When SunPower (NASDAQ:SPWR) released earnings last week, investors focused a lot of their attention on the fact that the commercial solar business is still in an uncertain position. Management said they're considering alternatives to the commercial business, but it's clear that residential solar energy is the company's future.
Financial results in the third quarter of 2021 show exactly why SunPower is making the move. Residential installations are up, prices are up, margins are up, and profitability is improving. It's a good time to be a residential solar company.
Residential solar's outstanding quarter
There are two ways to look at SunPower's residential solar business's growth, and that's through revenue and volume. Historically, volume for solar companies has gone up, but revenue has grown more slowly because the cost of solar energy on a per-watt basis has been trending lower.
In the third quarter of 2021, we saw growth in both SunPower's revenue and its volume. Megawatts (MW) installed in the residential business were 92 MW, up from 68 MW a year ago, and residential revenue was $260 million, up from $171 million a year ago.
What stood out to me was that the revenue per watt jumped from $2.24 to $2.55. This may have partially been from higher pricing, but it was helped by growth in energy storage, which saw an attach rate of 27% for direct sales in the quarter. EV chargers from Wallbox should add to that number as well.
SunPower is growing volume, which should continue as the acquisition of Blue Raven Solar is folded into the business. And revenue and margins are up as well as SunPower controls costs more effectively than it has in the past.
Build Back Better Act could further fuel growth
Management also highlighted that the Build Back Better Act, which continues to be debated in Congress, could add billions of dollars in investment in the solar industry through tax incentives and direct investment.
The investment tax credit of 26% in 2021 and 2022 is scheduled to fall to 22% in 2023 and 0% for residential solar in 2024. The current bill aims to increase the tax credit to 30% and even allow it to be a direct pay subsidy, rather than a credit on the homeowner's taxes. These could both grow solar as it makes it more cost-effective and increases margins.
SunPower's growth is just beginning
It's been a transformational year for SunPower, and with the company focusing all of its attention on residential solar, we could see even better financials in 2021. Management said they see $96 million to $114 million in adjusted earnings before interest, taxation, depreciation, and amortization (EBITDA) from the business in 2021 (excluding the commercial business management is trying to sell and legacy manufacturing operations). In 2022, they said that volume is expected to grow 35% from this year's level and margins should remain strong.
With energy storage and EV charging now being added to more and more solar installations, it's likely that SunPower's revenue per watt installed will improve as well. It looks like momentum is firmly behind SunPower right now, and that bodes well for the company heading into 2022.