Calif. rooftop solar reboot to unleash 'year of the battery' – Sunrun CEO

The battery supply crunch that stymied a broader rollout of energy storage systems at U.S. homes for more than a year appears to be easing just in time to help offset deep cuts in compensation for rooftop solar generation in California.

"We call this the year of the battery and the year of storage because ... now we're seeing California really making a shift," Mary Powell, CEO of San Francisco-based Sunrun Inc., said in a Feb. 22 interview ahead of the company's 2022 earnings call.

The nation's most prolific home solar installer, which has already pivoted its business to battery-backed arrays in Hawaii and Puerto Rico, is preparing to transition almost entirely to solar-plus-storage installations in California "now that some of the supply chain challenges seem to have been resolved," Powell said.

Other industry executives have also noted recent battery supply chain relief. Badri Kothandaraman, president and CEO of Enphase Energy Inc., another California-based solar equipment supplier expanding into residential energy storage, said in early February that battery supply is "improving a lot."

Such improvement comes at a critical moment for residential solar companies active in the Golden State, by far the biggest U.S. market for behind-the-meter solar and storage. The California Public Utilities Commission in December 2022 approved a sweeping reform of the state's decades-old net energy metering program designed to encourage battery-coupled solar arrays by awarding higher rates for electricity fed into the grid during peak demand in the late afternoon and evening.

Starting in mid-April, California's updated rules apply to all new grid-connected projects in investor-owned utility service territories. More than 1.6 million installations, totaling about 14 GWdc of solar, are exempted under the legacy net-metering program, which credits customers at the full retail electricity rate for excess solar generation.

Solar industry groups voiced concern over the revised rules, citing snarled supply chains, interconnection delays and other challenges that could impede battery projects. But installers of photovoltaic systems must now forge ahead.

"It's probably going to be highly unusual to see us installing solar without storage," Powell said. Sunrun, which relies heavily on leasing rather than direct sales, plans to launch a new solar-storage product that features "just enough [batteries] to help the customer optimize around the new rate structures," the CEO added.

'Bullish' on virtual power plants

Entering 2023, Sunrun had nearly 800,000 customers with 5,667 MW of installed solar capacity, only about 53,000 of which have batteries.

The company is expanding its efforts to make the most of those and future solar-plus-battery installations by networking systems into remote-controlled virtual power plants to support grid reliability. Under a new program unveiled in February with PG&E Corp. subsidiary Pacific Gas and Electric Co., Sunrun plans to orchestrate up to 30 MW at up to 7,500 new and existing battery-equipped home solar projects for on-demand dispatch.

Sunrun plans to start dispatches in August under the initial one-year program, coinciding with California's seasonal peak demand, when energy reserves have been stretched thin in recent years. In September 2022, Sunrun, Tesla Inc., Shell PLC affiliate Sonnen Inc. and other distributed energy operators relied on clusters of small-scale batteries to help the state ride through a prolonged extreme heat wave.

"We're very bullish on it," Powell said of virtual power plants, pointing to 14 programs the company has launched so far across the country.

Results, outlook

Overall, Sunrun supplied 990.9 MW of solar in 2022, up 25% from 2021, while adding 136,985 new customers. Of those, 15% included batteries with their solar systems. That "attachment rate" is set to "increase significantly" in 2023, Sunrun CFO Danny Abajian said on the earnings call.

Sunrun generated $2.32 billion in revenue in 2022, rising 44% from 2021 and slightly ahead of the S&P Capital IQ consensus estimate. Fourth-quarter 2022 revenue of $609.2 million beat the consensus estimate of $588.9 million.

The company posted 2022 GAAP net income of 80 cents per share, versus a loss of 39 cents in 2021. For the fourth quarter of 2022, Sunrun's GAAP net income reached 29 cents per share, up from a loss of 19 cents per share a year earlier. The company beat consensus earnings estimates for the full year and fourth quarter of 2022.

In 2023, Sunrun is looking to new and enhanced federal tax incentives, approved as part of the Inflation Reduction Act of 2022, to support its continued expansion. The company estimated solar deployments of 215 MW to 225 MW for the first quarter of 2023 and a growth rate of 10% to 15% for the year.

Speaking on the call, Powell called that growth rate "reasonable and conservative."

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