A Big Win for SCTY Stock
Shares of SolarCity Corp (NASDAQ:SCTY) were up this week, but the reasons why are unknown to most. I think an obscure Supreme Court case, which concluded in favor of clean energy, created some positive momentum for SCTY stock.
Elsewhere in the financial press, you’ll probably read that SolarCity shares jumped because of a (somewhat) related event at SunEdison Inc, but I’m not sure that’s right.
I’ll tell you both stories and you decide which one seems more likely. They have vastly different implications for the future value of SUNE stock. The first theory assumes the gains will be short lived, while the other implies a long-term recovery for SCTY stock.
Here’s the tale you’ll hear from the mainstream financial media.
SolarCity Goes Discount Shopping
It seems the initial reports from last weekend were true. David Einhorn, the famous billionaire, muscled his way onto the board of directors at SunEdison. He wants to save SUNE stock no matter what it takes.
There are rumors he could force a sale of SunEdison assets or maybe even the whole company. The first parts to go would probably come from Vivint Solar Inc., a rooftop solar company that SunEdison bought several months ago.
After all, the Vivint acquisition is what triggered the collapse of SunEdison’s stock price.
If Vivint assets go on sale, they’ll probably sell at a steep discount, meaning that SolarCity could get them at bargain bin prices. That’s what industry analysts think is driving the sudden surge in SCTY stock—the potential sale of Vivint assets.
Now let’s hear the second theory.
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This past Monday, the Supreme Court made a ruling on a pivotal case. I won’t delve too far into the specifics, but basically, it deals with a new way of reducing congestion on the energy grid. It goes hand in hand with renewable energy.
A bunch of clever entrepreneurs noticed that the grid would get overcrowded at times, making energy more expensive for consumers. So they paid some consumers to reduce demand at those particular moments and then charged the public utilities company for making sure the grid isn’t overburdened. (Source: “The Supreme Court’s big ruling in favor of clean energy, explained,” Vox.com, January 26, 2016.)
It’s a smart way of making energy consumption more efficient, while also launching a profitable new industry. The process, called “demand response,” already generates $1.6 billion and is expected to grow to $9.7 billion by 2023. (Source: Ibid.)
But people from the coal, oil, and natural gas industries weren’t too happy about it, so they sued to make it illegal. Too bad they lost. Demand response will live on.
Keeping that mechanism in place is not only helpful to regular folks who want to keep their electricity bills low, but it could also help bring solar power into the mainstream.
Demand Response Lifts SCTY Stock
One of the biggest arguments against solar power has always been the “it ain’t always sunny” argument. Critics say the chaos of weather patterns makes solar an unreliable form of energy, because prices would fluctuate with the supply.
But demand response effectively destroys that line of reasoning. If a third party is balancing out the supply and demand to keep prices stable, then solar energy is not only clean and efficient, but also practical.
Now, I’m not fool enough to think the entire market figured it out. The rally was probably led by a few institutional players who understand what this ruling means for the future of solar power. The rest were simply hopping on the bandwagon.
Those are the two theories. If SolarCity buying Vivint assets was the cause, it would just imply a temporary bump in the stock price. But if the root cause is the Supreme Court’s ruling, then SCTY stock could soar for the foreseeable future.
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