Friday, March 27, 2015

More On IPO-in-the-Making, SunRun

Following up on Tuesday's "Here Comes Another Solar Installer/Financier".

Long-time readers know our basic stance on the solars: Right now the industry is boring from a portfolio point of view but if you need exposure the financier names offer a better shot at making some money than the manufacturers.

From VentureBeat:
Sunrun’s journey shows that there is rarely a straight line to success

With $2 billion worth of solar panels installed on 70,000 customers’ homes across 12 states, Sunrun is well on the way to proving that its model for solar power generation can work.

But it wasn’t always so clear. When the company started, in February 2007, cofounder and chief executive Lynn Jurich says she faced an enormous amount of skepticism.

“It was a hard model,” she said. She had trouble convincing investors to back Sunrun because they were concerned about how capital-intensive the business would be. And a look at the string of solar company failures over the past few years suggests that investors may have been right: Solar is a risky, capital-intensive business.

Before you can start generating electricity from the sun, you need to install a lot of solar panels. A typical household rooftop solar system costs at least $12,000, and often as much as $30,000. Jurich’s idea was that Sunrun would install these systems on houses, but retain ownership of them — and then make money by selling electricity, at below-market rates, to the owners of the houses.

In effect, Sunrun is building a vast, distributed solar power generation plant by renting space on people’s rooftops. The “rent” it pays comes in the form of a discount on the electricity it sells. Win-win: Homeowners get to go green, they benefit from cheaper electricity, and they don’t have to give up anything other than roof space they weren’t using anyway; Sunrun gets cheap “land” and can profit from the difference between its costs and what it receives for selling that power.

“The model on its face makes a ton of sense,” Jurich told me in a recent interview. “Homeowners already buy a ton of electricity as a service, and who wants to spend a ton of money to buy a solar system and maintain it themselves?”

There’s an additional advantage: The federal government offers a tax credit for homeowners to install solar systems. By installing it for them, Sunrun gets to claim those tax credits, which it can then sell to banks or other companies.

Long story short: This is a tricky financing play. By getting banks to front the money for solar panel installations, Sunrun can build those panels — then pay the banks back in tax credits and in the cash made by selling electricity.
 
But before the economic engine could get humming, Sunrun had to prime it with a few customers. And it couldn’t get customers without having some money to build solar systems for them. So after closing its initial funding round of $12 million, Jurich and her partners funded the first crop of solar panels out of the company’s cash equity. It used that momentum to try and raise the debt financing it needed to continue growing.

But it was a tough sell, because they were trying to raise that money in the teeth of the 2008 recession, from loan originators that were used to lending money for multibillion dollar power plants, not distributed networks of home solar panels. If you’re loaning somebody $2 billion to build a power plant, you know where the money is going, and it’s easy to evaluate if the business is doing well. $2 billion to build a bunch of solar panels is a whole different thing....MORE
Some related posts, there are many more:

Solar: Meet the New Boss, Same as the Old Boss (SCTY; SUNE; TERP)
Amid heartfelt We Shall Overcome's and speechifying about decentralized solar sticking it to the man-in the form of your local utility-is the dawning realization that the panels going on residential rooftops are owned by financial forces that are orders of magnitude larger than the utilities they replace....
Entrepreneur Trades Sex for Solar
Chasing Yield: The Solar Yieldco