SolarCity IPO launches new breed of solar company

SolarCity was set to be the feel-good clean energy story of the year. A story about how to find the part of the market that would allow for the big splashy exit for exhausted clean energy investors. Then Tuesday evening word began to leak that the underwriters were reaching out to investors to see if there was interest for shares at $10, rather than the target $13 to $15, and not long after that the IPO was postponed. The issue was doubled in size and the offering price was cut to $8 per share and re-offered on Wednesday. 

The stock debuted on Dec. 13 and soared to $11.79 a share on its first day and has since traded in a range well above its opening price.

All sorts of speculation for the lack of interest worked through mainstream media, investor chat rooms and twitter -  

• General perception the solar industry is a wreck. This seemed to be the most common theme of the mainstream media. This was exactly wrong, SolarCity lives in the downstream end of the market, and benefits from low panel prices and excess panel supply (but this is a perfect example of the lack of energy sophistication, even among the investing and media elite).
• Reliance on tax credits and the potential for disruption after 2016 when the tax credit for solar drops from 30% to 10% represented an unmanageable risk.
• Chairman Elon Musk pledged in the days leading up to the IPO that he would buy as much as 10% of the offering equaled a red flag that something was wrong.
• There are rumors of the Treasury reviewing 1603 grants in lieu of tax credit claims more closely and that some developers, including SolarCity may have claw-back concerns.
• Inadequate tax equity exists in the market to make growth projection viable.
• The upside for the asset portfolio is absorbed by the project investors, and not SolarCity.

The potential impact of all of these concerns ranges, in my opinion, from simply wrong to mild concerns, and my best guess is that all of these played some role on the broader investor pool and when mixed with the uncertainty of a new business, it curbed interest.

The initial reactions will be largely negative for the clean energy industry - company valuation goes from a pre-IPO target of $1 billion to an opening trading value of under $600 million. It will be pointed to as yet another clean energy failure, another reason why the "new" energy industry isn't ready.

What the discussion and likely broad negative reaction will miss is the really important story: SolarCity isn't just a solar company; while the company finances and installs solar panels, the real value it is building is its brand, its customer base, and the company's ability to acquire new energy customers.

SolarCity is a new kind of energy company, one that understands energy not as the sale of units and reliability, but as a dynamic and evolving service relationship. Regardless of IPO valuation, what SolarCity (and behind it SunRun, Sungevity and others) has proven by successfully becoming a publicly traded company is that the competition for the retail consumer's energy business has moved from concept to reality.

– This article is a modified version of a story in Energy Trends Insider, a free subscriber-only newsletter that identifies and analyzes financial trends in the energy sector. It's published by Consumer Energy Report.