Between Covid-19 and natural disasters, Mother Nature threw Americans a curveball in 2020. Solar companies are hitting it out of the park.
Solar panels and battery systems have renewed appeal for people spending far more time in their homes and less certain about the lights staying on. Meanwhile, interest rates have never been lower, making it cheaper for capital-intensive businesses such as
Sunnova Energy International
to raise funds.
The pandemic was initially disruptive as door-to-door marketing became much more difficult. Residential solar installations were down 23% sequentially in the second quarter, largely due to shelter-in-place orders that imposed restrictions on selling and installing systems, according to a quarterly report from the Solar Energy Industries Association and Wood Mackenzie.
But the temporary setback was probably what the industry needed to speed up some much-needed changes. Both Sunrun and Sunnova noted in their most recent earnings calls that they had shifted sales to a digital model. That is probably positive in the long term because digital marketing is more cost efficient than going door to door, according to Sophie Karp, equity research analyst at KeyBanc Capital Markets. Overhead costs, including those involved in customer acquisition, had been rising as a share of residential solar pricing over the years.
Selling rooftop solar is also easier when potential customers are more aware of their rising electricity bills. Since the pandemic began earlier this year, Americans have had to shift work electricity usage to their homes. In August, residential retail sales of electricity rose 5.8% from a year earlier while the commercial and industrial sectors saw declines of 6.7% and 9.3%, respectively, according to data from the U.S. Energy Information Administration.
The sticker shock seems to have boosted web traffic to residential solar providers: Average monthly traffic surged 111% for Sunrun so far this year compared with 2019; Sunnova and Vivint Solar saw increases of 48% and 20%, respectively, according to data from SimilarWeb.
And, while rising unemployment sparked delinquency concerns across the board, residential solar is somewhat shielded because most solar providers require customers’ FICO scores to be over 650, according to a recent report from BloombergNEF. Homeowners tend to give priority to solar payments because it is a product that saves them money, the report noted.
Solar companies are seeing an opportunity to sell battery storage as an add-on to rooftop solar in places such as California, which is still seeing outages due to wildfires. In some cases, they are able to pitch their services to utilities as a grid-service provider—coordinating vast pools of rooftop solar and storage systems to help balance the grid. Sunrun said in its second-quarter earnings call that it had more than $50 million in awarded or advanced stages of such contracts.
Despite the steep drop seen in the second quarter, BloombergNEF forecasts that residential solar installations will grow this year compared with 2019. “The low installation numbers [earlier in the pandemic] didn’t reflect the demand for solar; it was more a reflection of how permitting has slowed down,” said Tara Narayanan, U.S. solar analyst at BNEF. “There’s actually a pretty strong backlog of projects that are awaiting permits, and we’re expecting to see a surge in 2021.”
That said, the stock market seems to be pricing in those tailwinds and then some. Year to date, Sunrun and Sunnova have gained 135% and 296%, respectively. Sunrun’s value soared after it acquired Vivint Solar, creating the top U.S. company by market share, easily surpassing Tesla’s solar business.
Solar stocks’ heady gains have been attributed to the odds of a Biden presidency. Instead, factors like consolidation and the pandemic have improved their fundamentals well before Election Day.
Write to Jinjoo Lee at firstname.lastname@example.org