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Sunrun Offers ‘Draconian’ 2016 View, Won’t Gouge SolarCity Market

Sacked Nevada operations smashed  Sunrun ‘s ( RUN ) chances of scooping up some  SolarCity ( SCTY ) market share, a Credit Suisse analyst said Friday after Sunrun’s late-Thursday 2016 solar-deployment guidance lagged expectations by half. For 2016, Sunrun sees 40% growth in solar installations vs. Credit Suisse views for 78%, analyst Patrick Jobin wrote in a research report. It’s a rather “draconian scenario, considering the (Investment Tax Credit) has been de facto extended through 2023 and most net-metering decisions are in favor of rooftop solar.” Sunrun stock was torched, down 14% in early afternoon trading on the stock market today  to just above 6, on the installer’s mixed Q4 earnings results. IBD’s 22-company Energy-Solar industry group felt some heat, trading flat Friday afternoon despite an up day for the market overall. SolarCity stock was down 1.2%. Late Thursday, Sunrun reported $99.6 million and a 15-cent loss per share for Q4. Sales rose 66%, and losses shrunk vs. the year-earlier quarter. Sales missed estimates, but the bottom line beat the consensus view of seven analysts polled by Thomson Reuters. For 2015, Sunrun reported $304.6 million sales, up 53%, and a per-share loss of 96 cents, narrowing from a $1.54 per-share loss in 2014. Both measures topped Wall Street’s model for $302.8 million and $2.39 a share in losses. In Q4, Sunrun deployed 68 megawatts and booked 80 MW, up 83% and 117%, respectively, vs. the year-earlier quarter. Sunrun wrapped up 2015 with 203 MW deployed and 274 MW booked, up a respective 76% and 85%. But Nevada affected both metrics, Sunrun noted. Sunrun’s Q4 deployed metric missed Jobin’s expectations for 80 MW. Current-quarter and 2016 guidance for 56 MW and 285 MW were also disappointing, Jobin wrote. Nevada Gouges Sunrun, Too Sunrun and SolarCity stocks are down a respective 52% and 55% from their closing prices of Dec. 21, the day rumors began swirling of a potential extension to the ITC. Without an extension of that key solar subsidy, analysts expected a cliff for 2017 installations following its expiration Dec. 31, 2016. Congress extended the ITC, boosting solar shares, but then a decision a few days later in Nevada gouged solar stocks. Nevada regulators opted to cut payments to solar customers for excess energy fed back into the grid. Net-metering policies are typically seen as anti-utility because they force the companies to buy the energy on a one-to-one basis. In December, both Sunrun and SolarCity opted to exit Nevada, which has been a top solar state. In February, Nevada regulators voted against grandfathering existing solar customers under the old net-metering scheme, prompting Sunrun to sue. Wall Street “under-appreciated how quickly Nevada had (grown) when we attempted to assess risks to volumes,” Jobin wrote. A recent GTM Research report says Nevada was among six states to surpass 1 gigawatt in cumulative installations. But the Nevada Public Utilities Commission decision to cut net-metering payments will move Nevada from No. 5 in installations to No. 31 in 2016, GTM predicted. In 2015, Sunrun deployed 203 MW, slightly below its guidance for 205 MW, “primarily due to the closure of the Nevada market,” according to Sunrun. Current-quarter guidance for 58 MW deployed, up 53% year over year, was below Jobin’s expectations for 70 MW. Sunrun said it removed a 12 MW backlog from Nevada. For 2016, Sunrun guided to 40% year-over-year growth to 285 MW, below Jobin’s view for 78% growth (361 MW). Last month, SolarCity blamed Nevada after it came 8 megawatts short of its Q4 installation guidance. Nevada represented about 20 MW per quarter for the No. 1 residential installer. SolarCity Chairman Elon Musk also heads up Tesla Motors ( TSLA ), which operates a battery factory in Nevada. Squaring Off Against SolarCity As recently as Q3, Sunrun expected to gain share in 2016 vs. SolarCity and didn’t foresee dropping off from 2015’s 76% growth rate, Jobin wrote. In Q3, SolarCity pledged to curb growing losses by shrinking its annual 80% growth rate. SolarCity expects to grow 44% in 2016. “We believe (Sunrun) management’s credibility will suffer until the decisions made are demonstrated to be sound and the company is able to reestablish a track record of meeting guidance and expectations,” Jobin wrote. Likewise, Sunrun is angling to become cash flow positive and expects to do so this quarter by drawing down on its $250 million credit facility. Sunrun’s 40% growth target for 2016 will allow it to preserve capital resources, Jobin wrote. The solar industry is capital-intensive, and analysts worry about SolarCity and Sunrun’s narrowing access to capital, given the market’s volatility. To that end, Sunrun is pruning its channel partners to focus on those with the highest value, he wrote. “It is apparent that a portion of channel partners are less viable for Sunrun in a capital-constrained environment, particularly those who demand advance payments from Sunrun upon customer origin instead of installation,” Jobin said. Shifting from channel partners also allowed Sunrun to plump its direct business — currently 50% of sales. In 2016, Sunrun expects to double its direct business. Combined with 40% growth overall, that shows marked deceleration in the channel business, Jobin wrote. Jobin maintained his outperform rating but cut his price target on Sunrun stock to 21 from 35. Image provided by Shutterstock .

