Large Installers Continue to Lose Money Despite Solar Becoming More Popular

Thousands of homes are installing solar panels on their roofs to save money, and the home solar industry is rapidly expanding. According to the largest companies that install and finance solar systems for homes, they’ve lost money in the billions over the last few years.

Those losses are a sobering reminder of how difficult it is to earn money in an industry that is largely regarded by government leaders and corporate executives as a critical component of the global fight to combat climate change. Solving this problem could have a big impact on how quickly and widely people use solar power in their homes.

Sunrun and Sunnova, two of the country’s largest residential solar providers, reportedly lost several hundred million combined in the preceding years, depleting more than a billion in cash. The companies and their Wall Street investors claim the losses are due to the rapid growth of solar systems, which demand a large upfront investment, as well as the fact that investors in the companies can use the losses to offset their tax responsibilities. That doesn’t mean that the home solar market isn’t very competitive or pricey. Sunrun and Sunnova have hundreds of smaller competitors, many of whom have been profitable for years.

For the time being, Wall Street investors are bidding up the stocks of solar companies in the hope that they will be able to borrow cheaply and cover their losses and cash outflows. They also anticipate a rapid increase in sales as households purchase larger solar systems and home batteries to defend themselves from outages and power electric vehicles. Investors also think that the Biden government will do more to help people use renewable energy through tax credits and other incentives.

“If you’re growing, you’re always going to be negative,” Lynn Jurich, Sunrun’s CEO, said in an interview. In 2020, Sunrun completed the acquisition of Vivint Solar to accelerate clean energy adoption and enhance customer value. It is the country’s second-largest residential solar installation. Sunrun’s shares have risen over 400% since the acquisition in 2020. Sunnova’s shares have increased by more than 300 per cent.

Beyond the stock market, the success of the two companies, as well as Tesla’s solar business, which was once the leading residential solar installer in the world, is important. If these businesses do well and become as well-known as Tesla for its high-end electric cars or Amazon for online shopping, they may be able to help speed up the transition away from fossil fuels, as they did with Tesla and Amazon.

Despite the coronavirus pandemic, new household solar installations are likely to increase by 7% this year, according to the Solar Energy Industries Association and Wood Mackenzie, a research and consultancy group. Over the next five years, Wood Mackenzie anticipates considerable growth.

“As a management team, we’re having debates about how much growth we can handle,” W. John Berger, Sunnova’s CEO, said in an interview. “Any day of the week, I’ll take that problem since I’ve had the other problem as well,” he continued.

Despite this confidence, putting solar panels on homes is certainly not a simple task. Solar companies that grow too quickly, as SolarCity did before Tesla bought it in 2016, often struggle. In recent years, several others have filed for bankruptcy or gone out of business.

Hundreds of companies, including SunEdison, which attempted to acquire Vivint in 2016, expanded tremendously quickly and then faltered. In the same year, SunEdison filed for bankruptcy protection. Reportedly, hundreds of smaller residential solar enterprises have also failed. It’s unclear whether having national operators like Sunrun and Sunnova dominate the solar industry makes economic sense. Although Sunrun and Sunnova often claim that hundreds of tiny installers around the United States have already found out how to profit from the type of home renovation business that local companies traditionally dominate,

T.R. Ludwig, one of the founders of Brooklyn SolarWorks and a former Sunrun employee, stated, “Solar is sort of this mystical technology, and it’s really attractive, and everyone wants to think it’s different from everything else. However, aside from the financing, it is a construction project.

To get better pricing, his company buys solar panels from buyer collectives. It does not provide financing to clients like Sunrun or Sunnova, but Mr. Ludwig claims that this is not a disadvantage because many banks and credit unions are eager to issue solar loans.

Mr. Ludwig claims that the solar industry is more like the heating, ventilation, and air-conditioning industry, which is made up of local companies installing and repairing national or global manufacturers’ equipment.

As a small business, “you have to profit — you can’t go to the markets to acquire finance like the big companies,” said Stephen Irvin, CEO of Amicus Solar Collective, which assists Brooklyn SolarWorks and other small installers in purchasing solar panels.

It is undeniable that buying solar and saving energy are trending both in the residential and commercial sectors. Low prices and government incentives make buying easier than ever, not to mention that the benefits are greatest when you own a system.

