Solar power craze on Wall Street propels start-up

Written by New York Times | Updated: Jan 5 2014, 07:49am hrs
The first inklings of the idea came to Elon Musk and a cousin in an RV heading to the Burning Man festival in 2004. Solar energy, they agreed, could be big.

But not even Musk, the billionaire behind the Tesla electric car, could have foreseen the solar power craze that is sweeping Wall Street. He and his cousins Peter and Lyndon Rive are riding a wave of exuberance over the industry and their young business, SolarCity.

The companythe nations largest provider of rooftop solar systems, with more than 80,000 customershas not made a dime. And, frankly, no one quite seems to know when, or if, it will.

But SolarCity has captured investors imaginations and become a potent symbol of a stock market ascent that makes the vertigo-inducing heights of Twitter seem tame. SolarCitys share price, which closed at $59.27 on Friday, has soared more than sevenfold since it went public, and the company, which did not exist eight years ago, is valued at roughly $4.9 billion.

Depending on whom you talk to, the rise of SolarCity and similar companies is either a sure sign that solar power is finally having its day or that yet another mania has gripped the markets. Two other companies, SunPower and SunEdison, have also exploded in value. In all, an estimated $13 billion was invested in solar projects in 2013, a tenfold increase since 2007, according to GTM Research, which tracks the industry.

Solar companies have had the wind at their backs lately. The broad stock market is coming off its best year since 1997the Standard & Poors 500-stock index rose nearly 30% in 2013and the shares of many young companies have leaped from one high to another. But few have been hotter than SolarCity, in part thanks to the Musk mystique surrounding Tesla Motors, itself a market darling.

This much is certain: The stock market has been very good to Musk, 42. On paper, his wealth quadrupled in 2013, to more than $5.5 billion, reflecting his stakes in SolarCity and Tesla. As chairman of SolarCity, he has little day-to-day involvement in the company.

Its the easiest job I have, thats for sure, Musk said in a telephone interview. Most of what I do is show up to hear the good news.

Still, SolarCity and its ilk face formidable challenges. It is trying to outrun rivals in a race to transform the power industry. Utilities are furiously working to undo the incentives that have fuelled the solar industrys growth. A generous federal tax credit is set to shrink in a few years. It has attracted the attention of regulators, who have questioned the way it values the rooftop systems.

And, because of its stock price, it must continue to feed Wall Streets appetite.

The market expects them to grow really rapidly for a whiletheres no other way that that price makes sense, said Shayle Kann of GTM Research.

But there have been signs of growing pains. In interviews, former employees describe a high-pressure environment that went into hyper-drive when the company went public in December 2012. Complaints to the Better Business Bureau of misleading marketing and flawed installations, along with negative reviews on social media forums like Yelp, appear to be rising.

SolarCity says its employees as well as most of its customers are happy, and that its ratings have remained high. But the bad reviews have attracted the attention of Peter Rive, one of SolarCitys co-founders and its chief operations officer. He regularly responds to the criticisms on Yelp.

SolarCity is not the first venture for the Rive brothers nor for Musk, who made a fortune as a co-founder of PayPal. The Rives were working at a computer services company that Lyndon Rive had started with another brother, but he was getting antsy.

I wanted something that would be long-lasting, Rive, 36, said. And something that could solve some of the environmental challenges were facing. Musk suggested he look into solar.

The Rives, and a handful of others, decided not to simply sell solar systems. Instead, they pioneered a way to sell the energy itself, making SolarCity almost like a newfangled utility.

SolarCity and competitors like Sunrun, Sungevity and Vivint instal rooftop systems for little to no upfront payment and then sell the electricity for prices below what customers pay utilities. Though greeted with scepticism at first, the service has proved appealing to customers who want solar power but do not have the cash to buy a system outright.