Sunrun met expectations for solar installations in the third quarter, but a tight labor market is getting in the way of its annual growth objective.
The San Francisco-based company delivered 107 megawatts in Q3, up 7 percent from the same quarter last year. That hit the low end of the guidance for this quarter's activities; Sunrun has met or exceeded guidance for each quarter this year.
Sunrun remains the clear market leader among U.S. residential solar companies, installing vastly more capacity than runners-up Vivint Solar and Tesla. But the company nonetheless faces pressure to meet its goal of increasing deployments by at least 16 percent in 2019.
Hitting that target at this point requires moving 137 megawatts in the fourth quarter, more than the company has ever accomplished. Indeed, Sunrun is guiding to between 115 and 118 megawatts for the final quarter, effectively giving up on its annual deployment target.
"We have some labor shortages that came from us trying to make some changes in our installation efficiency," CEO Lynn Jurich said in an interview Tuesday. "The near-term megawatt installation growth is lagging sales, but we believe we'll be able to address it over the next couple of quarters."
Sunrun's sales orders are on pace to grow 15 to 20 percent for the year, Jurich added. But a recent initiative — to retool the company's installation approach, incentives and field leadership structure for long-term efficiency gains — left the company behind on the physical work of installing.
"We believe it’s the right structural change to make; it just put pressure on the hiring," Jurich said.
The company is seeking to fill 600 openings on its sales and installation teams, she noted. Hiring is running up against a tight labor market generally, as California experiences demand for home-building and reconstruction from a spate of destructive wildfires.
This labor shortage is not unique to Sunrun, said solar analyst Bryan White of Wood Mackenzie Power & Renewables. Solar installers from coast to coast are running into the same bottleneck.
"We’ve heard from residential installers across the country this quarter that labor is incredibly tight, especially when it comes to hiring high-quality installation crews,” he said.
Value creation is low, but earnings per share is up
Sunrun is falling behind on another metric: net present value, which tracks the potential revenue of a solar system minus its cost to create. Sunrun was hoping to achieve a net present value of $1.15 per watt for projects in 2019. It fell short in each quarter so far, achieving just $0.90 in Q3.
The low NPV rating also results from sales outpacing installations, Jurich said. The company recognizes costs at the time of sale, but does not recognize revenue until installation wraps up. NPV should rise back above $1.00 per watt in Q4, she added.
The company has pulled out significantly higher NPV in the last quarter for the last two years, so there is precedent for a buzzer-beating comeback.
There was a brighter piece of financial accounting for the installer: Sunrun returned a positive earnings per share this quarter, which it hadn't done for over a year.
Earnings per share is a tricky metric for a solar-as-a-service provider like Sunrun, because it captures the costs of installation in the present while missing the revenue that will flow from the system over the next 20 years. Jurich insists that NPV and cash generation are still better indicators of Sunrun's performance. But the income per share at least defuses the appearance of unprofitability that arises when observers see losses and don't take the full context of the complex business model into account.
As for cash generation, Sunrun is on track to add $100 million this year, up 60 percent from the cash generated last year.
Competitive lead persists
Though Sunrun has fallen behind on some of its internal targets, it handily beats the closest competition in the rooftop solar arena.
Vivint just delivered its biggest quarterly installation since 2015: 65 megawatts in Q3. Tesla, meanwhile, bounced back from its worst-ever solar installation performance and pushed back up to 43 megawatts. That number includes non-residential solar, so the apples-to-apples residential installations would be smaller still.
"The largest residential players are seeing significant growth in 2019, as consumer demand is strong," said White, the WoodMac solar analyst. "Sunrun, despite facing challenges with labor shortages, is no exception."
Sunrun also stands to serve growing interest in solar-plus-storage backup power in its home base of Northern California. Utility Pacific Gas & Electric cut power to millions of people in October due to risk that its equipment would start wildfires. Standalone solar does not function when the grid goes off, but solar paired with batteries and a grid-forming inverter, like Sunrun's Brightbox product, keeps homes online.
One Sunrun customer there kept the lights on for six days straight with a Brightbox system, Jurich said. Unlike the incumbent technology — diesel generators — Brightbox owners don't need to worry about maintaining fuel through a prolonged outage, when nearby fuel stations have lost power.
"Really, the solar and a battery is superior to a generator," she said. "The battery and the solar can run uninterrupted. We take care of the maintenance for the homeowner, and we sell it as a service so the homeowner can get it for zero upfront cost."
Sunrun has now installed 8,000 Brightbox systems, Jurich said. That's up from 6,000 cumulative installations reported in August.
Customer reaction to the multiple fires and preemptive blackouts will not show up in Q3 earnings. But in the month of October, the rate of Bay Area customers choosing storage with their Sunrun solar jumped from 30 percent to 60 percent, Jurich said.
Overall in California, Sunrun's storage "attachment rate" rose from 25 percent in Q2 to 30 percent in Q3.
U.S. home storage installations rose 41 percent from Q1 to Q2, to a record 34.8 megawatts for the quarter, according to data from Wood Mackenzie. California accounted for half the megawatts installed, and PG&E territory in particular almost doubled its quarterly installations, as customers braced for fire season. The numbers for Q3 have not yet been released.
