Facing maturing markets, increased competition and rising customer acquisition costs, residential solar companies like Vivint and SolarCity are curtailing operations out of less promising states to focus on profitability, according to a recent report from GTM Research.
But one solar company appears to be bucking those trends: Sunrun.
While companies like SolarCity and Vivint are trimming fat around operational costs, Sunrun is doing the opposite: going into emerging markets and striking up partnerships to further rooftop solar growth, and growing its solar-plus-storage offering.
According to its latest quarterly report, the company’s deployments grew 21% compared to the same period last year, with total revenue growing $104.1 million, or 5%. And it’s expected to grow 15% this year.
Despite being under scrutiny by the U.S. Securities and Exchange Commission over questions about reporting the number of customer cancellations – media reports peg it as high as 40% in 2016 – CEO Lynn Jurich took the stage at GTM Research’s annual Solar Summit in Arizona confident about the future of her company and the sector at large.
“The long-term growth rate in this [residential] solar market is incredibly strong,” she told the crowd.
“We have now installed almost $4 billion worth of assets; we have a track record [and] these assets are performing,” she added later.
Between the rise of time-of-use rates in the solar-rich California market and proliferation of energy storage, Jurich sees technology on the sector’s side despite a slowdown in growth and longer timeline to snag customers, resulting in higher costs.
“We are selling a very high-value contract and our lifetime values to customers are high,” Jurich said. “When you believe in building a decades old company, you care more about things than just growth, [you] care about things like sustainability.”
According to GTM Research, new residential solar capacity dropped 11% in Q1 of this year, and dropped 17% on a year-over-year basis for the first time.
“The driver of that is primarily what happened in California,” says Austin Perea, a GTM research solar analysis and the author of the report. “California fell also in a year-over-year basis as well as a quarterly basis.”
California, with about 45% of the national rooftop market share, saw new residential solar capacity decline 22% in Q1 compared to the fourth quarter in 2016, and 31% in year-over-year. The culprits, Perea said, are seasonal, from heavy rains in the winter, in addition to longer customer acquisition timelines.
“Just the time it takes to acquire one customer has increased substantially,” Perea said. “In California and — this plays out across other major state markets — the early mover, the early demographic most readily available to buy…[those] folks aren’t just as readily available.”
“You just have to knock on more doors to get the same volume of customers.”
For the most part of the past decade, companies like SolarCity and Sunrun used a “grow at all costs” model as innovative financing solutions and generous state incentives helped rooftop solar boom nationwide.
But in recent years, higher penetration in key markets and increased policy debates over net metering have pinched the industry. The growing pains showed up in 2016 after SolarCity reported poor performance following Nevada’s controversial decision to gut the net metering policy, leading it and Sunrun to exit the state.
But unlike SolarCity, which was bought out by Tesla in late 2016, Sunrun started moving into nascent markets like Wisconsin, signaling a confidence continued growth.
“We delivered growth, [took] market share, while holding our cash balance north of $200 million for several quarters in a row,” Jurich said. “That makes it hard for people to say these solar companies are not making money and are not holding growth.”
Net metering challenges
While Sunrun is expected to hold steady growth, one factor will have long-term implications for the company’s future: net metering, the cornerstone of residential solar’s value proposition.
Those debates have spread beyond the borders of vibrant solar markets like Arizona and California, into more nascent areas. And those numbers are set to expand even more. A recent report from North Carolina Clean Energy Technology Center puts the number of debates over state solar policies at 212.
After Nevada’s decision to reduce the retail rate compensation scheme, solar companies like Sunrun started pulling away from the “net metering or bust” attitude characterizing many of these policy battles.
In Arizona, the original hotbed for solar debates, regulators made the decision to reduce compensation at the retail level, leaving solar companies uncertain of their future. A settlement with major player Arizona Public Service Co. provided some policy certainty, but other similar battles in states like Maine and New Hampshire will continue to dog them.
While Sunrun was open to a transition from net metering in Arizona — and continues to operate in states transitioning away from the policy like New York and Hawaii — the company wants the policy to stay in most states.
“Let’s leave something that’s working alone for a second,” Jurich said to the crowd. “Net metering works at our current penetration levels, it’s a value to everybody at the grid. Let’s put Hawaii, New York and California aside — nowhere else are we getting to that level of penetration. Let’s leave it in place. [Net metering] has demonstrable value to all ratepayers.”
She labeled the battles a “diversionary tactic” to deflect attention from utilities levying hefty infrastructure investment with little load growth.
“Let’s deal with the big issues here,” Jurich said, “Why are we not looking at storage-plus-solar as a potential solution?”
Future of rooftop solar
It’s clear the solar market, as a whole, is at an “inflection point,” as Shayle Kann, GTM Research’s Senior Vice President of Research told the crowd in opening remarks. Market maturity, falling equipment costs and favorable policies have opened the door for solar to compete against incumbent fossil fuels.
But residential solar companies, in particular will have a harder uphill climb than before as they face increasing policy battles and more competitors crowding an already packed stage.
“Depending on how the rest of the year plays out, I think there is a chance we can see flatter and declining growth in the national space,” GTM’s Perea. “The issues seen in California are being played out in national stage,” including the Northeastern market.
“If weakness continues in these major state markets, there’s not enough growth opportunity in emerging state markets to counter them,” he added.
For the residential solar segment, finding those customers against the backdrop of changing policy landscape and increased market market penetration will continue to rack up costs.
Jurich said they will continue to invest in acquiring customers, noting the cancellation issues in media reports failed to tell the whole story.
“I think the sales process has been misunderstood.”
Some factors leading to some cancelations include rooftop siting issues and customers changing minds at the last minute. She reiterated the point that Sunrun came within 1% of their annual guidance in 2016.
Jurich cautioned against focusing on the “short-term” problems plaguing major solar companies, and focus on the long term plan, particularly in terms of energy storage.
“We can’t be too short term [in our] thinking,” Jurich said. “There are so many positive phenomenal trends happening in our industry i think we will look back and think solar and storage was just inevitable.”
Costs are falling, she said, consumers still want rooftop solar and regulators, such as in New York and California, are recognizing “the value of distributed assets.”
“Storage on the scene completely changes the game and that in my mind, makes it inevitable that we move to a majorly distributed system and that will drive very long-term growth for this industry.”
Sunrun’s Brightbox residential storage-plus-solar offering is one example of the company’s long-term strategy. Sunrun reported sales of more than 1,000 Brightbox offerings in Hawaii last month.
“We’re doing the right thing,” Jurich assured the audience. “We operate in way too defensive of a posture. We are doing the right thing and we are going to win. We have history on our side. We have technology on our side. We have consumer choice on our side. We do not need to keep apologizing for these things.”
An earlier version of this article mischaracterized how SolarCity and Vivint Solar are rebooting their business strategy.