Sunrun’s Day in the Sun
In an earlier article on solar cells, we highlighted that the current average solar cell efficiency of 15% is sufficient enough to power a typical house. Between 2009 and 2012 the power generated by US residential solar installations nearly tripled with the top states being California, Arizona, and Hawaii. One startup that is enabling the growth of residential solar installations is Sunrun, a company that leases solar panels to consumers with the promise of fixed, reduced electricity rates.
Founded in 2007, privately held San Francisco based Sunrun is the nation’s largest home solar company. Since inception, the company has taken in around 145 million in venture capital from the likes of Accel Partners, Sequoia Capital, and Foundation Capital. According to this Venture Beat article , with a June 2013 financing commitment from JP Morgan the company now has over $2 billion dollars in capital to support the purchase of home solar installations which it then leases out.
A typical home solar installation of 3 to 7 kilowatts costs between $18,000 to $40,000 to purchase. Since most home owners cannot afford to pay these costs up front, Sunrun offers a “solar service model” in which Sunrun installs, insures, monitors, and maintains all the equipment while users pay a low fixed rate for their electricity over a period of 20 years. The company now has 35,000 customers across 11 states with coverage offered for 3 out of 10 states that have the most rooftop solar potential (California, New York, and Pennsylvania):
If the average cost of a solar installation is $31,500 then with $2 billion in capital the company should be able to increase this number to around 63,500 installations.
Consumer Value Propostion
A consumer who enters into a lease with Sunrun can expect to save around 15% on their electricity bill and more importantly lock in a fixed rate for the 20 year life of the lease. However, in January this year a class action lawsuit was filed in the state of California against Sunrun claiming the company engaged in deceptive marketing practices regarding the future increase in electricity prices that would make the lease of a solar installation a more lucrative value proposition for the consumer. Ultimately the consumer will decide the value to be had in a Sunrun installation and the growth in the number of installations will go a long way in determining whether or not customers are actually realizing the costs savings promised.
Sunrun is not alone with competitors such as SolarCity whose December 2012 IPO has increased 225% to date. Additional uncertainty surrounding the expiration of a 30% residential solar tax credit in December 2016 also stands to impact the Company. Nevertheless, the strong historical growth in residential solar installations makes Sunrun a company worth watching.
Do you want to trade stocks for free? For the rest of your life? TD Ameritrade has completely eliminated commissions for stocks, ETFs (domestic and Canadian), and options. Open up an account with TD Ameritrade today and make brokerage fees a thing of the past.