Are Big Changes In Store for Residential Solar?

Rumors that Sunrun could acquire REC Solar would change the landscape for residential solar.

Feb 4, 2014 at 11:09AM

So far, there have been two very different business models in the U.S. residential solar market. SolarCity (NASDAQ:SCTY) and Vivent have built their businesses on vertical integration, owning the sales channel, installation trucks, as well as financing. The model has been successful since they're the two largest residential solar installers in the U.S.  

Most other companies, like SunPower (NASDAQ:SPWR), Sunrun, Real Goods Solar (NASDAQ:RGSE), and Clean Power Finance, stick to a specific niche in the market. In some cases, they work with each other to provide services the other doesn't offer.

What could change that is if rumors of Sunrun acquiring REC Solar, a top 5 residential solar installer, turn out to be true. For one, it would alienate other partners but it could also create the vertical integration that has led to success for SolarCity and Vivent. Let's look at what could change if Sunrun expands beyond financing.

Scty Installers

SolarCity workers installing residential solar panels. Image courtesy of SolarCity.

Will the big three emerge?
If Sunrun were to buy REC Solar, it would probably also acquire other valued partners to create some national scale. If it did, the big three solar installers would be SolarCity, Vivent, and Sunrun, all offering similar products and financing and owning about 50% of the market.  

SolarCity and Vivent are already proving that owning the full downstream business is gaining a significant share of the market, so it wouldn't be surprising to see others follow suit.

This would also put pressure on Real Goods Solar, soon to be called RGS Energy, SunPower, and others to change strategies mid-stream. SunPower, in particular, may have to take on capabilities it's avoided so far. SunPower primarily works with smaller dealers to sell panels and offer its lease financing. So far, that's been a fairly small business for SunPower and with others taking share it may require some downstream acquisitions to garner a significant share of the market.

Stuck in the middle is a company like RGS Energy and hundreds of small installers around the country. RGS currently leans on partners like Sunrun and Clean Power Finance to supply financing and other services, like other small companies do. These small operators may not have the financial, sales, or branding muscle to compete against SolarCity, Vivent, and a potentially larger Sunrun.

Watch for big changes in residential solar
The success of SolarCity will definitely have an impact on how other companies operate and if they keep gaining share someone will have to react. I think this is a business that's ripe for consolidation and it's just a matter of who makes the move to buy up more downstream capabilities.

SunPower has the balance sheet to acquire small installers and currently doesn't have much, if any, share with the largest installers/financiers because they're seen as a competitor. Sunrun would be a good merger candidate for a large installer and could bring some of its network into the fold as well.

If one merger is announced, I think it could open the floodgates for more M&A activity in this business. Branding and scale is clearly more important than many companies thought and SolarCity's success in residential solar will become a model for companies looking to build market share.

Growth stocks that can make you rich
Looking for more great growth stocks? You can uncover Motley Fool co-founder David Gardner's scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Travis Hoium manages an account that owns shares of SunPower and personally owns shares and has the following options: long January 2015 $5 calls on SunPower, long January 2015 $7 calls on SunPower, long January 2015 $15 calls on SunPower, long January 2015 $25 calls on SunPower, and long January 2015 $40 calls on SunPower. The Motley Fool recommends and owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers