Leading U.S. residential solar installer Sunrun went public in 2015. Since then, it has installed more than 3 gigawatts' worth of solar systems, established itself as a leader in home batteries and bought one of its largest competitors, Vivint Solar, which increased its reach from about 300,000 to 500,000 customers.
All the while, Sunrun has entrusted some aspects of its business to a select group of “channel partners”: smaller, regionally focused solar companies that support Sunrun’s sales and installations. In May, CEO Lynn Jurich said Sunrun had increased its roster of partners by more than 20 percent in the previous quarter. Sunrun’s national competitors, such as SunPower and Sunnova, also rely on partner dealers, with Sunnova claiming 501 of them on its last earnings call.
While the big national players account for the largest individual shares of solar sales, it’s the “long tail” of local companies that are responsible for the majority of installations. Now, some regional and local installers are making a play for larger markets, consolidating their efforts in a bid to compete with national peers.
This month, five regional solar companies announced that they had recently merged into a company called Lumio, which has a footprint across 37 states. Another company, Pineapple Energy, is pursuing a similar strategy, acquiring regional players in order to scale nationwide.
Industry experts suggest Sunrun’s 2020 acquisition of Vivint Solar and the pandemic’s chilling effect on home solar sales helped encourage industry consolidation. And regional companies see this as an opportunity.
“The companies that are doing a lot of the heavy lifting here are the sales and installation companies,” said Kyle Udseth, the founder and CEO of Pineapple Energy and an alum of both Sunrun and Sunnova. “We...[saw] a chance to help those companies gain their share of the pie.”
The regional advantage
Lumio’s founders — which include the former CEO of Vivint — were troubled by national players overshadowing the “mom-and-pop companies” doing much of the actual installation work across the country. They also anticipated increasing consolidation in the home solar industry. In 2019, the team launched an America’s Next Top Model–like search for the best regional solar companies in the U.S., eventually winnowing down a list of 74 companies to just five.
“We saw an opportunity to team up and use our local [and] regional expertise to build a more sophisticated nationwide solar company and to gain some of the synergies and advantages that the bigger companies have, while still maintaining the personal touch and the customization of a locally grown company,” said Jonathan Gibbs, Lumio’s CEO. “That’s what we set out to do.”
The new company fully merges Smart Energy Today, Deca, Lift Energy, Our World Energy and Atlantic Key Energy. The move is a unique one; while solar companies often partner to expand their geographic footprint or acquire another company’s assets, the scope and size of Lumio’s merger appear to be unprecedented.
Now Lumio’s challenge lies in holding onto its small-company advantages while seizing the opportunities that come along with operating as a larger corporation.
Regional solar companies are often closer to the customer, which can help build trust within a community and shorten installation times because of familiarity with local policies and procedures. Lumio selected its merger companies in part based on speed of installation; Gibbs said the companies that now make up Lumio have a track record of installing in 30 days or less from deal completion. The company does the majority of its installations on its own.
Working as a larger entity offers up efficiencies. Gibbs said the company is saving as much as 37 percent on equipment that it can now buy in larger quantities. Financing companies have also proven to be more amenable to working with a larger customer.
But joining into a larger conglomerate may also increase overhead as companies integrate and become more complex, said Pol Lezcano, a solar analyst at BloombergNEF. Larger companies can also cede some key regional advantages, said Bryan White, a solar analyst at Wood Mackenzie.
Lumio said it will keep all employees from its five regional merger companies, including the owner-operators of those firms, in hopes of maintaining their community ties and hard-earned regional reputations.
Pineapple Energy, which will function as a public company, has signed agreements to acquire two companies in Hawaii, along with Horizon Solar Power and some assets from struggling Sungevity. It will focus on adding companies from markets where solar and storage are already strong, said Udseth, who sees the Lumio deal as a “validation of the strategy” of consolidation.
“I don’t think we have the only one, true model that’s viable or possible going forward, but I do think there’s a big opportunity,” Udseth said. “I certainly expect more consolidation.”
From solar to “electrify everything”
Both Lumio and Pineapple said they have their sights set on markets beyond solar. Like many solar providers, Pineapple sells batteries too. Udseth emphasized the company’s strategy of selling energy storage alongside solar systems as a waystation on the path to electrifying everything in the home.
Lumio is already selling insulation and roofing in addition to solar, as well as hot water heaters and turf in certain markets. Gibbs said Lumio eventually aims to be seen not only as a solar company but rather as a technology company focused on the whole-home experience.
Those models, in their own ways, are “a bet on home electrification,” said BNEF’s Lezcano.
“The trend in residential solar now is to try to find ways to scale and become not just the rooftop solar installer but the holistic clean energy service provider. […] Rooftop solar is just the way to get your foot in the door,” said Lezcano. “It’s very clear that a lot of capital is seeing a long-term opportunity.”
Currently, that opportunity has few limits: The percentage of U.S. homes with solar systems remains in the single digits, leaving enough customers for both national and local companies to sell to.
Joining with other regional providers can also help companies secure a role in larger conversations around electrification policy and markets.
Sunrun, which made an early bid to network its customers’ batteries, has won 12 contracts for virtual power plants, which are decentralized energy assets that can collectively be used to provide power to the grid and to earn operators additional revenue. With more customers spread over wider geographies, groups of smaller installers can also make a play at that market, said Udseth, in addition to gaining more credibility in the eyes of utilities and energy regulators. Sunrun’s virtual power plant contracts add up to more than $50 million in revenue.
Amid the coronavirus pandemic, small installers working in narrow geographies suffered the most; shutdowns rattled and reverberated across their entire markets. But overall, home solar weathered the pandemic, growing through 2020 despite stay-at-home orders that temporarily slashed sales. Deals and consolidation among regional players, said Lezcano, “prove that they see themselves as stronger than ever before.”
(Article image courtesy of Giorgio Trovato)
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