Sunrun is acquiring Vivint Solar in a $3.2 billion all-stock deal that will make it the No. 1 provider of residential solar energy in the U.S. It’s counting on the pie itself to get much larger in coming years.
“Residential solar has reached only 3% penetration in the United States today and yet surveys show nearly 9 out of 10 people in the United States favor expanding the use of solar power. The acquisition of Vivint Solar adds a complementary direct-to-home sales channel to Sunrun’s platform, increasing our reach and capabilities in a growing market,” the company states in the release announcing the deal.
Sunrun and Vivint Solar held a combined 17.5% share of the U.S. residential solar market in 2019, according to Wood Mackenzie. The No. 3 player, Tesla, had a 4.6% market share,” Emma Foehringer Merchant and Karl-Erik Stromsta write for GTM.
“The acquisition would roll together two companies with significantly overlapping business models and similar visions for a distributed energy future. Though Sunrun and Vivint Solar have slightly different geographic coverage areas, both install rooftop solar across much of the country through leases, loans and direct sales,” Merchant and Stromsta add.
“The agreement … is one of the industry’s biggest. It comes after Tesla Inc.’s 2016 purchase of debt-plagued SolarCity Corp. and the failed 2015 acquisition of Vivint by SunEdison Inc., the clean-energy giant that went bankrupt soon after.,” Bloomberg’s Brian Eckhouse writes for Yahoo Finance.
“The second major U.S. energy deal in as many days -- following Berkshire Hathaway Inc.’s $4 billion purchase of Dominion Energy Inc. assets -- also threatens to further weaken Tesla’s grip on the rooftop-solar market and could inspire more sector consolidation. Sunrun and Vivint combined provide about 75% of new residential solar leases each quarter, according to BloombergNEF,” Eckhouse continues.
“Sunrun will be freaking big. They are clearly looking for ways to get scale and efficiency,” JMP Securities analyst Joe Osha tells Eckhouse.
“Sunrun, like industry peers, depends on access to cheap capital to fund its installations. Greater scale should help bring costs down as fees associated with structuring and marketing debt will be spread across a larger pool of assets. The companies also have complementary strengths: Sunrun is ahead of Vivint Solar when it comes to battery storage sales, while Vivint Solar has long been known for its ability to sell door to door,” Jinjoo Lee explains in The Wall Street Journal.
“The combination isn’t a reaction to poor fundamentals in the long run; residential solar looks promising. Unlike larger-scale solar, which recorded its second consecutive year of declining installations in 2019, residential solar has been growing at a fast pace -- particularly in California, bolstered by power shut-offs,” Lee continues, adding that COVID-19 has stunted growth in recent months.
“While the renewable energy industry has weathered the coronavirus pandemic much better than oil and gas businesses, residential solar installations have dropped as many homeowners have cut spending and reduced interactions with other people. Analysts expect Sunrun’s revenue to dip by nearly 5% this year and Vivint’s revenue to increase by less than 5%, according to Bloomberg,” Ivan Penn elaborates in The New York Times.
“Overall, analysts expect a 25% decline in residential solar installations this year compared to 2019, according to the Solar Energy Industries Association. Most companies have not yet disclosed detailed data for the second quarter, when the pandemic forced many people to work from home and businesses furloughed or dismissed millions of workers,” Penn adds.
Wall Street apparently likes what it sees.
“At close, Sunrun and Vivint Solar's stocks were up 23% and 38%, respectively,”Joe Tenebruso reports for The Motley Fool.
“Sunrun and Vivint Solar share a mission to create a planet run by the sun,” according to their joint news release.
Better than it being run by some homo sapiens we’ve seen recently, to be sure.