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US residential solar companies brace for coronavirus fallout

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US residential solar companies brace for coronavirus fallout

SNL Image

Visitors to the Husker Harvest Days farm show in Grand Island, Neb., gather Sept. 10, 2019, around a solar display. The solar industry faces a slowdown in 2020 due to the coronavirus.
Source: AP Photo

On a call March 10 with financial analysts, Vivint Solar Inc. President and CEO David Bywater said the rooftop solar company was not experiencing headwinds from the spreading coronavirus. Stock markets had plunged a day earlier as an oil price war collided with fears that the pandemic could lead to recession. But Vivint Solar executives still believed the company could grow installations by up to 20% this year.

Three days later, on March 13, Philip Shen, an analyst at Roth Capital Partners LLC, said in a research note that some residential solar companies were seeing 30% of their bookings canceled or postponed, and "the sales funnel is drying up," he said.

As the government moves to contain the virus by shuttering businesses and banning gatherings, conditions across the U.S. economy are rapidly deteriorating, leaving companies, including rooftop solar installers, to confront a sharp drop in demand and the possibility of an extended downturn.

"It's definitely an incredibly fast-paced environment," John Berger, Chairman, President and CEO of Sunnova Energy International Inc., said in a March 18 interview. "It's incredibly difficult." The residential solar market has not ground to a halt, Berger said, but there is a risk that it could.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

The San Francisco Bay Area, which is considered one of the hottest markets in the country for battery-backed solar systems, has been locked down since March 17 when several counties said only people employed by "essential" businesses could leave home for work. California Gov. Gavin Newsom on March 19 extended shelter-in-place orders across the entire state, the country's largest solar market, relying on federal guidelines to identify a critical-infrastructure workforce.

According to guidance from the U.S. Department of Homeland Security's Cybersecurity and Infrastructure Security Agency on March 19, energy-sector workers who "maintain, ensure or restore the generation, transmission, and distribution of electric power," as well as nuclear power plant employees, are considered critical. Power plant construction was not explicitly listed as a critical activity, though a subsequent amendment added electric power "development."

While the solar industry believes it can continue building new projects under the guidance, the consequences of the new reality are beginning to dawn on residential solar installers, who employ the industry's largest workforce with nearly 91,000 jobs.

Dramatic impact

As the economic fallout of the novel coronavirus began to spread from China early this year, residential solar companies thought they were largely immune, despite substantial risks related to their reliance on solar panels and other equipment from China.

Even as cases of COVID-19, the respiratory disease spawned by the virus, began to multiply in the U.S. in March, industry analysts were still signaling 2020 would be another year of solid growth for installers of home solar arrays.

That now seems unlikely.

"The impact is going to be dramatic," Bernadette Del Chiaro, executive director of the California Solar & Storage Association, said in a March 18 interview. "What people were saying about the impact two weeks ago is completely different today."

Representing more than 550 companies in the country's largest solar market, including distributed solar specialists Sunnova, Sunrun Inc., SunPower Corp., Tesla Inc. and Vivint Solar, the trade group is helping members prepare for the possibility of a sharp downturn that could lead to widespread layoffs.

"There's no way this is going to be anything other than extremely painful," Del Chiaro said.

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Worst fears

The results of a survey conducted recently by the Solar Energy Industries Association confirmed the trade group's "worst fears" about the virus's impact on the market, President and CEO Abigail Ross Hopper said in a statement.

"Customer demand for solar has plummeted and companies are seeing significant construction slowdowns, project cancellations, labor shortages, and a host of logistical problems tied to equipment and delivery delays," Hopper said.

Since the beginning of March, stock declines at residential solar companies have far outpaced the drop in the S&P 500. Shares in Vivint Solar, which relies on door-to-door sales, are down nearly 71% this month.

"I don't think you want to be in anything involving consumer sales" right now, said Jeffrey Eckel, Chairman, President and CEO of Hannon Armstrong Sustainable Infrastructure Capital Inc., which has invested in existing residential solar assets. "You could certainly imagine why Mr. High FICO Score is a little more focused on getting his computer working at home than having some solar salesman come to the door."

CreditSights senior analyst Andrew DeVries agreed. "Consumers start feeling a pinch to their wallets, the first thing they're going to cut is spending $25,000 getting a rooftop solar system on their house," he said.

In addition to the threat to new business, there are questions about how residential solar contracts will perform in an economic downturn.

Berger, whose company got a taste of what might happen when Hurricane Maria struck Puerto Rico in 2017, said there would be "some dislocation among consumers."

Still, he is hopeful that customers will show "a fairly robust … ability and willingness to pay through a crisis like this."