Georgia Leasing Ban Lift a Positive for SolarCity (SCTY) - Raymond James

January 26, 2015 8:04 AM EST
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Raymond James analyst Pavel Molchanov weighed in on SolarCity (NASDAQ: SCTY) as the solar leasing ban is set to be lifted in Georgia. The analyst notes the story has gotten virtually no play outside the local press, not even clean tech blogs, although it provides significant opportunity. With 2.1 million single-family detached homes in Georgia, the analyst estimates the addressable market for residential PV at approximately 10.5 GW.

Molchanov commented:

Two weeks ago, a bill was introduced in Georgia's legislature - HB 57, the Solar Power Free-Market Financing Act - that would lift the ban on third-party financing. Interestingly, this story has gotten virtually no play outside the local press, not even clean tech blogs. Importantly, the bill's introduction followed intensive dialogue with the state's utility industry, i.e., Southern Company and local co-ops, which has resulted in a utility-backed compromise. This will not, in other words, be a nasty fight between utilities and distributed solar companies, of the kind that has been periodically seen elsewhere in the country (California, Arizona, etc.). The compromise would cap residential systems with third-party ownership at 10 KW (which is twice the typical size), with the commercial cap set at 125% of an individual site's power consumption.

The bill has already cleared committee review, and the next step will be votes in the state House and Senate. The lead sponsor, Rep. Mike Dudgeon, has expressed confidence in finalizing passage in 2015. Given that there is no utility opposition, legislative controversy is highly unlikely in this case. This is simply not the kind of legislation that would generate strong feelings among anyone except the directly affected companies. It is also interesting to observe that the lead sponsor is a Republican - contrary to the perceptions that we occasionally see in the media, suggesting that support for solar adoption is somehow a party-line issue, which is simply not the case.

With a population of just over 10 million people, Georgia has 2.1 million single-family detached homes. Using the same methodology as in the aforementioned report from last year, we estimate the addressable market for residential PV at approximately 10.5 GW. That significantly exceeds the entire nationwide installed base of residential PV systems, for which the 2014 pace of installations was approximately 1.0 GW. The addressable market for commercial systems is more difficult to quantify - there is too much variability between different system sizes - but just the residential opportunity alone is clearly massive. While Georgia's residential power prices (currently $0.118 per kWh) are slightly below the national average, it is nonetheless important to underscore that, even without leasing, this is already a top-ten domestic PV market.

For SolarCity, the opening up of Georgia would create a viable opportunity for geographic expansion from its current presence in 15 states. This does not mean that the company would immediately leap into Georgia, but ultimately, the eighth most populous state is hard to overlook. The most recent market share data (from 3Q14) showed SolarCity with record 39% nationwide market share in residential PV, and there is no reason why the company could not eventually build a similarly strong presence in Georgia. The same goes for other geographies where political efforts are underway to allow residential leasing, most notably Florida (third in population).

The firm reiterated an Outperform rating and price target of $75 on SCTY.

For an analyst ratings summary and ratings history on SolarCity click here. For more ratings news on SolarCity click here.

Shares of SolarCity closed at $48.30 yesterday.

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Raymond James, Pavel Molchanov