Residential Solar: A Buyer’s Market

This week, residential solar platform Sungevity filed for bankruptcy, adding to the list of troubled companies in the solar industry. The company was touted as having an asset-light model relative to competitors, but never gained significant market share. Last year, the company planned to go public through a special-purpose acquisition vehicle (SPAC or blank check company), but the transaction was cancelled. In January, the company had cut 100 staff and last week cut another 400 in advance of the bankruptcy filing. Here is a summary of companies that have faced a similar fate:

  • Verengo SolarFiled for bankruptcy in November of 2016 and sold assets to Crius Energy for $11 million. Verengo’s headcount reached 1,000 in 2013 and it was one of the top residential solar installers. The company’s troubles may have begun as early as 2014 when it reportedly attempted a sale.
  • NRG Home Solar: In May 2014, NRG had acquired Roof Diagnostics, one of the largest residential solar companies in the U.S. at the time with nearly 500 employees. After several restructuring attempts, the company finally shutdown the majority of its solar operations.
  • OneRoof Energy: In July 2016, OneRoof announced that it was winding down its solar operations after a change in strategy in May of 2016. The company had announced its “Solar 2.0” strategy in which it moved away from traditional direct sales in favor of a channel strategy. In March, the company announced the sale of residential solar assets to Greenbacker Residential Solar for $8 million in cash. OneRoof Energy was backed by Black Coral Capital.
  • Tesla/SolarCity: The company announced in a Q4 shareholder letter that it will be reducing customer acquisition spend and shifting from leases to purchases (a broader market trend).
  • Enphase Energy: Enphase announced a strategic investment in early 2017 and a strategy change. The company’s stock has dropped from $15 in mid-2015 to $1.28 currently.

Market Forces

These companies have been impacted in part by a slowdown in large residential solar markets, including California and New York in 2016, which may be due to high penetration. In January 2017 in California residential solar permits fell an estimated 40%, which was likely due to a combination of market forces and record rain throughout California.

Opportunity for Consumers

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” – Warren Buffett

The turmoil in the residential solar market has presented a buying opportunity for consumers, as solar prices (defined as the lower quartile of the distribution curve) declined to approximately $3.00/watt depending on system sizes. The price decline is a result of an increase in supply in the module market and increasing installer competition, as illustrated by the events listed above. At these prices, solar can make an attractive investment in many states with cash returns exceeding 15% in New York, California and Massachusetts. With the S&P reaching record highs, a solar system could be a very attractive investment relative to common stocks in the next 12-18 months.

Author: Casey Anderson

Casey is a Research Analyst at OhmHome and leads the company’s collection and analysis of residential solar data. OhmHome’s mission is to be the most consumer-centric source of independent information for homeowners interested in purchasing solar.

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