Deal to Watch: YouSolar Enables Easy Solar Storage

Key Stats:

Summary

The YouSolar team has been selected as a “Deal to Watch” by KingsCrowd. This distinction is reserved for deals selected into the top 10%-20% of our due diligence funnel. If you have questions regarding our deal diligence and selection methodology, please reach out to hello@kingscrowd.com.

Problem

Solar power is one of many solutions to the energy needs the world will face in decades to come. Today, most solar solutions are attached to the grid, which means that utility providers act as a gateway to new technologies. In addition, many solar systems can be difficult to work with and often require professional setup. They are large, heavy, and inefficient as well. 

Solution

One company looking to address the problems facing the solar industry is YouSolar. At its simplest, the company designs, markets, and sells solar solutions for residential customers. The chief creation of the firm at this time is its PowerBloc, a solar storage device that’s mounted inside of a metal cabinet. Though not being sold at this time, the company is also building a stackable cabinet. This should be completed in September of this year and will go to market in 2021. This stackable cabinet is the primary emphasis of the company. Because of this, most references to the PowerBloc will be directed toward that incarnation of it. 

Both cabinets are designed to connect to residential properties. They can both be used on and off grid to collect solar energy from solar arrays and to convert that energy into usable power for an owner’s home. This plug-and-go system serves as the primary solar battery and monitoring system for a user. Other devices the company sells include micro-converters and solar arrays. Users can also download the company’s app, which helps to monitor energy usage. The company’s technology can also predict a user’s production and usage based on data collected over time. 

One of the key selling points for YouSolar is that its PowerBloc will be capable of easily adjusting to the size/capacity needs of its users. A traditional route for energy storage providers is to sell a user as many one-size-fits-all devices that those users need. YouSolar is following a different path. Each device it plans to market looks like a cabinet drawer that can be stacked on top of the others a person owns. The more units that are stacked together, the more power the unit can provide over time. To test their first cabinet, the company connected it to a home in Big Sur, California. More than 8 months have passed since connecting it. Management contends that the property has been consistently supplied by the device ever since. The company is also installing units in two additional homes, one in Calistoga and the other in Los Gatos. The GreenSchool in Bali, Indonesia, has also utilized the PowerBloc for its campus. 

The modular system management built has several benefits. For starters, it’s easy to use and lightweight. Most people should be able to install it on their own if they wish. It’s also highly versatile. YouSolar says that their technology can be integrated with propane or diesel generators. Though generally not needed, connecting them to those fuel sources extends the range of the batteries. The device can also be integrated with wind turbines if the owner wants. 

In addition to selling its PowerBloc, the company has other ways that it can generate revenue. This includes the sale of micro-converters and solar arrays. But the primary way appears to be through its 10-year service contracts. These will be priced at between $80 and $100 per month for those interested. This service will provide remote monitoring and troubleshooting advice. Subscribers will also be eligible for discounts on repairs and upgrades as well as one free battery replacement. Since the battery’s expected lifespan is between 10 and 15 years, it’s unlikely the firm will see a lot of those replacements into play. While specifics have not been provided, management is forecasting margins on these contracts of about 15%. 

Since its inception, YouSolar has not done particularly well financially. Because of the stage it’s in, the firm did not generate any revenue in 2018. Revenue in 2019 was just $1,500, all of which came from services provided to customers. The company’s net loss of $552,502 in 2018 surged to a loss of $701,481 in 2019. Likewise, its operating cash flow worsened from -$294,770 to -$453,058. Investors should not anticipate any material sales until at least 2021. 

A Growing Market

Despite calls for society to adopt more renewable energy sources, the world is still very much dominated by oil, natural gas, and, to an extent, coal. But this is changing. In recent years, significant capacity for alternative energies has come online. According to a report by Wood Mackenzie and the Solar Energy Industries Association, a full 40% of electricity capacity additions in the US last year came from solar. This matches 2016’s figure, with the years in between coming in weaker because of low natural gas prices. Natural gas, meanwhile, accounted for 32% of capacity additions, and wind’s contribution was 27%. That same source estimates that by 2030, the US will see 20% of its electricity production come from solar. 

This is not just a US phenomenon though. The IEA (International Energy Agency) estimated that solar power accounted for 26% of the world’s renewable energy generation in 2019. Solar and wind combined made up about 7% of total global energy generation (renewable plus fossil fuels). By 2040, the expectation is that solar’s share of renewable energy generation will rise to 44%. It and wind combined should account for 24% of the world’s energy generation. One estimate, provided by IHS, is that the global energy storage market will grow over time as well. They believe that by 2022 there will be 40GW (Gigawatts) of storage capacity globally. The largest individual share of that will come from the US. That’s up from just 6GW in 2017. 

