entire operation and every staff member we met, was that CAISO is fully prepared for the challenges of a renewable energy dominated future.  They spend their time planning and strategizing about how and when renewables will dominate the CA grid, not if.  They are actively involved and in many cases leading the discussion on deeper renewable energy penetration, and the CAISO staff is clearly up to the task.

I sleep a lil better at night knowing the precious electricity needed to keep my ice cream frozen is coming from a great group of 24/7 warriors at CAISO's energy castle nestled into the hills of Folsom, CA.

~ Adam, Managing Director, OC Renewables

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Solar Decathlon 2015: Day 1

Fun was had by all today at the official opening of the Solar Decathlon 2015 competition at the Great Park in Irvine, CA.   The air tingled with excitement as US Secretary of Energy Ernest Moniz arrived with a pair of giant scissors to cut the ribbon signaling the beginning of the competition.

The Decathlon is open to the public for free (although $10 for parking, so carpool if you can) from Thursday till Sunday for the next two weeks.  More information is on the DOE website for the event at this link.

There ended up being 14x competing teams, with 6x teams dropping out for various reasons.  The teams that did make to the event have an array of wonderful houses, with few details left out.  They each strive to capture special features of their respective regions, such as the team from Missouri making a Tornado-proof house (an F5 tornado at that!), and the team from New Jersey making a hurricane proof house (i.e. Hurricane Sandy).

Another great feature is the "combination teams", with one team composed of University of Texas at Austin and a German University, and another team representing a partnership of West Virginia University and a University in Rome!  Oh la la!

And, of course, on the side of the home team, please find below the awesome-ly done marketing video for the Team OC Casa Del Sol.

Please do make some time to visit the event or volunteer.  It is on going through the next two weeks, as mentioned.  OCR will keep you up-to-date with developments and also the winners as the judging comes to a close for the competition.

I will also be back as a tour guide from 2-7 next Friday and Saturday!  See you then!

~  Adam, OCR Managing Director

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Fracking is Fracked: Chesapeake cuts 15% of workforce

Re-posting this CNN piece (if you don't see it you need to disable ad block) on the recent turmoil in the world of oil.  The interview with the last guy is the best, saying the Saudi's "have only made fracking / domestic production of oil stronger."  The news today of massive 15% workforce layoff from Chesapeake Energy, one of the nations largest energy exploration companies, suggests otherwise.

One thing is clear, US oil producers are getting a fierce lesson in the Golden Rule:  HE WHO HAS THE GOLD MAKES THE RULES.  Right now, OPEC has the Gold: 

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Utilities looking to expedite their own death / irrelivance

Oh California utilities, whoa is thee.  This past Saturday saw this LA Times article hinting at the recent musings of California utilities on how to best preserve their antiquated business model through proposed changes to net metering and discussion of fixed monthly charges for customers with their own solar power systems.
In summary, utilities are proposing to cut the current net metering rate by 50%, and start charging a fixed per kW installed "tax" on solar customers.  This would be funny if it weren't so sad.  Instead of finding ways to truly change their business model towards what is very clearly going to be a clean energy driven, distributed generation future, they are moving to try and "preserve" their comfort with centralized generation using fossil fuels, under the guise of "solar power adopting customers are not paying their fair share of grid upkeep costs." Whaan Whaan Whaa.

Well, while utilities may have the "power" to do this today, it hardly seems like a good long term solution.  In fact, since they are basically offering to pay over generators of solar energy a fraction of the market value of their electricity, generators will be well suited to look for other means of monetization for excess generation, such as home based / community based energy storage.

Need I remind people that the hottest product announcement of the year was the home battery storage system from Tesla.  Now imagine the interest in such a product when you find out that your utility in basically insentivizing you through fees to integrate your own storage.  How are they incentivizing?

Lets do a little math:

Lets say I have a 5kW system, generating for 6hrs a day, or 30kWh. During the day I push 20kWh back to the grid, where I used to get fair credit (say $0.18/kWh). Now my utility wants to charge me $10 / month and only credit me $0.09/kWh. Well, looks like I'll have an extra $558 / yr incentive towards my own home battery storage system.

Has there ever been an example of an industry so blatantly signing its own death warrant?

While I have a little sentiment for the position utilities are finding themselves in, it is just that.. a little sentiment.  These are big, powerful organizations who have unlimited resources at their disposal to find another way to exist in the new world order.  While we should be seeing movements on par with "Nextflix moving from DVDs in the mail to streaming" level adjustment in utility business plans, we are instead seeing completely non-creative, totally expected moves to try and "tax and fee" their antiquated business plans back into relevance.

Its not going to work.  The sooner we ALL realized that, the sooner we can work on building the RIGHT system of clean, distributed energy for all.

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