Energy

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

Vivint Solar is on fire on Tuesday. Think of this as a sudden flare rather than the start of a long, balmy afternoon, though.

There's no doubt the distributed solar-power company's second-quarter results, released on Monday, took the market by storm.

Yay!
Vivint Solar's stock jumped more than 10 percent on Tuesday
Source: Bloomberg

But context is all, and you don't have to go back too far in Vivint's history to get that context.

Oh...
Go back one year, and Vivint's jump looks less impressive
Source: Bloomberg

Vivint has suffered more than its peers because of something it didn't do -- namely, merge with flame-out SunEdison -- but the drama put a cloud over it for much of the past year anyway. Still, the whole sector has slumped.

Even More Context
The big three solar leasing stocks have all been hit hard over the past year
Source: Bloomberg
Note: Performance indexed to 100

And in a heavily shorted sector, Vivint stands out in another way:

The Tallest Short
Almost half of Vivint's float is sold short
Source: Bloomberg

All of which helps explain why Vivint slightly beating its installations target in the latest quarter juiced its stock so much. In addition, recently installed CEO David Bywater said a lot of the right things on the earnings call, much of it around squeezing costs and targeting customers (and pricing) smartly to build a sustainably self-funding business rather than growing at all costs. In most other industries, this sort of thinking is taken as read, but the cash bonfire in the solar leasing sector has made it necessary to reiterate.

Having rewarded Vivint with a double-digit stock pop for sending the right message, though, investors must now focus on the delivery of the content. In this regard, it is still early days. For example, getting costs down isn't just about being efficient, but growing installations quickly enough to spread overheads across more watts of solar capacity. In that regard, while the second quarter reversed a worrying string of recent declines, it still looks in line with the same run rate of the past year.

Flat Roof
Vivint's solar installation rate ticked up in the second quarter but is in line with the past year
Source: The company

Yes, that still represents strong growth of cumulative installations, at 69 percent year-over-year. But in terms of getting unit costs down, particularly sales and administrative expenses, it is the ability to accelerate that quarterly pace that counts.

Rule of $3
Vivint's unit costs have hovered around $3 per watt since late 2014 as customer acquisition expenses and overheads have proven stubborn
Source: The company

Vivint is rolling out a loan product, as opposed to the prevailing leasing business, and has a "smart home" offering that, well, makes your home smarter in terms of connected appliances and energy management. These are worthwhile initiatives that could help cut into those unit costs further.

Time for a dose of that context again, though. The fact is all the solar companies are doing much the same thing. SolarCity, for example, has just rebooted its loan product and is now on the cusp of being bought by Tesla Motors with a view to, you guessed it, offering a more integrated energy management, storage and transportation product.

Two things flow from this. First, competition is intensifying -- something to consider given Vivint's announcement it is raising prices in several markets. Second, all these efforts to differentiate the product and get into the loans business underline a natural, but challenging trend: The commoditization of solar installation and financing.

For the solar industry as a whole, it's a welcome sign of approaching the mainstream as a source of energy. For Vivint and its peers, it's another big pivot to make after a year of high drama already.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in San Francisco at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net