February 3, 2023

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If this is so stupid, why do so many people do it?

This is not the case for Finansavisen commentator Karl-Johan Möllens and his criticism of Otovo as “unprofitable greenwashing” on 19 December. The first facts: In 2022, 300 gigawatts of solar power was installed globally, and the number will rise further in 2023. Solar is the fastest growing category of renewable investment globally, in a year when renewable investment has overtaken oil and gas. Rooftop solar cells accounted for 28 percent of installed capacity in 2021, and are the fastest growing category in solar energy.

Andreas Thorsheim. Photo: NTB

So for Mulness points. The first is that solar energy is profitable only on a large scale. This is not true, because solar cells in large and small factories operate, respectively, in the wholesale and retail markets. A kilowatt-hour from your rooftop is worth a lot more than solar energy, because the electricity goes where you need to consume it, behind your electricity meter. Therefore, you provide not only the spot price of electricity, but also internet rent, VAT and taxes. This makes up for the fact that it is less expensive to install many panels in the garden than to install them on a roof.

The second is Molnes’ comparison of Sunrun’s operations in the US and Otovo’s in Europe, based on the Muddy Waters report. This has three main objections, none of which have anything to do with Otovo:

  1. In its headline numbers, Sunrun assumes that customers’ leases renew at the end of the lease period. Muddy Waters believes the renovation value is unrealistic. Otovo has assumed a zero renewal value in its headline numbers.
  2. Muddy Waters alleges that Sunrun is misusing US tax subsidies for solar cells. European subsidy systems are not based on discretion, as in the USA, but on accrued costs. The criticism does not apply to Otovo.
  3. Sunrun is responsible for removing leased solar systems, but it didn’t include that cost in its headline numbers. Otovo is not contractually obligated to remove the solar panels.

Unlike standard US solar contracts, Otovo’s portfolio is fully inflation-protected

The third thing Mullens claims is that Sunrun, as a result of changes in the way net rent is distributed in California, is experiencing poor profitability from a five-year repayment period to 15 years. It’s hard to understand what Otovo is about. Perhaps he thinks that if solar cells are not more profitable in California, profitability will be difficult in Europe. Otovo has half as high a construction cost as the Americans and can therefore afford significantly lower electricity rates at the break-even point.

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The last false claim concerns leasing portfolio financing. Yes, financing is more expensive now than it has been in the past decade. But Otovo’s portfolio can incur capital costs that are much higher than what might be expected in the markets. Unlike standard US solar contracts, Otovo’s portfolio is fully inflation-protected. In a scenario with rising inflation and interest rates, both cash flow and cost go up. In Fearnley’s analysis from last week, a very conservative 7 percent cost of equity was assumed for all future buyers of Otovo portfolios. We think this is very cautious. But even this defends a share price of NOK 28 in the analysis.

One has to ask the question again to the skeptics: If rooftop solar is so stupid, how come, according to McKinsey, 25 gigawatts of rooftop solar power will be installed in Europe this year, and that number is expected to nearly double to 43 gigawatts in 2026?

Andreas Thorsheim

Founder and CEO of Otovo