5 things to know about SolarCity’s IPO (and it’s not all good)

Solar installer SolarCity is moving closer to its planned IPO and said last week that it could raise up to $201 million in a public debut. If successful, the IPO could be one of the few success stories from the cleantech startup sector in 2012, and would be another win for investor and SolarCity chairman Elon Musk.

But the public filing is also one of the first times that we’ve gotten a look at SolarCity’s financials, as well as some of the risk factors that SolarCity lists. And there’s some interesting ones in here. Here’s 5 (+1) things you should know about SolarCity (and they’re not all positive).

1). Energy efficiency play: While SolarCity’s main business is financing and installing solar panels on the rooftops of buildings, SolarCity also is hoping to capitalize in a major way on selling building owners energy efficiency services. SolarCity says 21 percent of its new residential solar customers in 2011 purchased additional energy products and services. SolarCity launched its energy efficiency line in mid 2010, and says it has done more than 11,000 home energy evaluations and sold 1,700 energy efficiency upgrades.

2). Utility competition: SolarCity interestingly describes its main competition as the utilities themselves. SolarCity prices and sells solar electricity at rates below local utilities, so its business basically depends on a steady rise of local electricity prices. It’s business also rests on the rock bottom price of solar panels right now.

3). Has SolarCity been overvaluing its solar systems for the federal grant program?: This is an issue that I’ve been tipped off to before, but we hadn’t yet covered. The Treasury grant program was created to enable the owner of clean power systems to receive a grant equal to 30 percent of the eligible project cost. So a company like SolarCity basically evaluates how much its solar systems are worth and sends in the application for the grant.

But SolarCity says this summer that it and other solar companies received subpoenas from the U.S. Department of Treasury’s Inspector General to hand over documents related to its applications for U.S. Treasury grants, including documents about appraising solar systems for the Treasury grants. Turns out the Inspector General is investigating the implementation of the Treasury Grant program including if the valuation of solar systems were misrepresented.

SolarCity says it will take the Inspector General a year to determine a conclusion. If the Inspector General finds that SolarCity (or other companies) misrepresented solar system valuations then the Department of Justice could bring civil action and recover those costs.

SolarCity also says that it has also already had discussions with the Treasury Department about the valuations for its grant applications for solar systems submitted in the third and fourth quarters of 2011. SolarCity says:

We were unsuccessful in our attempts to have the U.S. Treasury Department reconsider its valuation for these systems, and while we maintained the accuracy of the contracted value to the investment fund, we elected at that time to receive the lower amounts communicated by the U.S. Treasury Department. As a result, the U.S. Treasury Department awarded grants in amounts lower than the appraised fair market values for these systems. We have appropriately reflected the financial impact of the anticipated reduction in our consolidated financial statements as of December 31, 2011.

4). Not profitable, but rising revenue: Like most cleantech startups SolarCity is not profitable. The company, which was founded in mid-2006, generated a loss of $48.91 million for the first six months of 2012, a larger loss than for the same period in 2011 of $35.46 million. SolarCity has accumulated a deficit of $70.3 million as of June 30, 2012. Those losses are on $71.42 million in revenue for the first six months of 2012.

5). Energy storage is at 100 pilot projects: SolarCity says it has 100 energy storage pilot projects under contract. As I reported earlier this year SolarCity has been working with Tesla (s TSLA) to create a home battery products to sell to its solar panel customers and Walmart has a been a major customer for that. SolarCity says its battery management systems could provide “back-up power, time-of-use energy arbitrage, rate arbitrage, peak demand shaving and demand response.”

Bonus +1 — Musk is a major owner: SolarCity discloses that Elon Musk owns 31.9 percent of SolarCity’s shares before the offering. Other major owners listed include John Fisher of Draper Fisher Jurvetson, who owns 26.3 percent, SolarCity executives Lyndon Rive and Peter Rive each own 7 percent, Nancy Pfund, DBL Investor, who owns 7.4 percent, and Raj Atluru of Silver Lake, who owns 2 percent.