Sunrun, Vivint Solar: One Step Back, Many Steps Forward

Last year, I spent a lot of time writing about the issues affecting the US solar industry, from the potential threat of import tariffs, to residential market shift away from third-party ownership through leases and the industry’s difficulties lowering customer acquisition costs. Early March 2018, Sunrun and Vivint Solar released their 2017 financial results. Now that the results are in for two of the big three national companies (the other being Tesla’s SolarCity), it is interesting to see how they managed to navigate through this difficult environment. Both had a good day given the threats they were facing, but their stories are different.

A New Strategy for Vivint Solar

At the expense of market share, Vivint Solar chose to focus on the most valuable customers to increase its margin, moving from capital-intensive leases to direct sales. It also has shifted from a pure solar offering to a residential distributed energy resources (DER) solution provider—which includes Mercedes Benz Batteries and home management tools—to increase the average revenue per customer.

This shift in strategy began in the middle of 2016, hence Vivint’s annual installed capacity dropped by 17%, from 222.2 MW in 2016 to 183.8 MW in 2017. Despite this fall, the company managed to almost double its revenue, reaching $268 million in 2017, compared to $135 million in 2016. Some of this growth came thanks to the leases Vivint signed in 2016, so it is more a reflection of its business model; revenue from leases grew 43% to $150 million, but the lion share of the growth came from solar and other product system direct sales, which grew 390%, reaching $117 million. The company’s net income got a significant boost, increasing from $17.9 million in 2016 to $209 million in 2017, a reflection of the shift from leases to direct sales.

Sunrun Jumps to Largest US Residential Solar Installer

Sunrun is also focused on increasing its margin per customer and its strategy included the launch of a full DER solution (solar, battery, and home energy management). However, its strategy is primarily focused on lowering company costs—especially customer acquisition costs—through its collaboration with experienced retailers like Costco and Home Depot and its partnership with Comcast, tapping on its current customers through a referral program.

Sunrun’s strategy paid off. In 2017, Sunrun became the largest residential solar installer in the US, reaching 323 MW of annual installed capacity, an increase of 15% from 2016. The company did this while increasing revenues and reducing its costs, becoming cashflow positive. Revenue increased from $454 million in 2016 to $530 million in 2017, and net income grew from $92 million in 2016 to $124.5 million in 2017.

What Can DER Do for Solar Installers?

The fact that Vivint Solar and Sunrun had a good year in what was a difficult environment shows that solar and DER (in general) have passed the early adopter phase and now brings real value to customers.

This also highlights the value that DER can bring to solar installers if they position themselves to develop correctly in this market. Of course, this is easier to say than do, as shown by the bankruptcy of Sungevity in early 2017 (then the fourth-largest installer in the US) and the struggle of Tesla's subsidiary SolarCity, which was the largest installer before 2017. However, according to Guidehouse Insights’ Global DER Deployment Forecast Database report, the residential DER segment will grow faster than any other, so a bountiful reward awaits those that succeed.