Residential solar company Sunnova came out of a daunting Q2 in better financial shape than it’s ever been in.
Earlier in the year, the disruption of the coronavirus pandemic and the associated public safety response prompted most leading solar companies to revoke their financial guidance for the year. Vivint Solar, SunPower, Sunrun and Tesla all did. But Sunnova did not, and it backed up its confidence with a strong performance in the second quarter.
Sunnova installed 6,166 rooftop systems in the quarter through its dealer network. At an average system size of 7.8 kilowatts, that translates to about 48 megawatts. That installation count is down 9 percent from Q1, not nearly as bad as the quarterly declines analysts predicted for the residential sector as a whole. And Sunnova’s installations were up 54 percent from Q2 2019.
That brings Sunnova’s total customer base to 91,574, including leases, loans and power-purchase agreements. Sunnova also grew its dealer network from 191 partners in Q1 to 227 partners in Q2, and raised its energy storage attachment rate to 34 percent, up from 30 percent the previous quarter.
“It’s awesome to see the performance by my folks and the dealers through this quarter,” CEO John Berger told Greentech Media in a Thursday interview. “I strongly suspected that we could perform very well, but even I was surprised by how well we performed in this very difficult period.”
Sunnova’s expectation for the full year is to add 28,000 to 30,000 customers; the 12,936 already added means the company is on pace, given that installations typically increase in the latter half of the year. The guidance also includes generating earnings before interest, taxes, depreciation and amortization (EBITDA) of $58 million to $62 million, as well as producing adjusted operating cash flow of $10 million to $20 million.
But Sunnova already delivered $18.8 million in adjusted operating cash flow in Q2, setting itself up nicely for that metric. The company finished the quarter with $184 million in cash, the most it has ever accumulated.
In a sign of confidence, Sunnova said it would grow its customers by 40 percent in 2021 and 2022. That’s a much faster clip than the recent performance of leading rooftop installer Sunrun, which grew its customer base by 22 percent in 2019. The primary goal, though, is maximizing cash flow from that expanding fleet of installed assets.
Aiming to “be the largest”
Sunnova, though smaller than its national solar company rivals, has steadily built itself into a competitor worth taking seriously.
Tesla, with all its brand recognition, posted its worst-ever totals for solar installations in Q2. Even though it switched to online sales well ahead of the industry as a whole, Tesla’s Q2 megawatts deployed fell 7 percent from Q2 2019, its previous low. It fell 23 percent from Q1 2020.
That set up dour expectations for the residential sector: If a digital sales operation with high brand recognition like Tesla couldn’t avoid a serious downturn as customers were forced to stay at home, how would more traditional installers fare?
But Sunnova’s model of reaching customers through a network of local installer partners helped it to adapt to the coronavirus era, Berger said.
“Because each is a local expert in the geography in which they do business, our dealers are able to respond quickly and appropriately to navigate the unique challenges in their specific markets resulting from COVID-19,” he said on Thursday’s earnings conference call.
The other residential solar companies have yet to report their earnings. But a major shift in the competitive landscape already came to light: front-runner Sunrun announced earlier this month that it will acquire No. 2 installer Vivint Solar, in the largest rooftop solar combination so far. The combined entity will have a portfolio of 3 gigawatts installed across 500,000 customers.
For now, though, Sunnova will grow its installations organically and by bringing on new dealer partners.
“We don’t need to do any acquisitions to continue to grow and actually to be the largest in the industry,” Berger said on Thursday’s call. “But we’re always looking at [merger and acquisition] opportunities; we will continue to do so.”
Storage attached to one-third of all solar deals
Sunnova’s ability to sell batteries with a third of its solar deals nationwide creates new business opportunities.
Other companies have achieved that level in the battery-friendly state of California, where incentives, high retail rates and risk of wildfire-related outages make batteries attractive. Sunrun has said that its battery attachment rate in late 2019 reached 35 percent in California, while nationwide it stood at 20 percent. SunPower is targeting 20 percent attachment for its new residential storage offering by the end of the year.
Sunrun has made a strategic bet on grid services, in which it aggregates customer battery capacity to generate revenue from utility contracts or market participation. It has a head start, with more than 10,000 batteries installed, compared to Sunnova’s base of around 5,128 (5.6 percent of total customer base). But now Sunnova is talking about competing in grid services too.
The market is heading toward aggregated grid services, and Sunnova has some deals in the pipeline, Berger said. More specifics will have to wait for the next earnings call, though. He also cautioned that it will take a couple of years for anyone to derive meaningful revenue from this new line of business.
In the meantime, storage deepens the value proposition for customers. As summer storms bear down on Puerto Rico, Berger noted, Sunnova is charging up customer batteries to ride out potential outages and has crews standing by to repair any damage the storms may inflict.
“This is a service sale, not a product sale,” he said. “This is a much bigger industry than just solar only.”