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What happened
Shares of residential solar installer Sunrun Inc (RUN -2.33%) jumped as much as 16.6% today after reporting third-quarter earnings. As of 12:00 p.m. EST, shares were still up 12.9% on the day.
So what
Quarterly revenue jumped 35.6% to $112.0 million, and net income came in at $16.9 million, or $0.16 per share. Better yet, management said 2016 installations would be around 285 MW, above the previous guidance of 270 MW to 280 MW.
One interesting note is that solar system sales fell from 15% of sales a quarter ago to 10%, opposite of the trends taking place in the industry. And Sunrun continued to have some of the highest costs in the industry, at $3.37 per watt.
Now what
Sunrun continues to report strong NPV and installation numbers, but something just doesn't sit well with me. How can a company with the highest costs among large installers be generating more value than competitors installing a similar product?
One figure to watch is the amount of funding that comes from tax equity financing. According to the earnings presentation, $2.33 of project funding is coming from tax equity, which finances the 30% investment tax credit and accelerated depreciation. That's much higher than SolarCity's $1.73 per watt in tax equity financing, indicating that Sunrun is valuing systems at a much higher level than competitors. And that's what's driving cash flow and NPV, which is a red flag for solar investors.
