Sunrun - Portfolio Addition

Founded in 2007, Sunrun has grown rapidly and is now the largest installer and also owner of solar systems on homes in the US with a market share of around 20%. The current market cap. is $16.5 billion. The business is driven by the increasing weather-related climate events - from devastating wildfires in California, floods and hurricanes along the eastern seaboard - all of which are leading to extensive power outages. More and more people are looking for ways to reduce their dependence on the large utility providers and turning to solar panels and energy storage solutions. In addition a growing number of people are concerned about climate change and just want to make the switch to clean renewable energy.

The upfront costs of installing solar PV and maybe battery storage can be up to $30,000 and therefore only an option for the relatively wealthy homeowners. To counter this hurdle, the Sunrun business model offers the homeowner the benefit of solar PV with no upfront cost. Therefore the homeowners save on energy bills and pay monthly payments to Sunrun who install, monitor and maintain the system and retain ownership.

With the introduction of their 'Brightbox' energy storage system in 2019, the company have increased average revenues by over 40% compared to the solar-only offering and expect to double the battery storage option in the coming year.

In addition to the domestic solar offering, there is also 'grid services' which involves power purchase agreements with utility companies to supply energy at times of peak demand. As they own the batteries installed in customers homes, they can use sophisticated technology to tap into the collective unused energy and sell this to the utility company at a premium.This is a virtual power plant. They estimate that grid services can increase the value of revenues from each home customer by 25%.

Results

According to the latest Q3 results to end September 2020, customers have increased by 20% year-on-year to 326,000 with net earnings assets lifted 15% to $1.7bn. Over the 3 month period, the acquisition of Vivint Solar was completed to create a combined customer base of over half million. This consolidated Sunrun's position as leader in home solar and operating over 3GW of solar energy.

The company announced they are expecting continued growth in Q4 combined with improved margins and cost savings from the acquisition of Vivint.

 Conclusion

The home solar business is growing very rapidly and industry experts are predicting solar+storage installations to grow at 7% each year for the next decade. Federal tax credits introduced in 2005 and worth 26% to subsidise solar are due to expire in 2023 however the industry are hopeful that the new Biden administration will extend these as part of it's green agenda.

Obviously the pandemic has slowed growth in 2020 which has been a tough year for most businesses. However, I am hoping we are getting towards the end of the worst effects of the pandemic and businesses can get back to something like normal by the mid-year. In addition, the new administration are pledging $2 trillion for the green agenda to make the transition to net zero so this should be a boost to the renewable energy sector.

Despite the slowdown in the economy, the shares, in common with many in the renewable energy sector, have had a really good run over recent months rising from $20 per share last January and reaching a high point of $98 at the start of 2021. They have fallen back a little this past week and the shares were added to my SIPP at $82. The rise in sterling over recent weeks makes this sort of purchase more attractive.

I look forward to seeing the full year results which are due in February.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in individual companies can be rewarding but is higher risk compared to collective investments - always DYOR!