SolarCity's IPO: The Risks

As more solar manufacturers stumble into bankruptcy, solar installers have been booming thanks to plunging prices for photovoltaic panels and the availability of cash to finance leases that allow homeowners to go green with little or no money down. Yet as SolarCity’s $201 million initial public offering filing shows, installers like the Silicon Valley startup face some of the same risks roiling the solar industry.

SolarCity may be in the business of putting solar panels on rooftops but its success ­– revenues have more than doubled to $71 million since 2009 – relies on putting together investment funds that finance those installations for homeowners in return for monthly lease payments.

Over the past three years, SolarCity, founded by Elon Musk’s cousins Lyndon and Peter Rive in 2006, has persuaded companies like Credit Suisse, U.S. Bancorp, Google and utility PG&E to put $1.57 billion into 23 funds to finance leases. More than 90% of SolarCity’s customers now opt to lease rooftop panels rather than purchase them, according to the IPO filing made public Friday.

Investors have flocked to those funds to cash in on a 30% federal investment tax credit for solar systems. That incentive was particularly attractive between 2009 and 2012 when the government allowed investors to take the credit in the form of a cash payment. After 2016, the tax credit will fall to 10%.

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