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Last updated: December 14, 2012 12:08 am
Shares in SolarCity, the solar power installation company, rose strongly in their first day’s trading following the company’s initial public offering on Thursday, but the challenges it faced in coming to the stock market have given a signal of investors’ scepticism about renewable energy.
The shares closed at $11.79, up 47 per cent from their IPO sale price of $8.
However, that price had been marked down sharply this week from the company’s original plan, which had been to sell them at $13-$15.
Lyndon Rive, SolarCity’s chief executive, said the price cut had been necessary to attract investors to the IPO.
“Investors have got a deal here,” he said. “They needed a deal. They have been burnt a lot over the past few years in the clean-tech sector.”
SolarCity, which is chaired by Elon Musk, the co-founder of PayPal, had been widely seen as a test of investors’ appetite for renewable energy and other “clean tech” IPOs.
Competition from cheap natural gas, curbs on some government subsidies, overcapacity in the solar panel industry caused by rapid expansion in China, and mistakes made as a result of putting excessive faith in untested technologies, have been the downfall of many alternative energy companies in the past couple of years.
A123 Systems, a battery maker, generated excitement with its $371m IPO in 2009, but went into bankruptcy in October.
Mr Rive described the IPO as “a success for the clean tech sector, because it shows it still can get done in these difficult times,” but suggested it was SolarCity’s particular business model that had enabled it to win support from investors.
Unlike other solar power companies that have run into difficulties, such as the notorious Solyndra which collapsed owing $528m to the US government, SolarCity does not manufacture panels. That makes it a beneficiary of the steep decline in prices caused by Chinese overcapacity, rather than a victim.
It designs, installs, arranges financing and maintains solar systems for homes and businesses, offering power that it says will be cheaper than supplies from a utility, for no upfront cost.
It has not yet made a pre-tax profit, but revenues have grown from $32.2m in 2008 to $103.4m in the nine months to September 2012.
However, even this model faces challenges, including the scheduled withdrawal of the investment tax credit for solar power, worth 30 per cent of the cost of a system, which is scheduled to be cut to 10 per cent at the end of 2016.
The cut to the tax credit could discourage the investors that SolarCity relies on to finance its installations.
Mr Rive said that if retail electricity prices continue to rise as they have been doing, and SolarCity is able to cut its costs by 5.5 per cent per year, “then we will have thriving business in 2017.”
The IPO prospectus also warned that, along with other rooftop solar installation companies, SolarCity was under investigation by the inspector-general of the US Treasury over the payment of government grants since 2007.
In another sign of investors’ general nervousness about the sector and the company, existing shareholders bought about 30 per cent of the IPO.
Of the 11.4m shares sold, Mr Musk bought 1.88m, the company said, and Draper Fisher Jurvetson, a venture capital firm that is already a shareholder and has representatives on the board, bought a further 1.5m.
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