Very interesting post, L.
Similar to the comments mentioned above, I don’t think that SUNE’s acquisition of Vivint was a mistake in itself. There were clear synergies in that both are solar developers, and had opportunities to integrate their supply chain of solar modules and equipment. The two companies even complement each other in terms of market coverage: SUNE specialized in large utility-scale projects, and Vivint specialized in smaller residential and commercial projects. DoYouEvenLiftBro’s reasoning that it was poor fit for Terraform makes sense. Adding residential and commercial projects to a YieldCo’s portfolio does change its profile. I also agree that SUNE’s issues are mostly due to liquidity concerns that have risen out of their aggressive acquisition strategy.
Given that utility scale projects are now very cheap to develop (as low as $1.6/Watt-DC), I doubt the drop in ITC is what might have driven investors wary. The market, and solar companies, have known about this for a very long time and have prepared themselves for that moment.
It would have been interesting to see what processes SUNE applies for project development, so that they keep their development costs low. I see this company as a capable developer where their business models and operating models generally align well. The drop in their stock price is largely a reaction to management’s strategy of aggressive acquisition.
Hi “John”, thank you for your comment. I will clarify that mobile payment is the principal means, but not the only means of payment. When individuals don’t have cell phones, the agents can collect money directly too. Also, while 24/7 support would be ideal, having 18 hours is probably what is economically feasible. Although, I can’t comment much on that without more knowledge about the company.
The challenge of expanding beyond Tanzania is a realistic one. As I mentioned in a separate comment above, this model relies on the fact that governments are unable to build reliable infrastructure for their demographic. So, this model could break down even in Tanzania, if these infrastructures started getting better. However, practically speaking, that will not likely happen quickly, and OGE will still have customers to serve until then.
Doug, thank you for the comment. This concept is being successfully carried out in other African countries. I agree with your observation that the reason this model works is because there is no alternative way of getting power. So in the U.S., where electricity from the grid is highly reliable, this model wouldn’t work.
Noah, your comment is an excellent one!
I can see the pay as you go model being exploited in the electrical sector too. Fortunately, unlike healthcare, whether or not to use power isn’t always a life or death situation.
Sunrun is one of many players in the distributed solar developer space, which is arguably pretty crowded right now. While the leasing model allows the transfer of ownership risk away from the customer (as you mentioned above), Sunrun itself is taking on substantial aggregate risk due to each of their customers. Furthermore, when it comes to proving the economic viability of solar, the devil is in the details. While the business model sounds feasible on the surface, we have to see what the actual costs are, without any subsidies, to build a convincing case. For instance, will Sunrun really be able to survive in an environment when the ITC drops from 30% to 10% in 2017. Finally, Sunrun, and most other solar developers, have been hugely successful in California and the Desert Southwest. I wonder if they can be as successful in areas with relatively lower sunlight, such as the Northeast, or areas with very cheap conventional power, such as the Southeast and Pacific Northwest. Ultimately, I think that Sunrun’s operating model will need to be customized state-by-state, to reflect the lack of consistency in solar performance and project economics.
Great review overall!