Solar, naturally, will be involved in this trend. In fact, the market understands this very well to be true, since a paradigm shift here is already occurring. According to one source, in the US just 5% of solar systems came with a storage component to them in 2017. The purpose behind these storage additions is to minimize down time. It will also help to mitigate uncertainty caused by weather changes and grid issues. By 2025, a full 25% of solar systems sold in the US will come with these storage components. The residential market is larger than the non-residential market for solar if you exclude utilities. Because of this, it’s likely that a lot of these storage units will be demanded by homes, but businesses could be an attractive target as well. 

The opportunity for a company like YouSolar could be significant. The total global solar space was worth about $52.5 billion in 2018. With an annualized growth rate of 20.5% expected for it, the industry’s forecasted to expand to $223.3 billion by 2026. Much of this growth will occur in countries outside of the US. For instance, between 2018 and 2022, the expectation is for the annual compound growth rate in solar additions in the US to average 17%. In China, that figure is 21%. Both of these growth rates are impressive, but they pale in comparison to other parts of the globe. India’s projected annual growth rate is pegged at 39%. Mexico’s is forecasted to average 67% and Egypt’s should be 171%. Saudi Arabia, one of the largest oil producers in the world, is slated to see growth of 227% per annum. 

Because of its micro-converters and solar arrays, YouSolar does have a hand outside of just the storage space. But it’s safe to say that storage is its foundation. Management has also made abundantly clear that the residential market is its target at this time. This specific niche, according to one source, is estimated to have been worth $5.99 billion in 2018. The expectation is for this niche to grow at a rate of 16% per annum through 2027, at which point it will be $22.8 billion in size. 

Terms of the Deal

In order to continue operating and grow their enterprise, the management team at YouSolar is looking to raise some cash. Specifically, the firm is hoping to raise $1.07 million, but it may close a round with as little as $9,999.91. Shares of the business’s Class B Common units are being priced at $0.17 apiece. But in order to participate in the raise, investors must contribute at least $249.90 each to the transaction. As of this writing, the company is well on its way to its target. It has $308,131 contributed to the transaction and nearly three months to go before the round closes. The one issue that we see is the valuation. The firm, despite having little revenue in 2019, is asking for a pre-money valuation of $10 million. 

An Eye on Management

At the top of YouSolar is Arnold Leitner, the business’s only founder. He also serves as the company’s President and CEO. Prior to starting YouSolar, Leitner served as the Managing Member at Arnold Leitner & Partners, LLC. This business’s aim was to invest in renewable energy concepts. Before that, he was a Member of the Finance Committee at Prospect Sierra School. He also served as the Executive Project Partner at Clean Power Group. Other past experience includes being a President and CEO at ReflecTech Inc, and serving as the founder, CEO, and President of SkyFuel Inc. 

Though not founders, there are other important members of the YouSolar team. The first one of note is Coleman Moore, YouSolar’s IT & Controls expert. Previously, he served as the VP of Engineering at SkyFuel, and he also used to work as a Project Manager at CDA Design Group. David Fillmore is the other main member of the team. His focus is on Solar Forecasting and Engineering Management. At this time, he is also employed as a Software Developer at the National Center for Atmospheric Research. Before joining YouSolar, he worked as a Staff R&D Scientist at Radian Solutions. 

Rating

YouSolar has been rated by our team as a Deal To Watch. In particular, the company’s patented modular technology and easy setup is interesting. So too is the ability of the product to integrate with other energy sources and to operate both on and off the grid. The business’s planned revenue streams appear logical, and the tests it has performed with its PowerBloc so far have been encouraging. Add in the experience of the founder and the fact that the industry and its projected growth rate are both appealing, and it’s hard not to like what management is working on. 

There are some concerns, though, that investors should watch. YouSolar, while patented, is not immune from other innovations. This is a large, technical market, and it’s impossible to know when or if someone will come out with a product that’s better than your own. Another issue is that the industry’s capacity additions are likely to fluctuate based on the pricing of alternative fuel sources. With natural gas prices as low as they are and regular competition from wind and some hydro power (not to mention incumbent and other solar firms), there’s no guarantee that YouSolar’s solution will be the best. Add in the hefty valuation and lackluster operating results so far, and there’s a lot for investors to think about before buying in.