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Setback for SolarCity IPO

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Massachusetts governor Deval Patrick at the opening of a SolarCity Massachusetts location | Photo: Office of Governor Deval Patrick/Flickr/Creative Commons License

Looks like the solar market is even more tenuous than some observers had thought: Photovoltaic installer Solar City has shifted gears at the eleventh hour before its planned Initial Public Offering, drastically cutting its offered share price to $8 from last week's $130-$15. Instead of the $201 million the San Mateo-based solar installer had hoped for, the company now plans to raise $92 million as it becomes a public company Thursday.

Board Chairman and Space-X founder Elon Musk, according to the firm's S-1 amendment, plans to buy $15 million worth of the company's stock, which some observers interpret as something less than a vote of confidence in the IPO's success. Investors working with Draper Fisher Jurvetson and DBL Equity Fund will be buying an additional 1,800,000 shares.

More optimistic observers had hoped that SolarCity, as an installer of solar modules rather than a manufacturer, would be somewhat insulated from the economic sickness at the heart of the solar industry in recent years. While oversupply of solar panels has devastated the manufacturing sector, companies such as SolarCity that rely for their profits on installing the modules have been benefiting from those lower material prices.

Still, as Greentech Media's Eric Wesoff puts it, that wasn't enough to persuade potential investors, and SolarCity failed to secure buyers for all the stock it planned to sell at the higher price:

Like BrightSource Energy, another solar firm, albeit in vastly different sectors -- institutional investors were having none of the high valuations anticipated by these VC-funded startups. If you're selling electrons like SolarCity or BrightSource Energy, then you get valued like a conventional power generator, not like a consumer gadget.

It didn't help that SolarCity had to announce today that it is being audited by the Internal Revenue Service over the company's assessment of fair market value of its systems, which the company declares to claim solar incentive cash grants the government offers as a subsidy for new solar installations. If the IRS assesses those systems as less valuable than SolarCity has claimed, the company may have to shell out a significant amount of cash. Not a great climate for an IPO.

SolarCity is one of the nation's largest installers of rooftop solar panels and a pioneer in the third-party solar leasing business. The company has installed photovoltaic modules on tens of thousands of properties nationwide.

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