Leading residential solar installer Sunrun released its first-quarter earnings last week, as news broke that virtually all new homes in California will be required to install rooftop solar starting in 2020.
CEO Lynn Jurich called the California solar mandate a “huge vote of confidence” for the residential solar market. “Strategically, it is also really important because it’s showing that California is serious about home solar and batteries and what that can do to build a cleaner, more cost-effective, customer-centric system generally,” she said on the company’s earnings call.
Sunrun is particularly well suited to take advantage of the new solar building codes, which take effect in 2020, because of the company’s successful solar lease, or solar-as-a-service model, Jurich said. This model ensures new homeowners can save with solar from day one, without increasing the upfront cost of the house. Sunrun is currently the top residential solar lease provider in the U.S., according to GTM Research.
“One of the hesitations for builders or consumers on new homes in the past has been, ‘If I have to add $10,000 to the house, that conflicts with the new kitchen I want,’” said Jurich. “With solar-as-a-service, neither the homebuilder or the buyer has to spend any money upfront to get the solar, and the rates are cheaper than what the utility offers. So there’s really no compromise; it’s just a better service.”
It’s currently unclear which solar financing method will dominate the new home market in 2020 — leasing or buying the system with a loan or cash payment. In crafting the solar requirement, the California Energy Commission assumed the panels would be included in the price of the mortgage as a cash purchase. However, leases are currently the favored financing method for solar on new homes, two installers active in the market told GTM. Sunrun doesn’t have a strong presence in the new home segment at present, but is angling to build one.
Strong first-quarter 2018 earnings
The company is already expanding its footprint in the market for installing solar on existing homes.
“We took share last year and we expect to take share again this year,” said Jurich, in an interview. “That’s a testament to our healthy balance sheet and the fact that we’ve always had a strategy to build a sustainable business.”
In the first quarter of 2018, Sunrun reported total revenue of $144 million, up from $105 million in the first quarter of 2017 — a 37 percent increase year-over-year. Over the same period, the company’s total operating expenses increased from $153 million to $201 million, surpassing revenues.
But the company continues to show healthy growth, with $65 million in net present value created in the first quarter, an increase of 16 percent year-over-year. Sunrun now has more than 189,000 customers, an increase of 31 percent year-over-year. The company also has net earning assets of $1.3 billion, an increase of 20 percent year-over-year. Diluted net earnings per share available to common shareholders last quarter were $0.25 per share, which beat some analyst expectations.
Sunrun’s stock has been trading strongly since the earnings release, at the company’s highest share price since shortly after it went public.
A dip in solar deployments
While Sunrun managed to grow and expand last year as its biggest competitors reoriented their businesses and the residential solar segment as a whole slowed down, the company recently experienced a small downturn of its own.
Sunrun deployed a total of 9,400 residential solar systems last quarter, a dip from 10,200 systems over the same period in 2017. At the same time, deployment volumes fell to 68 megawatts in the first quarter of 2018 from 73 megawatts in the first quarter of 2017 — a 7 percent decline year-over-year.
Jurich insisted Sunrun’s first-quarter lull would be short-lived, pointing to the “seasonally slower” winter months. In the second quarter of this year, the installer expects to deploy 88 megawatts of solar, reflecting approximately 16 percent growth year-over-year. Sunrun continues to project 15 percent growth for the full year.
The company expanded operations into eight new states last year, including promising markets in Illinois, Texas and, most recently, Florida. Because Sunrun is still in the process of rolling out its Florida strategy, growth there is not anticipated to contribute greatly to 2018 sales.
“Illinois was a big one that we just added over the last couple of months,” said Jurich. “They expect to install 100,000 solar homes over next three years. So it will be a big sizable market and really proves solar isn’t just for coastal cities.”
A promising grid services market
As the rooftop solar market grows, Sunrun is also expanding its energy storage and grid services businesses.
The company now offers its BrightBox residential energy storage unit in Hawaii, Arizona, Nevada, New York, Massachusetts and California. The company previously reported that 20 percent of its new California solar customers were also opting to add BrightBox systems. In Southern California specifically, 50 percent of new Sunrun solar customers opted to add energy storage in the first quarter of this year.
Also in last week’s earnings, the company announced an expansion of its partnership with National Grid, where the utility has provided Sunrun approximately $8 million for a share in revenues that arise from new grid services contracts that will be jointly bid prior to June 2019.
Sunrun and National Grid first joined forces in January 2017 to accelerate the adoption of rooftop solar and to better understand how distributed energy resources might be aggregated and used to help keep the power grid balanced. The companies are looking to monetize the grid services energy storage can provide through utility contracts.
It’s still early days for the grid services market. In many cases, regulators are still writing the rules to have utilities consider customer-sided assets, said Jurich.
Sunrun has bid on several contracts with utilities and is expecting to hear back over the course of the year. The expanded partnership with National Grid, she added, “gives you some indication that there’s validation, that near-term opportunities for grid services exist.”
The new building codes in California that mandate rooftop solar panels starting in 2020, also include a compliance credit for energy storage, which is expected to buoy growth in the state’s energy storage market, especially when coupled with the introduction of mandatory time-of-use rates in the state, starting in 2019.
“As we have more density of solar plus batteries…we’re going to see the opportunity to store the battery in aggregate and dispatch that at peak times and defer more traditional infrastructure,” said Jurich. California’s building codes are “accelerating the vision of moving toward a distributed, low-carbon, customer-centric system.”
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