Anna Nikolayevsky of Axel Capital Management positive on solar industry

1. Here Comes the Sun

2. The Tipping Point
Rate per kWh
Utility Retail
Electricity Price
Solar Retail
Electricity Price
Time

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. Module Prices Decline 80% in
Five Years

5. Cost of Solar vs. Hydrocarbons
Source: Thinkprogress.org

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. Module Prices & Gross Margins
Source: NPD Solarbuzz

8. Global Demand Rising

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. China
• Largest global solar market opportunity
• 20% growth in 2014
• Pollution in Beijing: 10x World Health
Organization recommended maximum

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. 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. 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. Brazil
• Large dependence on hydro creates
drought risk
• December 2013 A-5 Auction: 3.6 GW of
PV
• 2016 project completion required

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. Shell Year 2100 Forecast

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. 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. Financial Innovation
• Tax equity financing: U.S. Bancorp,
Goldman Sachs, Google
• Project finance lending
• Leasing
• Securitization
• Yield Co’s
• Bank loans

20. SolarCity
•
•
•
•
•
$3.8b market cap
Average volume 7m shares
Shares outstanding 88m
Float 34m
27% of float is short

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. • 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. • Scale allows economies in equipment
purchasing
• Equipment agnostic = can continually
source optimal technology
• Strong brand name an asset in retail
market

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. 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