Solar City Case Study Solution
1-Which business model features, if any, are distinctive about Solar City relative to other solar developers?
SolarCity is a national leader in clean energy services. Their approach is to install systems to the highest engineering standards while making the switch simple for customers. Customers get a cleaner, more affordable alternative to their monthly utility bill. Solar city calls this better energy.
There business model depends on three types.
- Consultation
- Design and installation
- Monitoring, maintenance and guaranteed performance
Furthermore, better technology and a sustainable business model is helping power a growing movement towards cleaner more affordable energy from the sun.
It is easy for the customers to switch to cleaner energy. SolarCity takes a comprehensive look at the customers’ energy usage and identifies opportunities for improvements.
They provide full service from permission, designing through installation, live monitoring and repairs. They also guarantee performance of the energy systems.
They do all their work in-house without involving third party contracts. They are single point of contact for all energy needs.
The different model is that they install solar systems for free, and we sell electricity at the lower rate than you can buy it from the utility.
2-Why is it essential for SolarCity to work with tax equity investors?
The company needs to effectively and efficiently work with tax equity investors to avail maximum benefit from tax credit of 30% on the total cost of project. However, as the tax credit is based on cost of the project, it is estimated that the tax credit would be reduced to 10% by the year 2017. Hence, in order to avail maximum benefit, the company should place the solar project in service before December 31, 2016 and if it has any plan to further expand, then its project should be implemented in the same year. However, in 2017, the tax credit would be reduced to 10%, which would compromise its ability to enhance its profitability in the future.
3- On page 2 of the SolarCity case, CEO Lyndon Rive argues that while a company like SolarCity is highly profitable, it will nonetheless show accounting losses according to Generally Accepted Accounting Principles (GAAP) for as long as the company is growing rapidly. Do you think this reasoning is valid? If so, why?
Solar City Harvard Case Solution & Analysis
The CEO said that if the company follows the US GAAP, then the company will not incur losses until the company is profitable. I agree with the CEO because the US GAAP follows the actual basis and not accrual basis. i.e. record revenue and expense when it incurred so it is impossible to show the losses if the company’s sales are increasing.
However the operating cost may be increases which may convert profits to loss...................
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