For a while there, leading residential solar installers had a one-track mind: They could grow or make money, but not both.
The national players opted for growth through the early 2010s, until the deferral of making money started to catch up with them. It took out Sungevity, at one time the No. 3 U.S. residential installer. It led to Tesla’s takeover of market leader SolarCity, and the brand’s subsequent erasure.
Sunrun still stands on its own, though, and it’s out to prove it can do two things at once.
"We're super bullish -- we love our market position," said CEO Lynn Jurich, in an interview. "Not only are we increasing market share, we’re increasing our margins and generating positive cash."
Tesla took a different tack, slowing growth to focus on profits. As a result, this quarter may be the first time that Sunrun outpaced SolarCity for residential installations. Tesla reported a combined 109 megawatts, deployed across all market segments.
Sunrun deployed 90 megawatts of residential solar in the third quarter of 2017, up 12 percent year over year. That added up to 1,117 cumulative megawatts deployed, a 39 percent increase from a year ago.
That’s actually a smaller year-over-year growth than in any of the previous 10 quarters, but it’s still a substantial step forward.
The deployment count means Sunrun, which favors leases over cash deals by a roughly 9-1 ratio, has a growing number of little rooftop cash registers sending money back each month. The company claims $1.2 billion in net earning assets, a 24 percent increase year-over-year.
With regard to making money...
Sunrun is profitable, Jurich said, and will generate $40 million in cash this year.
The core directive is to deploy rooftop solar systems that generate more value than they cost. The company measures this as net present value, which adds up the revenue streams a solar system will produce (including tax credits, rebates, payments from a 20-year customer contract) minus the costs to deploy and operate the asset.
"It really is your purest way to talk about value creation," Jurich said.
This quarter, Sunrun set a company record for net present value at $1.15 per watt. That adds up to $93 million in total net present value created that quarter, a 21 percent increase from Q3 last year.
Increasing adoption of energy storage boosts value
Sunrun bolsters that net present value with its new killer app: energy storage.
Many companies sell solar paired with batteries, but Sunrun has achieved unique scale in the U.S. -- 2,000 units ordered, as of August. The numbers indicate Sunrun sees this technology as more than a trendy deluxe upgrade -- it’s becoming a part of the business strategy.
"Attachment rate" measures how many home solar customers opt to include storage, in this case via Sunrun’s BrightBox package that includes LG Chem batteries. Sunrun’s attachment rate among its in-house installers in California doubled in Q3 to more than 10 percent. Sunrun currently does not offer BrightBox through its installer partners in the state.
That means that 10 percent of Californians that contracted directly with Sunrun chose to pay slightly more to add storage, in exchange for backup power and savings opportunities down the road.
"Already, in much of the market from a today's savings perspective, it delivers more savings to have a BrightBox than to have solar only," Jurich said.
In much of the country, it's still hard to make the economic case for residential solar-plus-storage. California, though, has both high electricity prices and a number of policy incentives for storage deployment.
In Hawaii, all of Sunrun's systems now come packaged with BrightBox. High levels of solar penetration there prompted the utilities to adopt a tariff, known as Customer Self-Supply, that forbids solar export, meaning new solar customers must undersize their solar system or add storage, with the latter being the preferred option.
BrightBox arrived in Arizona in July, so the company didn't report data for that newly opened market.
It's too early to say anyone has cracked the code on residential storage, said GTM Research storage analyst Brett Simon, but Sunrun has made headway by streamlining the sales process.
"Sunrun is making a good move by simply adding it to a solar lease, as customers only have to think about paying one price every month, he said. "They're consistently deploying systems, which is not a small feat in a market where the economics don't make sense in most cases."
The uptick in battery deals plays right back into the profitability of Sunrun’s installations, because solar-plus-storage systems in the right market generate more value than an equivalent standalone solar system.
The ability to time-shift energy demand allows homes to participate in grid services, like demand response, distributed capacity and others. Jurich has said the ability to provide grid services could add an incremental $2,000 in net present value per customer.
The exact value will vary by location, she noted, but in places with the regulatory structure to allow for distributed grid services, the expected revenue could subsidize the cost of the batteries upfront.
These systems cost more to deploy, but they produce more value in the long run. Sunrun has staffed up its grid services unit with Audrey Lee, formerly of Advanced Microgrid Solutions, and launched a collaboration with utility National Grid to prove out the model.
“Our multi-pronged partnership with National Grid demonstrates that forward-thinking utilities recognize the value distributed energy resources can bring to the country’s energy infrastructure,” Sunrun wrote in its earnings slideshow, to make sure investors didn’t miss the scent of new revenue streams.
Trade barrier preparedness
Speaking last week, Jurich sounded hopeful that the eventual outcome won't deal a hefty blow to the growing solar industry.
"The band of options the trade commission presented looks very moderated from what the petitioners asked for," she noted.
Still, it's necessary to take precautions. Sunrun will be advance-purchasing next quarter, Jurich confirmed, and the company has taken steps to insulate "a good portion of next year" from a potential trade remedy.
Residential solar has higher unit costs than utility- or commercial-scale projects, so an increase in module prices would likely have a less pronounced effect on this segment. Nevertheless, advance-purchasing allows Sunrun to build up a tariff-free module supply to avoid any sudden changes to the supply chain, which could undermine the company's ongoing success.