Building on its "breakout year" in 2017, home solar specialist Sunrun Inc. expects an "even better" 2018 despite the impact of tax reform and tariffs, CEO Lynn Jurich told investment analysts on a conference call discussing the company's fourth quarter of 2017 and full year financial results, as well as its outlook.
"We are now solidly the market leader in the residential sector," Jurich said March 6, forecasting the company would continue to expand its market share after an estimated 4-percentage-point jump in 2017. Sunrun's surge comes amid rival Tesla Inc.'s strategic shift in its energy division, which sharply eroded its solar sales in the second half of 2017. Sunrun installed 85 MW of solar in the fourth quarter, compared with Tesla's 87 MW, which also included commercial systems. GTM Research puts Sunrun ahead of Tesla and Vivint Solar Inc. among U.S. residential solar installers.
At the same time, Sunrun is moving swiftly into solar-plus-storage sales with its BrightBox energy storage product, relying on lithium-ion batteries from LG Chem Ltd., an alternative to Tesla's Powerwall. "The pace of home battery adoption is surpassing our expectations," Jurich said, noting the company's March 5 launch of BrightBox storage sales in Massachusetts. So far this year, Sunrun's solar customers in California are choosing to add batteries "nearly 20% of the time," she added, predicting additional growth throughout the year.
Trifecta of headwinds
Despite its anointment as leading U.S. home solar supplier, Sunrun has had to contend with a trifecta of headwinds, including California wildfires that reduced its fourth-quarter installations, federal tax reform that negatively impacts project financing and President Donald Trump's 30% import tariffs on solar panels. While tax reform resulted in a one-time $31.9 million benefit that boosted Sunrun's GAAP earnings per share to 54 cents, more than double S&P Capital IQ's consensus estimate, Sunrun's adjusted earnings per share of 25 cents missed analysts' consensus estimate of 41 cents.
Beginning in 2018, the new tax law shaves 10 cents per watt off the value of Sunrun's projects, Executive Chairman Edward Fenster said on the call, "because the depreciation we deliver to the tax equity investors is less valuable at a lower corporate income tax rate." However, Sunrun continues to see tax equity in strong supply, he added.
Fenster predicted a "de minimis effect" on Sunrun's cost structure from solar import tariffs, as well as Trump's proposed penalties for steel and aluminum imports, "potentially in the range of 1 cent per watt." The company, which invested $20 million to build up its inventory of pretariff solar panels, expects total installation cost to decline modestly by the end of the year, even with impacts from the panel tariff. Sunrun anticipates its installations will grow 15% in 2018 from 323 MW last year.
