Archives for 2014

Dan Primack on Angel Investing

Ditch DiggingWe’re all investors, but we’re no angels

Dan Primack recently wrote a good piece on how hard angel investing is. You can find most of the full article here, but I have pulled out some key points below. It is mostly a re-hash of the Kauffman study in honor of the new general solicitation rules, but some of his points bear repeating: investing in start-ups is work. You may lose money. You will need to do due diligence. You will need to invest in a lot of companies to do well.

Many, many experienced angels can tell you that you can make money at, it but none will tell you it is easy or that it can be done by mouse-clicking on AngelList. Here’s more from Dan: [Read more…]

SolarCity: Better Than Nothing

Solar panel installationI’m torn about this distributed solar electricity sales craze. The New York Times recently ran an article about how Wall Street is going nuts over Elon Musk’s solar company SolarCity. Companies like SolarCity turn the normal residential solar market on their head. Instead of selling you a solar installation and equipment, they borrow your roof, put their own install on it and sell you the electricity it generates. Other companies using this model include SunPower, SunEdison, Sunrun, Vivint, and Sungevity. Residential solar is growing. Why my unease?

My concerns stem mostly from the wasted potential, and the temptation for abuse. On the positive side, these companies do create more solar roofs, every single one of which is good for the environment. Every little bit helps. And with their consumption of panels, they drive volume and stimulate the powerful price-drop economics that come from increased scale. Also a good thing. And in many cases, they do save customers some money, which is a good thing.

But as I point out when discussing the economics of my solar project, these companies are kind of a rip-off. You get only a tiny fraction of the savings your system generates – the rest goes to the company.

For example, a typical customer might save $75-$125/mo. For zero up front cost, I suppose that seems OK. But in comparison to a properly-sized and owner-operated installation, it is a pittance. For example, with my system, I save 100% of my electric bill, which is a value of about $225 per month.  Plus, about 9 months out of the year I generate a bit more power than I use, so I also get a credit against my electric bill account for the extra electricity I generate. This can run anywhere from $10-$50/mo. Plus, for the first ten years, I get an SREC from my state (MA) worth anywhere from $285-$550 at auction.  I don’t earn exactly one SREC per month, but close – about 11 per year. If we conservatively add, say, $225 (electricity savings)+$20 (electricity surplus)+$285 (SREC) we are talking about  $530/mo in savings. Give SolarCity a generous $125, and we are talking about a difference of at least $405 a month in lost savings going to the company instead of the consumer. And that does not even count the federal and state tax benefits available to homeowners (including incentives on equipment purchases and roof repairs, depreciation on the system).

Of course the hitch is that, to get those additional savings, you have the capital (or home equity or other credit line) to pay for your system upfront. If you cannot fund the installation, you cannot set yourself up in a way to reap those benefits. If SolarCity has to eat that upfront cost, guess what: you are going to give them the benefits of the bulk of the savings.

And some people don’t understand that. This is obviously a somewhat complex subject. And people bring differing levels of knowledge when approaching it. Add in a high-pressure sales force and a “valuable monthly savings with no money down” pitch, and there are some people who are going to get burned. For example, these companies may not use top quality equipment and may not size or design the system properly (for a discussion of equipment economics and the difference between maximizing watts per dollar vs watts per square foot, see Equipment Economics here). Where marginal home sites are chosen or systems are designed badly, customers end up with little to no savings, and yet their roof is leased out for 20 years with no recourse. And at the end of 20 years, that equipment still has half its useful life left. So homeowners are told they either have to pay an excessive residual to keep it, or a fee to have it removed. Whether it goes into a landfill, or gets sold a second time is anyone’s guess. Further, having the encumbrance of a lease attached to the title of your house can greatly complicate your ability to sell it or get a home equity line or second mortgage. Often times you will need to have the contract terminated and the lien removed before you can do the deal. The solar companies know they have you in a bind at that point and can extract significant fees and penalties. Needless to say, these end of life issues are not dwelled upon up front. And people get taken in. Sometimes these are people who really need the savings and cannot afford to be ripped off.

Still, it is undeniable that others do benefit. SolarCity is approaching 100,000 customers. They cannot all be ripped off. Which means that, while the SolarCitys of this world are really not really providing a good deal, they are providing a service with at least some marginal value. And some people are getting a small benefit they wouldn’t otherwise get. So I guess we are back to our starting point: these guys aren’t great, but they are a little better than nothing at all.

Comments, questions or reactions to this post? Leave a note below and I will respond to your questions.
If you enjoyed this post, you might enjoy: The Solar Project – Table of Contents, Recommended Links [Ed. 0023 / Environment]365 SunrisesCookin’ Without Gas, Recommended Links [Ed. 0016 / Environment]The Secret to Solar.

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