NEW YORK (TheStreet) -- Vivint Solar (VSLR - Get Report) , which began trading Wednesday, will be an important test of whether residential solar installations are more than an Elon Musk-inspired boondoggle.
The Musk-backed photovoltaics installer SolarCity (SCTY) is the dominant player in residential installations with 30% of the market. Vivint is the fastest growing company in the space, installing 15% of the country's PVs in the second quarter, up from 8% in the first quarter. For the first half of 2014, Vivint Solar's revenue was $10 million, five times the prior-year period, according to Reuters.
Vivint Solar CEO Greg Butterfield spoke to TheStreet about the company's IPO:
Vivint Solar's IPO priced at $16 a share Tuesday, with the company raising $330 million. The pricing was at the low end of its estimated range of $16 to $18. The stock began trading shortly before 10 a.m. on Wednesday and was at $16.87 by mid-morning.
The Blackstone-backed Vivint is a popular IPO on traders' lists as it is quickly growing as a competitor to Solar City, the Musk-backed residential solar energy company. Solar City's shares have increased 4.9% year to date but more than 73% for the 52-week period and 400% since its own IPO at $9.25 a share in December 2012. The stock hit an all-time high of $88.35 in February. Solar City was trading early Wednesday down 3.5% at $57.53.
Skeptical investors have treated the success of Solar City shares as a fluke, a popularity contest that is riding on the cult of personality surrounding Musk, its chairman, who also is founder and CEO of Tesla (TSLA - Get Report) and SpaceX. Fossil fuel companies have dominated the energy sector for as long as there has been an energy sector, and attempts to establish even a niche market for alternative energies have historically proven futile.
Reinforcing that skepticism, neither Solar City nor Vivint is profitable, focused instead on building out an infrastructure network that will return profits in the long run. Vivint Solar had a net loss of $76.2 million for the first half of 2014, compared with a loss $22.7 million in the year-ago period, according to Reuters.
Solar City had a net loss of $47.7 million, or 52 cents a share, in the most recent quarter, compared to a loss of $39.5 million in the year-earlier period.
Both companies install residential photovoltaic panels at no cost to the homeowners, instead charging them directly for power generation with equipment leases built into the monthly price, which the companies claim is lower than prices charged by traditional utilities. The idea is to duplicate the equipment leasing services established by traditional utilities.
In addition to removing the obstacle of upfront costs for the user, that model also helps insulate customers from the radically improving efficiency of PVs. Selling panels directly to consumers is more difficult, as those panels may be out of date in 10 years or less. Under the leased-equipment model, the burden of maintaining a competitive efficiency falls on the companies themselves. More competition will mean more pressure to keep the efficiency of the panels current.
According to a report from the Solar Energy Industries Association, solar installations in the second quarter of 2014 were up 21% over the year-earlier period, with residential installations increasing 45% over the same period. For the first half of 2014, 53% of all new electricity generating capacity was solar. New installations generating electricity from natural gas was second with 30%.
While the vast majority of new solar installations are in California, the practice is becoming popular elsewhere in the country. Vivint has locations in seven states and the District of Columbia. According to its Web site, Solar City operates in 15 states and the District of Columbia.
Blackstone (BX) acquired Vivint Solar's parent company for $2 billion in December 2012. In addition to Vivint Solar, the company includes a residential security and home automation services divisions. Blackstone will own a 78% stake after the offering, according to data provided by Bloomberg.
-- Written by Carlton Wilkinson in New York and Asbury Park, N.J.