‘Bedrock’ Utility Market To Double U.S. Solar Installations In 2016

U.S. solar installations will more than double in 2016, driven by the “bedrock” utility market that could account for three-quarters of all new capacity, according to a recent trade study. Solar installers — like First Solar ( FSLR ), SunPower ( SPWR ), SolarCity ( SCTY ) and Sunrun ( RUN ) — will add 16 gigawatts in 2016, bringing cumulative installations up to 41.6 GW and growing by a record 120% year over year, GTM Research forecasts. Cumulative installations already have increased 1,180% since 2010, when the U.S. had 2 GW in total capacity. In 2015, installers added 7.26 GW, up 16%, driven by 66% growth in the residential market. Capacity touched 25.6 GW. Between 2016 and 2020, GTM sees the U.S. solar market adding 24 GW, reaching 97 cumulative installations by 2020. In 2018, GTM expects all segments to grow on a year-over-year basis, and by 2021, more than half of all states will be markets with annual installation above 100 megawatts. Cumulative installations are expected to top 100 GW. ITC Extension Pushes Solar The push was likely driven by the extension of the Investment Tax Credit on solar which, until late December, was poised to expire for residential installations at the end of 2016. Utilities would have seen the subsidy step down from 30% to 10%. GTM credited North Carolina developers for a Q4 boom in the solar market. In 2015, North Carolina became the second state outside California to add more than 1 GW of utility photovoltaic (PV) installations on an annual basis. In 2015, the utility market accounted for 57% of installed capacity. But installation growth lagged the residential market, up 6% year over year to 4 GW. The residential market added 2.1 GW, up 66% vs. 2014. The residential market has grown at 50%-plus rates for four consecutive years. The non-residential market was flat for the third consecutive year in 2015. But in 2016, the utility market will grow by triple digits, GTM predicts. “Looking ahead to the rest of 2016, we anticipate another banner year for U.S. solar, which will benefit from gigawatts of utility (photovoltaic) that rushed through the early stages of development to ensure interconnection in 2016,” GTM wrote in the report. Utility To Outgrow Residential Utility solar is becoming more economical, with costs now ranging between $35 per megawatt-hour to $60/MWh. Regions in Texas and the Southwest are retiring aging coal fleets and replacing them with utility solar and natural gas, GTM wrote. In 2015, Arizona, California, Massachusetts, Nevada, New Jersey and North Carolina all surpassed 1 GW in cumulative solar capacity. But new net-metering regulations that Nevada’s Public Utilities Commission voted in late last year will force that state from its position as the No. 1 PV market to No. 31 in 2016. IBD’s Energy-Solar industry group, led by First Solar and SunPower, hit a nearly three-year low last month. It ranks No. 50 our of 197 groups tracked. Nevada might not be alone, GTM wrote. Although California passed net-metering 2.0, which the solar market has embraced, other states could go the Nevada route. This year, Nevada upheld net-metering reform that doesn’t grandfather existing solar customers under the old rate scheme. Net metering refers to the system that lets rooftop solar customers get credits for any excess energy they send back to the grid, but those credits are now far less generous in Nevada. “While a growing number of state markets are picking up steam, an even larger number of states are considering reforms to net-metering rules that threaten the market’s ability to maintain a hockey-stick growth trajectory,” GTM wrote. Meanwhile, component pricing for residential is expected to stagnate, while utility sees a continued plunge. Overall system pricing fell by 17% in 2015. Residential hardware costs fell 16% in Q4, but soft costs (including customer acquisition costs) jumped by 7%. The non-residential market saw 15% and 6% declines in hardware and soft costs, respectively. Utility soft costs declined by 37% and 23% in fixed-tilt and tracking projects, respectively, said GTM.

