Solar IPOs Offer Dim Prospects

Tickers in this article: TSL DUK FSLR SPWR

NEW YORK ( TheStreet -- With government funding fading, more solar companies are looking to the IPO market for money.

SolarCity and NC Solar are two of the latest names to file for public offerings, but the companies couldn't be more different. SolarCity has been growing its revenue, while NC Solar is a business with a single customer. What they do have in common is government assistance.

SolarCity, which installs solar energy systems for homes and businesses, is seeking to raise a maximum of $201.3 million. Initially the company sold the systems outright, and then it moved to leases and power purchase agreements. Customers that receive solar power rebates sign those over to the company. The company currently has a balance of grants from the Treasury Department of $190,704.

The number of buildings with SolarCity installations has increased to 33,792 as of June 2012 from roughly 19,000 in December 2011. A typical lease agreement may be an upfront payment of $5,000 for a 20-year lease with monthly payments of $200.

To date, SolarCity has raised $1.57 billion through 23 investment funds. Approximately $648 million of the amount raised remains available for future deployments. Revenue for the six months ended June 30, 2012 totaled $71.4 million, up from $20.3 million in the same period a year earlier. Losses, however, came in at $48.9 million for the latest six-month period vs. a profit of $11.9 million in the same period last year.

Unfortunately, the government's largess may soon evaporate. The 30% federal cash grant paid by the Treasury Department would be sequestered should the government decide to jump off the fiscal cliff. In addition, the Internal Revenue Service has already started to phase out a 30% tax credit, which is set to expire in three years.

SolarCity also has some legal troubles. It, along with several other players in rooftop solar energy, have received subpoenas related to the Treasury Department's grant program.

Plus, the IRS has started audits of two of SolarCity's investment funds, reviewing the fair market value of its solar power systems. If they overvalued the systems, then they'll have to pay the fund investors back. SolarCity has called the potential amounts "significant."

As messy as SolarCity's filing is, NC Solar's is much worse. The company has filed as an emerging growth company under the JOBS act. Its plan is to install solar panels on warehouse rooftops. But the company has only one customer so far, Duke Energy (DUK) .

One big red flag is that NC Solar's management doesn't have any solar experience. The filing reads: "Our management does not have any specific training in running a solar energy company. With no direct training or experience in this area, our management may not be fully aware of many of the specific requirements related to working within this industry." In addition to that, they have full-time jobs elsewhere.