Sunrun met expectations for solar installations in the next quarter, but a tight labour market is getting in the way of its growth objective.
The San Francisco-based firm delivered 107 megawatts at Q3, up 7 percent last year. That struck the low end of the guidance for this past year 's actions; Sunrun has met or exceeded guidance for each quarter this season.
Sunrun is still the clear market leader one of U.S. residential solar firms, installing significantly more power than runners-up Vivint Solar and Tesla. But the company nonetheless faces pressure to fulfill its objective of raising deployments by at least 16 percent.
Hitting that target at this point necessitates moving megawatts in the fourth quarter, even over the firm has ever accomplished. Really, Sunrun is directing into 118 and between 115 megawatts for the quarter giving upon its installation 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 inteview 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 to grow 15 to 20 per cent 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 — abandoned the company behind to the physical function of installing.
“We believe it’s the right structural change to make, it just put pressure on the hiring,” Jurich said.
The company is trying to fulfill 600 openings its sales and installation teams, she noted. Employing is running up against a tight labour market usually, as California encounters demand for home building and reconstruction from a spate of wildfires.
This labour shortage is not special to Sunrun, said solar analyst Bryan White of Wood Mackenzie Power & Renewables. Solar contractors from coast to coast are currently running into exactly the identical 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, and achieved 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-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 gamers are seeing significant increase in 2019, as consumer demand is strong,” said White, the solar analyst. “Sunrun, despite facing challenges with labour 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 panel and a battery is exceptional to your generator,” she said. “The battery and the solar system panels can operate uninterrupted. We take care of the maintenance for the homeowner, and now we offer it as a service so the homeowner could get it to get zero upfront cost.”
Sunrun has installed 8,000 Brightbox systems, Jurich said. This 's upward from 6,000 accumulative installations reported in August.
Customer response to the numerous fires and blackouts that are pre-emptive will not appear at Q3 earnings. However, in the month of October, the rate of Bay Area clients choosing storage using their Sunrun solar jumped from 30 percent to 60 per cent, Jurich said.
Total in California, the affection rate for Sunrun storage rose from 25 percent in Q2 to 30 percent in Q3.
U.S. home storage installations rose 41 per cent in Q1 to Q2, into some listing 34.8 megawatts for the quarter, based on data in Wood Mackenzie. California accounted for the megawatts and PG&E territory in particular doubled its installations, as clients. The amounts for Q3 have not been published.
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