SunEdison Buying Into Rooftop Solar as Demand Growth Slowsby
Vivint installations slide on `distraction' of SunEdison deal
Hearing set for Tuesday in suit seeking to block Vivint deal
SunEdison Inc. is about to buy into the rooftop solar business just as demand growth is expected to slow.
The company is seeking to close its contentious $1.9 billion acquisition of Vivint Solar Inc. this quarter, and a judge in Delaware is scheduled to hear arguments Tuesday from an investor seeking to block the deal.
Buying Vivint must have seemed like a good idea when the deal was announced in July. U.S. residential solar installations had surged at least 50 percent for three straight years, driven largely by solar leasing. Maryland Heights, Missouri-based SunEdison said adding rooftop power to its portfolio of big wind and solar farms is a key component of its growth strategy. Since then, the market has turned.
First, the deal itself has generated significant blowback -- Vivint labeled it a “distraction” -- which has slowed demand. Then there’s the larger issue facing the entire rooftop solar industry, which depends on local policies known as net metering. With those regulations facing significant challenges in some states, the future of rooftop power is less certain.
“Rooftop solar exploded on solar leases, which are predicated on net-metering,” said Gordon Johnson, an analyst at Axiom Capital Management. “If you get rid of net-metering, the value proposition goes away.”
Demand for residential solarin the U.S. is expected to climb 39 percent this year, with about 2,160 megawatts of new systems, according to Bloomberg New Energy Finance. Installations climbed 48 percent last year, and 53 percent in 2014.
“You’re still going to see growth in the industry, but perhaps not at the same rate as what we’ve seen the past couple of years,” James Evans, a senior analyst at Bloomberg Intelligence, said in an interview.
Rooftop solar’s growth has been driven in large part by solar leasing. Companies like Vivint install panels for customers who pay little or nothing up front and agree to make monthly payments under long-term deals. The success of the model is based on basic math. Electricity from the panels leads to lower utility bills, and even with the solar lease payments, the customers usually save money right from the start.
That model was upended in Nevada in December, when regulators approved new net-metering rates, increasing fees for homes with solar panels and cut the amount they earn for selling excess power. That makes rooftop power less attractive to consumers and has driven some companies out of the state.
Vivint pulled out of the state earlier last year as the net-metering debate heated up. When the state’s Public Utilities Commission issued its ruling in December, the company said it “will be prevented from re-entering the Nevada market.”
Regulators in more than a dozen other states are also looking at net metering. California affirmed its policies last month, a decision seen as a win for the solar industry, and it’s still an open question elsewhere.
“Utilities want to deal with net-metering,” Swami Venkataraman, a vice president at Moody’s Corp., said in an interview. “It’s reasonable to expect moves to be made in any state where solar makes a mark in terms of penetration.”
On top of this potential threat to the rooftop solar industry, Utah-based Vivint is facing another potential drag on sales all its own -- the pending acquisition by SunEdison. Vivint Chief Executive Officer Greg Butterfield and Ben Harborne, spokesman for SunEdison, didn’t respond to calls for comment.
The deal was announced in July, and led to significant criticism by investors. SunEdison’s shares have plunged, as have Vivint’s, and the terms were revised in December. David Tepper, the billionaire hedge-fund manager and founder of Appaloosa Management LP, filed a lawsuit last month to block a key part of the sale. A judge is scheduled to hear that case Tuesday.
SunEdison’s stock rose 21 cents, or 15 percent, to $1.62 a share at the close in New York on Tuesday.
All that is hindering Vivint’s operations. Installations in the third quarter were 61 megawatts, down 7.6 percent from the prior quarter. That was “lower than expected, which we believe was due in large part to the distraction from the proposed acquisition by SunEdison,” a trend that will probably continue through the fourth quarter and possibly longer, Vivint said in a November filing.
With so much controversy surrounding the company, consumers may look to competitors.
“If you’re tuned into the news or the drama, it certainly has been a distraction,” said Michael Morosi, an analyst at Avondale Partners. “You probably won’t go with Vivint at this point.”