The solar industry is talking about the federal solar Investment Tax Credit in the wrong way, according to Lynn Jurich, CEO of Sunrun.
“I don’t think we should be saying it’s not going to be renewed. I really don’t,” she said Tuesday at GTM’s U.S. Solar Market Insight conference.
“It will!” said an audience member.
At the end of 2016, the Investment Tax Credit (ITC) is scheduled to decline to 10 percent for residential solar leases and power-purchase agreements, and to expire completely for cash-based systems. The step-down is projected to cut solar installations by half, setting the solar industry back five years.
But the ITC drop is not a foregone conclusion, said Jurich. Washington wants to pass an extension, according to the CEO. The idea of encouraging energy choice and creating a fair playing field for energy resources resonates with lawmakers on both sides of the aisle.
“There is a lot of support for [the ITC],” Jurich said. “The policy is working, it is good, and we have Republican support. There is a very strong possibility this will be renewed, a very strong possibility.”
“The people in the industry should not be the people saying, ‘We don’t need it’ or ‘Let’s forget it,’” she said. “No, that’s a self-fulfilling prophecy -- we can get this done.”
But others in the industry have stayed out of the discussion, seem resigned to the ITC ending, or have even actively called for it to end.
Ahead of Jurich’s talk, Peter Rive, SolarCity's chief technical officer and co-founder, said his company is preparing for the ITC drop to happen. “The worst time to align the company around that reality is in 2017," said Rive.
Jurich agreed that businesses should prepare internally for the ITC to drop. But in its outward messaging, the solar industry should maintain strong, unified support for an extension. “Let’s not shoot ourselves in the foot,” she said.
Net metering and the stock market
During her talk, Jurich also expressed unflinching support for net energy metering.
Net metering currently exists in more than 40 states, and in every contested case to date, the rooftop solar industry has won out. States also continue to adopt and defend the policy. Last week, for instance, the Iowa Utilities Board filed a document reaffirming its support for net metering and growing the state’s nascent DG market.
“I am confident retail net metering will sustain for the medium term,” said Jurich.
She said she is also confident that a recent decision to end net metering in Hawaii -- making Hawaii the first state in the U.S. to end the policy -- would be overturned.
But policy isn’t the solar industry’s only concern. The markets have been particularly unkind to solar stocks in recent months. The MAC Global Solar Energy Stock Index hovers around $140 per share, down from a high of $240 in May.
Sunrun made its initial public offering in August, raising nearly $251 million by selling 17.9 million shares, for an initial market cap of around $1.36 billion. The IPO priced at $14 per share. Yesterday, the stock closed around $7.50.
It was an “inopportune time,” said Jurich. Solar companies have been hurt by the overall volatility of the energy market over the past year, which has prompted energy investors to sell off.
“That’s a problem for us, because we are not educating outside of the energy market,” she said. “We’ve got to educate growth investors, the long-term investors that want to hold stocks that believe in the long-term macro trends. We need to bring those people into the markets.”
Jurich, who managed Sunrun’s IPO and a marketing tour one month after her baby was born, said she loves the pressure of running a public company. It increases the pressure to deliver every quarter, she said. “And it gives us the stage to show investors why they’re wrong.”
It's not all about vertical integration
While stock prices may be suffering, Jurich maintains that Sunrun’s core business is strong. The company held its first earnings call in September, reporting approximately 87,000 customers and a 60 percent increase in its quarterly net present value to $37.2 million.
Sunrun recently moved up to third place in the residential solar installer race. The company’s direct business -- as opposed to its partnership network -- is growing especially fast, now accounting for about half of the company’s deployments.
“A lot of people will look at it and say this was a strategy shift, but it really wasn’t a strategy shift. The strategy from the very beginning of the company was, 'Let’s figure out how to deploy [solar] on as many rooftops as possible.'”
By starting with a partner network, Sunrun could focus on the finance, brand, customer relations and back-end software piece of the business model, while local installers sold and built the projects. This approach allowed the company to scale with relatively little equity capital, said Jurich.
Last February, Sunrun purchased REC Solar's Residential Division (solar sales and installation), AEE Solar (distribution), and SnapNrack (mounting systems), launching a vertically integrated business that could leverage scale for advantages in customer acquisition and construction. Sunrun’s local partners also benefit from this scale because “it’s almost like they’re virtually vertically integrated,” said Jurich.
And while Sunrun technically competes with its partners, the two branches of the company rarely come into conflict, she added. The number of customers who receive a quote from both Sunrun and a Sunrun partner is less than 5 percent. That’s because the market is still so under-penetrated, because the company carefully selects local partners so that they do have an advantage joining the network, and because local and national companies simply attract different customers.
“In early industries, when there’s a lot of coordination cost, sometimes it’s more cost-effective and you can get to scale faster if you’re vertically integrated,” said Jurich. “But then as the industry matures and people start to specialize…it may horizontalize again.”
Given that policies and markets are subject to change, having a hybrid approach is the most resilient model, she said.
“People say the writing is on the wall: vertical integration is the fastest growth. I don’t believe that. I think you want a flexible model as the industry evolves,” she said.
“I think we’re in a strong position right now because we do have that vertical integration piece that’s growing very quickly, and taking share,” she added. “But we also have this very complementary partner piece that reaches this whole new set of customers that the vertically integrated business does not.”