Sunrun Hits Deployment Targets, Expands Grid Services Business in Q2

The largest U.S. residential solar installer hit deployment expectations and built out its battery business in the second quarter.

Sunrun installed 103 megawatts, hitting its guidance of between 102 and 104 megawatts. That's an increase from 86 megawatts installed in Q1, and it's up 13 percent from Q2 2018.

The company plans to keep the momentum going in Q3 by installing between 107 megawatts and 110 megawatts. Sunrun maintained its previous expectation of 16 to 18 percent annual growth in deployed capacity for 2019. 

Sunrun's cumulative battery storage deployments hit 6,000, up from the 5,000 reported at the end of 2018. Sunrun plans to increase the value of its solar installations by adding storage, which provides customer backup power and can deliver new revenue through aggregated grid services.

The progress so far has come in spite of an immature supply chain and often lengthy permitting and interconnection processes. The early work is "setting the foundation" for a much larger storage market to come, CEO Lynn Jurich said in an interview with GTM.

"It is my belief that in a few years the majority of our customers have a battery," Jurich said. "The cost improvements and value proposition will support that."

As the solar investment tax credit drawdown approaches, Sunrun has begun accumulating inventory to make use of the IRS's safe harbor rules in projects next year, chairman Ed Fenster said on a call with investors and analysts. He placed the odds of an ITC extension at roughly 25 percent, noting it would likely come close to the end of the year in connection with a larger bill. The company is not banking on that coming to fruition.

Other notable metrics from the quarterly earnings:

• Total solar customers reached 255,000, a 26 percent increase year-over-year. That adds up to 1,763 megawatts.
• Sunrun reported that it has secured project debt for the rest of the year and tax equity capacity through the first half of 2020. That's crucial to keep the money flowing into new projects.
• The average installation generated net present value of $1.11 per watt, or $9,500. That's up from $1.06 per watt and $8,100 in Q1.
• Guidance for 2019 is net present value per watt of $1.15, meaning projects in the second half need to create more value.
• Sunrun's net loss per share was only $0.01 this quarter, an improvement from $0.12 loss per share last quarter. That's even though the company recognizes project costs up front while revenues trickle in over the next two decades. 
• Cash on hand rose from $310 million in Q1 to $354 million.

Points on the board for grid services business

In Q1, Sunrun won its first wholesale capacity contract, in ISO New England. Since then, the company has also won two community-based virtual power plant contracts, both in California, in which it will aggregate residential batteries for local capacity.

The first is in Oakland, where Sunrun will work with the county's community choice aggregator to replace a jet fuel-fired peaker plant. The company's battery systems will go into low-income multi-family housing units in the vicinity, stacking state grants for that market.

Later in the summer, Sunrun won a piece of the Glendale municipal utility's portfolio to ensure reliability with clean alternatives to a $500 million gas peaker plant. 

The locations of these early wins — in Sunrun's home state — are no accident, Jurich confirmed on the call with analysts. Municipal utilities and community choice aggregators operate under a less complex regulatory framework, she said. Rolling out similar programs in investor-owned utility territories requires more "blocking and tackling." Similarly, the competitive markets of ISO New England have clear pathways for aggregated energy to compete, ahead of many other regional grids.

In the future, these contracts could include batteries that were installed by other companies.

Sunrun has been approached by several independent storage developers about aggregating their capacity as part of a virtual power plant, Fenster said.

"We see that as a growing opportunity over time, but one that we haven't quite activated on the priority list yet," he explained.

It will be some time before grid-services revenue materially affects Sunrun's business, however. The recently-won contracts do not kick in for a couple of years, and it will be several more years before a meaningful percentage of Sunrun customers participate in grid services, Jurich said.

New rival in the public markets

Residential solar company Sunnova went public in July, achieving the first major solar IPO since Sunrun went that route in 2015. It raised about $170 million and now has a market cap of $918 million compared to Sunrun's $2.3 billion.

That development "doesn't change anything for us," Jurich noted.

"We believe that our strategy of really focusing on building out our customer acquisition capability is critical," she said. "That will help us with controlling and reducing creation costs."

Sunrun operates a direct installation business as well as working with installer partners, whereas Sunnova works exclusively with local dealers.