GTM Sheds Light On Solar City's Mexico Expansion

On August 5, SolarCity Corp. SCTY and ILIOSSON, S.A. de C.V. announced that they have entered into a definitive agreement for SolarCity to acquire ILIOSS, one of the largest commercial and industrial solar developers in Mexico. The price and terms of the ILIOSS acquisition were not disclosed in the announcement. The plan is for ILIOSS to operate as a wholly owned independent business unit of SolarCity, led by its existing management team. According to Marco Krapels, SolarCity Senior Vice President of Strategy and Global Expansion, the transaction is expected to be completed in August 2015, subject to customary closing conditions. Tale Of The Tape - Mr. Market Likes The Deal As of the time of this writing, SolarCity shares are up ~3 percent on the news. During the past 52-weeks, SCTY has traded in a range of $45.91 - $79.40 per share. GTM - Mexico's Huge Potential According to GTM Research's Latin America PV Playbook, Mexico is the top-ranked Latin American market for distributed generation (DG). "GTM Research forecasts Mexico's DG market to grow at a 69% CAGR through 2020. At 2.2 gigawatts, the commercial and industrial (C&I) segment is expected to be 15% of the Mexican market out to 2020," according to GTM's Senior Solar Analyst, Adam James. GTM - Financing Is The Key James said, "SolarCity's entry into Mexico could be a market-moving event for the country's PV sector. The C&I segment is the most scalable near-term opportunity in the country, and the introduction of a strong financing product into the market would accelerate PV growth considerably." "The C&I segment has solid fundamentals, with high electricity tariffs -- between $0.09/kWh and $0.17/kWh -- and stronger credit markets than in the residential space. However, growth has been slow with double digit lending rates and electricity tariffs dropping over the last few months." He also explained, "If SolarCity can offer standardized financing products, the C&I segment could see even higher growth in coming years than the aggressive scenario we outline in our Base Case." "This segment also offers a much more scalable growth strategy for SolarCity than the residential market, given the tariff structure and off-taker credit profiles," according to James. SolarCity - Installation Cost Trends The SolarCity release pointed out, "Mexico's combination of high electricity rates, favorable solar economics and massive solar resources makes it one of the most promising solar markets in the world. Source - SCTY 2Q15 Earnings Presentation As a combined entity, SolarCity and ILIOSS expect to be able to allow many commercial and industrial customers in Mexico to pay less for solar power than they currently pay for electricity." Investor Takeaway While noting that there are over 600 companies actively involved in solar installation in Mexico, according to GTM Research rankings for Mexico, "ILIOSS is a Top 20 company in the GTM Research Latin America PV Playbook," according to James.