The quarterly revenue of $122.5 million and net income of $32.6 million from Sunrun Inc (NASDAQ:RUN) has impressed investors. This is in addition to the $51 million of NPV that came through as a result of leases and power purchase agreements (PPAs). There were also the system & product sales whose $77.1 million doubled from the first quarter. However, even though everything looks so goo on the surface, there is much more behind the scenes. Investors shoal wary over the company’s generous assumptions about its financials. Why? Because the company has higher costs than competitors. The company has $3.67 per watt in Q2 compared to $3.05 per watt and $2.94 for SolarCity Corp (NASDAQ:SCTY) and Vivint Solar Inc (NYSE:VSLR) respectively.
A lot of questions are surrounding the renewal value number. At some point, it will also impact on the financials. But according to Sunrun, it is making $4.61 in value for every watt it installed which is not comparable to the $3.62 that SolarCity is creating? In this scenario, the question is, how possible is this given that they are both competing for the same customers within the same market?
Let’s talk about the renewal value number
It is created on an assumption that has no verification. Nonetheless, most companies are of the opinion that a majority of customers will renew at 90% at prices of their last year’s contract. Better still there are those will are likely to renew at the full value. Sunrun which incorporates yearly escalators in the price customers pay for solar electricity has not exposed its exact renewal or buyout assumptions. For Sunrun, a $0.13 per kWh contract has 3% escalator the 20th year. So the question is why would a customer signing for a new rooftop solar systems of $0.13 per kWh in the current year renew a 20-year-old system in 2036 at a double cost?
But from an another angle most solar companies are not sure of whether the customers will replace or will ask for the removal of a 20-year-old solar system which seems the preferable option for many homeowners. If this happens, Sunrun will lose money which will in return affect the value.