SolarCity Risk Called ‘Elevated’ After Dumping MyPower Loan

No. 1 residential installer SolarCity ( SCTY ) abandoned its MyPower loan program after overestimating the number of customers qualified for the Investment Tax Credit on solar, JPMorgan Chase analyst Paul Coster wrote Tuesday. Coster downgraded SolarCity stock to neutral from an overweight rating and slashed his price target to 29 from 44, reflecting the firm’s “elevated” risk in 2016. Intraday on the stock market today , SolarCity stock toppled 5.2%. “We still believe the stock is undervalued,” Coster wrote in a research report. “However, risk is currently elevated, and business model uncertainty will weigh on the stock in 2016.” SolarCity is toeing the line between development company and power company. The tricky combination has played out in “poorly expressed GAAP numbers,” Coster wrote. He ticked off SolarCity’s transgressions. Over the last year, SolarCity launched and then withdrew its MyPower loan program, introduced and then de-emphasized a cash available for distribution (CAFD)-like metric, and amended its methodology for examining megawatts installed vs. deployed. “Mostly, these changes made sense to us, but the complexity and flux make it difficult to bring new money investors into this stock,” he wrote. SolarCity Worse Off Than Peers To that point, SolarCity is already driving off current investors. Since Dec. 17 — the day before Congress extended the ITC — SolarCity stock has fallen 68%, while IBD’s 23-company Energy-Solar industry group has dropped 32% over the same period of time. Ongoing net-metering headlines have only fueled the incineration, Coster wrote. Days after Congress extended the ITC by five years, Nevada regulators cut payments to solar customers for excess energy fed back into the grid. Earlier this month, the Nevada Public Utilities Commission voted against grandfathering existing solar customers under the previous rate scheme. “Encouragingly, California’s PUC has already approved a favorable plan for the solar industry, extended into 2019,” he wrote. But whether that will be enough to mitigate the “headline risk” remains to be seen. And SolarCity’s discontinued MyPower plan prompts further customer base questions, Coster wrote. CEO Lyndon Rive told GreenTechMedia.com on Monday that many customers couldn’t qualify for the ITC. “In hindsight, I definitely underestimated that,” he said. “I underestimated the success we’ve seen, which is fantastic.” Growth Hits Stalling Point SolarCity’s customer base isn’t solely wealthy households typically associated with solar panel investments, Coster wrote. And that could be a problem. “We believe new customers (with) apparently good credit (scores) at the lower end of the income spectrum may be at some risk for slow-pay or default in the event of an economic downturn,” he wrote. Meanwhile, SolarCity’s growth is slowing. During Q4, SolarCity installed 272 MW , which was up 54% vs. the year-earlier quarter but missed earlier guidance for 280 MW to 300 MW. SolarCity blamed its exit from Nevada for the miss. Fellow residential installer Sunrun ( RUN ), too, left Nevada upon the PUC vote in December. Although SolarCity reiterated 2016 guidance for 1.25 gigawatts in installations, up 44% year over year, that implies “re-acceleration and a back-end-loaded year — a risk,” Coster wrote. First Solar ( FSLR ), the largest stock by market cap in IBD’s Energy-Solar industry group, was down 4.5% to near 61 in afternoon trading, ahead of its after-the-close earnings report.