SunPower, SolarCity, Vivint Solar and SolarEdge have just gone through the first solar company earnings calls of the Trump era.
This was already a weird time for the solar industry, with plunging prices, murky regulatory futures, and for the moment, falling utility rates. That weirdness now seems like the good ol' days.
A Trump presidency combined with a GOP-dominated Congress “could result in a wholesale dismantling of many of the solar incentives and policies at the federal level,” according to Roth Capital Partners, which added, “Although the Trump team has indicated to our sources that it has no plans to roll back the ITC extension, our checks suggest the ITC could very well be on the chopping block at some point. The CPP is effectively dead. All in, tens of [gigawatts] of solar demand are at risk.”
Roth goes on to make the contention that “the combination of a Trump presidency and GOP legislature…will likely spill over to the state level and possibly embolden utilities and influence PUC decisions on NEM, [time-of-use rates], and other policies important for resi and C&I.”
Marching into this breach are the major solar players, a few of which just announced their earnings. We spoke with SunPower CEO Tom Werner after listening in on the earnings call.
Werner pointed out that modifying the ITC would have to go though Congress and said he was “cautiously optimistic” that there is continuing bipartisan support for solar. He cited a recent survey from Pew Research that finds that 89 percent of U.S. adults favor expanding use of solar power and that the “sentiment bridges the partisan divide.”
Howard Wenger of SunPower said that FERC's “jurisdiction is really on the transmission system, and net metering plays out at the more local level. So, we don't think [distributed generation]…is the purview of FERC.” He continued, “As Tom referenced, solar is the way to energy independence, which is something that both sides of the aisle have historically wanted.”
Werner saw minimal impact on utility solar in the repeal of the CPP “because utilities — and we interface with utilities a lot — are very impressed with the [dwindling] risk premiums of solar. […] And if you look at the cost of solar, it's hitting a point where it's competitive with almost any other energy choice. And lastly, of course, you don't have fuel risk,” he said. “We believe that 2018 will still be a pivot year [for utility solar].”
In Werner's view, “capitalism will work” in light of solar's clear price advantage. He also suggested that significantly changing energy policy and the Investment Tax Credit might not be a top priority in the new administration — “the ITC doesn't cost that much; it's working and has an expiration date.”
SunPower beats earnings, lowers guidance — but might face a Total “takeout”
SunPower's share price is down 3 percent with a beat on Q3 earnings but a miss on expected revenues. SunPower also signed a multi-year, 200-megawatt PV module supply agreement with Total “to solarize various facilities around the world.”
Last quarter brought restructuring news from CEO Werner and a reduction in 2016 revenue guidance. This quarter, the firm once again cut its full-year revenue forecast.
Oppenheimer Equity Research notes, “Volumes in the residential market look solid, but note GM is trending lower even with strong AC module sell-through. As Total looks to install ~200 megawatts in solar systems and SPWR shares dip to historical lows, we believe speculation about a full takeout will increase.”
Here are key takeaways from the quarter:
- Non-GAAP revenue was $770.1 million compared to consensus of $786 million. Non-GAAP gross margin, as well as EBITDA, came in above consensus.
- According to SunPower, “Global panel ASPs are down approximately 25 percent in the third quarter as panel manufacturers liquidate excess inventory. We do not expect price reductions to continue at this pace, but we do believe that the panel price environment will remain very challenging into 2017.” Werner said, “We see our competitors' selling price as below even what we believe to be cash costs (and we spend a fair amount of time modeling cash costs for all of our competition). We're not doing that.”
- Guidance was lowered to a range of $2.6 billion to $2.8 billion, while aiming to deploy 1.325 gigawatts to 1.355 gigawatts. The company now expects GAAP 2016 revenue of $2.43 billion to $2.63 billion, gross margin of 8 percent to 10 percent and a net loss of $320 million to $295 million.
The firm noted that “lower-than-anticipated growth in the U.S. residential market” will pressure overall Q4 gross margin. SunPower has also made “the decision to shift lease sales to cash, and loans in some states where the lease economics do not meet our return threshold.”
Werner said that this is just another business cycle of the many he's experienced in his 14 years at the company. He expects that the oversupply may last through 2017. He did note that the industry is in a transition from multi-crystalline to mono, and “that becomes more competitive for us — and we have to innovate within the module.”