Mahmudul Hasan, the CEO and Founder of Nexergy, said, “Most of our users tend to buy their solar panel systems outright, rather than sign a lease or PPA.” Nexergy, a startup based in New York, allows property owners to check the prospect of solar installation on their rooftops and compare financing options. Mr. Hasan added, “We live in a market where there is a severe shortage of information, making “price discovery” extremely difficult.” Mr. Hasan agrees that the cost of leasing or power purchase agreements can be significantly higher in the long run than buying outright, though clearly not every customer has the available resources, which makes buying the most preferred option.

As pandemic housing help runs out, the Treasury Department redirects funds to New York and other major cities. According to Wall Street experts, Sunrun and Sunnova’s ability to borrow large sums of money should allow them to offer lower-cost loans and perhaps make higher profits. That might change people’s perspectives on financing solar power.

For others, size becomes a barrier to entrance, said Sophie Karp, a KeyBanc Capital Markets analyst.

According to Wall Street analysts, the corporations’ accounting may understate profitability. Investors, like homeowners who purchase solar panels, can benefit from tax breaks. Investors in Sunrun’s business, for example, can deduct their losses from their taxes. When investor losses are taken into account, the company’s loss is substantially smaller.

Analysts believe that Sunrun and Sunnova’s businesses will be profitable in the long run. Customers are charged a monthly fee to lease solar systems or purchase the electricity generated by those systems. The theory is that corporations will earn a lot more in monthly fees over the life of a system—approximately 25 years—than they will spend on installing panels and batteries, which they typically buy from Asian producers.

“This is a good business,” said Joseph Osha, a JMP Securities stock research analyst. “Financials are quite complicated.”

What is undeniable is that solar energy looks to be gaining popularity, owing in part to the forces released by the pandemic.

As people spend more time at home, some have recognized that solar panels can help them save money on their monthly energy bills while also protecting them against blackouts. Wildfires in the West and a record storm season in the East have sparked a surge in interest in solar and battery systems.

Solar executives also expect that President Joseph R. Biden Jr. will press for an extension of subsidies such as the federal tax credit, which is set to expire in December 2023.

Reportedly, the Solar Energy Industries Association is lobbying the government to provide the same advantage to residential solar as it does to larger-scale solar, allowing for a 10-percent tax credit to be extended when present subsidies expire. Energy storage should also be eligible for a tax credit, according to the group.

Officials from the industry also claim that they are working hard to cut costs so that they can break even sooner. Solar systems in the United States are often two to three times more expensive than in other developed nations, such as Australia, because American companies spend more time and money obtaining building permissions and marketing.

Another major issue raised by the pandemic appears to have been alleviated: that in the event of a recession, many solar consumers would default on their payments. There hasn’t been a spike in defaults this year because most households that install solar panels are well-off and haven’t been struck particularly hard.

Mr. Berger, Sunnova’s CEO, remarked, “Now we have gone through one heck of a recession—and the payment performance was outstanding.” The market is processing this and thinking, ‘Wow, this isn’t nearly as hazardous as we anticipated.’

Solar industry groups like Rewiring America, a coalition of engineers, entrepreneurs, and volunteers striving to solve climate change, predict that going solar could save the average American household $2,000 per year in energy bills.

Of course, such savings would come at the expense of electric companies, which have been trying to curb or halt the expansion of rooftop solar.

Residential solar systems, according to utilities, mostly benefit rich homes that can afford to spend tens of thousands of dollars on panels and batteries. As a result, the corporations argue, the cost of maintaining the electric infrastructure falls disproportionately on middle-and lower-income people.

Mr. Hasan, the Founder and CEO of Nexergy, set out to determine how defective the solar market is in this regard, and he was astonished by what he discovered. He discovered, for example, that installations from a top vendor were much higher on a dollars-per-watt basis than the New York average, using data from the New York State Energy Research and Development Authority. Large sellers use SunPower, which is the highest quality (and most expensive) panels on the market, with high energy conversion efficiency. Other vendors using the same panels, on the other hand, charge about 16% less. This additional cost is added up on top of the cost of solar.

Utility companies have been working to repeal state regulations and laws that allow homeowners to sell excess electricity generated by rooftop solar systems to the grid, particularly in California, which has the most solar panels. Solar enterprises such as Sunrun, Sunnova, and others are pushing to maintain the policies in place. These conflicts could determine whether or not large solar installers can turn a profit.