Axel Solar Presentation

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Anna Nikolayevsky of Axel Capital Management positive on solar industry

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Axel Solar Presentation

  1. 1. Here Comes the Sun
  2. 2. The Tipping Point Rate per kWh Utility Retail  Electricity Price Solar Retail  Electricity Price Time
  3. 3. A Brief History • European-led 2007-2008 boom became a Chinese overcapacity-driven bust • >65 companies went bankrupt including Suntech and Solyndra • Polysilicon prices collapsed from $450/kg to $20/kg – down 96% • Industry tainted
  4. 4. Module Prices Decline 80% in Five Years
  5. 5. Cost of Solar vs. Hydrocarbons Source: Thinkprogress.org
  6. 6. Solar Industry Recovery • • • • Grid Parity in Many States & Countries Net Metering Conversion Efficiency Increasing Pricing Stabilized; Excess Supply Reduced • Anti-dumping Resolved in Europe and US • Improved Solar Company Balance Sheets
  7. 7. Module Prices & Gross Margins Source: NPD Solarbuzz
  8. 8. Global Demand Rising
  9. 9. Europe • High electricity price drives demand • Demand driven by unsubsidized market • Germany: Unsubsidized solar today is cheaper than grid electricity • Installation rate in Spain has been so high that tax has been implemented
  10. 10. China • Largest global solar market opportunity • 20% growth in 2014 • Pollution in Beijing: 10x World Health Organization recommended maximum
  11. 11. China • Target: 35 GW by 2015 - Potential for 200 GW by 2020 • Policies: - August 2013: NDRC introduced subsidies for solar power plants - October 2013: 50% immediate refund for solar VAT, VAT declines from 17% to 8.5% - Current feed-in tariff is fully funded through tax
  12. 12. Japan • Power constrained island is the 2nd largest market opportunity • Need for diversified generation following Fukushima disaster • All nuclear power to be phased out • 2012: Solar subsidy of US $0.39/Kwh
  13. 13. Middle East/Africa • Saudi Arabia: Installing 6 GW of solar capacity by 2020; likely to be exceeded - To install 16 GW by 2032 • Dubai: Target 5% of energy from solar by 2030 • Qatar: Goal is 20% of energy from renewables by 2024 • South Africa: 20 year feed-in tariff
  14. 14. Brazil • Large dependence on hydro creates drought risk • December 2013 A-5 Auction: 3.6 GW of PV • 2016 project completion required
  15. 15. Chile • At grid parity today with no incentives • Most electricity growth is tied to new mine activity, particularly in copper • September 2013: New renewable energy standard requiring utilities to get 20% of their energy from renewables
  16. 16. Shell Year 2100 Forecast
  17. 17. The United States • 30% Investment Tax Credit • 5 year accelerated depreciation recovery of net asset costs • State “up-front” rebates • Time-of-use rates = higher daylight rates encourage PV • Renewable Portfolio Standards in 29 states
  18. 18. The United States Average Retail Price of Electricity to End Use Customer CAGR 3.1% 10.50 10.00 9.50 9.00 8.50 8.00 7.50 7.00 2003 2004 2005 2006 2007 2008 2009 2010 Average Retail Price of Electricity to End Use Customer Source: EIA 2011 2012 2013
  19. 19. Financial Innovation • Tax equity financing: U.S. Bancorp, Goldman Sachs, Google • Project finance lending • Leasing • Securitization • Yield Co’s • Bank loans
  20. 20. SolarCity • • • • • $3.8b market cap Average volume 7m shares Shares outstanding 88m Float 34m 27% of float is short
  21. 21. • First mover advantage in 1% solar penetrated market in the US • Business model: Instead of buying, customers lease equipment • Customers lock in cheap electricity at no upfront cost • LT contract provides a hedge to the customer against future price increases for utility electricity
  22. 22. • Structure long term leases • Create 20 year cash flow stream • Constant CF reinvestment into new streams • First mover advantage in solar securitization • Barrier to entry: Scale needed for securitization
  23. 23. • Scale allows economies in equipment purchasing • Equipment agnostic = can continually source optimal technology • Strong brand name an asset in retail market
  24. 24. Valuation Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 CF Y/Y Grth PV (57) 200 (57) 189 300 510 408 449 494 538 587 628 672 50% 70% -20% 10% 10% 9% 9% 7% 7% 267 428 323 335 348 358 368 371 375 Stream 1 20 Year Contract Discount Rate Stream 1 PV Stream 2 PV Total PV Shares Target Today's Price Upside 7,138 780 7,917 99 $ 79.97 $ 50.00 60% 6% 2034 2035 2036 2037 2038 2039 2040 2041 1,238 1,263 1,288 1,314 1,340 1,367 1,394 1,422 2% 2% 2% 2% 2% 2% 2% 2% 115 104 95 87 79 72 65 60 Stream 2 10 Year Contract Renewal Discount Rate DCF Assumptions: No terminal value Acceleration into ITC step-down in 2017 12%
  25. 25. Future • International expansion • REIT or MLP structures possible • Lower cost of capital will drive penetration further • Hidden potential: Investment in battery storage can revolutionize industry and grid dependence

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