Figure: SunPower Cell Efficiency Progress
Shayle Kann, GTM Research SVP, said at GTM's most recent Solar Summit that utility-scale solar in the U.S. is “extraordinarily competitive now,” with average PPA prices for utility-scale projects falling below 6 cents per kilowatt-hour in 2015 (including the ITC benefit). This year, the average PPA price could be below 5 cents per kilowatt-hour.
Vivint momentum continues
Last quarter, residential solar specialist Vivint Solar beat its megawatt guidance, started offering loans and cash sales, and, importantly, showed some revenue growth and positive signs after its near-acquisition by (and near-death experience with) now-bankrupt SunEdison.
This quarter, Vivint continued its positive momentum. Here are the highlights:
- Revenue grew 84 percent year-over-year
- Vivint's installations were in line with consensus at 59 megawatts. With approximately 59 megawatts installed, its book-to-bill ratio was 1.0.
- The company continued to drive down costs, hitting a fully loaded cost of $2.85 per watt, reduced from last quarter's $2.94.
- Vivint booked $200 million of tax equity commitments — good enough for about 123 megawatts of rooftop deployments and more than 17,000 new residential clients.
- Cash sales are expected to grow compared to PPAs, a clear industry trend.
- The firm guided to Q4 installs of 48 megawatts to 52 megawatts, for 2016 installations of 220 megawatts to 224 megawatts, below the previous guidance of 260 megawatts.
- Loss was $33.3 million compared to $54.4 million in the same quarter of 2015
- Approximately 634 megawatts cumulatively installed in 93,138 total projects
SolarCity beats on revenue but guidance is reduced — again
SolarCity announced its Q3 financials but did not conduct an earnings call, in light of the pending Tesla acquisition and stockholder vote.
- SolarCity trounced consensus by $30 million on revenue of $200.5 million with higher-than-expected installations. Despite the revenue beat, the company just narrowly beat on EPS.
- SolarCity's leadership expects 2016 installations to be at 900 megawatts, the lower end of the previously guided range. It's the third installation guidance warning from SolarCity in 2016.
- The solar installation leader received more than $532 million in cash financing this quarter, for a 2016 total, so far, of $965 million.
- Residential installations accounted for 147 megawatts this quarter, while C&I installations accounted for 40 megawatts.
- Q3 cost per watt was $2.89, a decrease of 5 percent from last quarter.
The shareholder vote on the potential Tesla acquisition is on November 17.
SolarEdge overachieves on margin
Inverter and power optimizer player SolarEdge shipped 466 megawatts for $128.5M revenue — strong numbers for the firm, but narrowly missing the $130 million to $139 million revenue guidance. Still, as GTM Research analyst Scott Moskowitz noted, SolarEdge “overachieved on margin,” hitting 32.6 percent versus a guidance of 30 percent to 32 percent.
Figure: SolarEdge's Gross Margin Trend
SolarEdge reported a GAAP net income of $15.6 million, off from $17.3 million in the previous quarter and up from $14.4 million year-over-year.
Analysts were less than enthusiastic about SolarEdge's quarterly revenue guidance, and the stock took a hit today. The optimizer leader expects quarterly revenues to be within the range of $110 million to $120 million, with margins in the range of 30 percent to 32 percent.
Oppenheimer Equity expects “continued cost decreases and manufacturing efficiency improvements to offset ASP erosion, leading to GM sustained ~30%+.” The equity analyst also expects SolarEdge to work with smaller distributors and “shift its marketing approach over the upcoming quarters.”
GTM Research's Moskowitz said, “California is the primary story here. Lower-than-expected residential demand has significantly affected the business expectations of each of the leading inverter vendors. Overall, SolarEdge continues to lead the U.S. residential inverter market and the global module-level power electronics market. In spite of significant pricing pressure, it has continued to operate with healthy margins. The ongoing introduction of the HD Wave should allow that to persist. As SolarEdge mentioned in its presentation, there is not yet existing pressure from competing Chinese suppliers. However, Huawei, the leading PV inverter vendor by megawatts shipped in 2015, has announced it will be introducing an optimizer product in early 2017, and thus, long-term, there will be additional competition to SolarEdge's business.”