Here is why solar short sellers should be paying particularly close attention to the latest news.
On June 4, Vivint Solar VSLR announced that it would be undertaking a joint portfolio review of its sponsor Blackstone Group LP BX's commercial and industrial facilities.
Blackstone is the largest owner of commercial real estate globally, with about $90 billion of real estate assets under management, making this a huge leap forward in expanding VSLR's addressable market beyond residential solar installations.
Vivint Solar was spun out of Blackstone's Vivint home improvement portfolio company.
Today's action is consistent with this Vivint Solar 2014 10-K statement: "Our ongoing relationship with our sister company Vivint will give us continued cross-selling opportunities and we expect to benefit from Blackstone's network of strategic relationships."
Tale Of The Tape - 2015 YTD
Since its IPO last fall, shares of Vivint Solar have traded in a range of $7.42 to $18.71 per share. After falling since the IPO, VSLR shares have been climbing back up, buoyed by a Credit Suisse research note containing a $22 target price.
Vivint is #2 in the distributed residential solar business, trailing only SolarCity Corp. SCTY the industry leader.
SolarCity benefits from the close relationship with Elon Musk's Tesla Motors TSLA regarding access to battery storage and related technology.
Notably, both of these solar firms have a high short interest, as is the case for many of the public companies involved in the solar industry.
Cash For Commercial & Industrial (C&I)
The opportunity to evaluate the Blackstone portfolio follows a day after Vivint Solar announced a $150 million fund "which will allow the company to finance energy efficient commercial and industrial solar projects."
This is an important step, as it allows VSLR to enter into C&I solar projects which theoretically would not require any capex on the part of the owner of the facility.
Additionally, energy efficiency projects may have a high enough IRR to vie for corporate capital spending dollars, and these sales efforts could be aided by a "green halo" effect as well.
Economies Of Scale
When Vivint Solar announced Q1 results this past May 12, the cost per watt for residential installations had decreased 25 percent compared with the same period in 2014.
During FY 2014 the average system capacity for a VSLR residential solar installation was 6.4 kW.
According to Credit Suisse analysts who met with VSLR management this past March, Vivint Solar intends to initially pursue C&I projects in the range of 0.5 to 1.0 MW.
Projects of this magnitude could benefit from the lower cost of components, and over time lower G&A costs per watt as well. According to Credit Suisse in March, C&I installations could account for ~10 percent increase in VSLR sales in 2016.
This estimate was made without the benefit of the Blackstone portfolio evaluation opportunity. It remains to be seen how quickly this program can be rolled out, and how long it will take to start paying off for VSLR shareholders.
Investor Takeaway
One challenge facing all C&I solar power installations is the availability of enough roof area and/or nearby land to provide the space for the number of solar panels required to generate enough power to make a project feasible.
By way of example, one of the largest C&I installations in the U.S., the McGraw Hill Financial data center facility located in New Jersey, requires a 50 acre solar field adjacent to this facility to generate 14.1 MW of power.
This means that large office buildings such as Blackstone's iconic Willis Tower in Chicago, and similar facilities in the portfolio, are unlikely to be part of the project mix. On the other hand, it makes it much easier for Vivint and the Blackstone facility management team to zero in on demonstration projects of the right scale, which ideally could be replicated in a "cookie cutter" fashion.
Regardless, Vivint Solar short-sellers must decide if betting against Blackstone in real estate and energy is a smart move.
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