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Friday, July 24, 2015

Vivint Solar Buyout To Benefit The Rooftop Solar Industry

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July 24:


  • Vivint Solar has invested very little on the rooftop solar policy front, which is likely to change with SunEdison's direct involvement..
  • A proportionate policy investment on the part of SunEdison should be a positive for the entire rooftop solar industry, as SolarCity has been fighting almost unassisted on this front.
  • The rivalry between SolarCity and Vivint Solar has been counterproductive for the entire industry, making SunEdison's acquisition of Vivint Solar all the more encouraging.
The rooftop solar landscape is bound to change dramatically after SunEdison (NYSE:SUNE) acquires Vivint Solar (NYSE:VSLR). With SunEdison set to take over the reigns of Vivint Solar's business, the rooftop solar industry will likely benefit tremendously. As policy is an immensely important front for the rooftop solar industry, SunEdison should provide a much needed industry boost in this arena. SolarCity (NASDAQ:SCTY) has been the primary, and many times sole, advocate for the most important rooftop solar policies across the nation.
SolarCity's unfair burden of pushing forward policy has been a major point of contention between itself and Vivint Solar, with SolarCity CEO Lyndon Rive calling out Vivint Solar multiple times on this issue. Last year, for instance, Lyndon Rive singled out Vivint Solar for what he perceived as a lack of involvement on the policy front. Vivint Solar's policy contributions do seem rather sparse relative to the company's market share, as SolarCity has been overwhelmingly doing the heavy lifting in terms of lobbying and other related activities. More recently, Lyndon Rive expanded upon this earlier criticism by stating that
"Vivint hasn't invested at all in policy ... it was disappointing" and that "Solar is a disruptive technology, we are fighting the monopolies all the time and we need the entire industry to support."
Given SunEdison's extremely aggressive growth approach, it is unlikely that the company will do as little as Vivint Solar has on the policy front. This means that a lot more energy and resources will likely go into fighting for beneficial rooftop solar policies. Should SunEdison invest a proportionate(relative to market share) amount of time/resources in the rooftop solar arena moving forward, the entire rooftop solar industry should get a massive boost, benefiting the likes of SolarCity, SunRun (Pending:RUN), NRG Energy, etc.

The Importance of Policy in Rooftop Solar

Policy is perhaps one of the, if not the, most important aspects of the rooftop solar industry. Not only is rooftop solar currently in its infancies, but it is also fighting against many powerful and entrenched interests. Given that these interests are doing everything in their power to stop the rooftop solar movement, investing on the policy front is vital for the industry's survival. Unfortunately, SolarCity has been disproportionately carrying the weight on this front.
As rooftop solar companies only have a tiny fraction of the resources that their opponents(i.e. fossil fuel interests, centralized utilities, etc) possess, a proportionate effort on the policy front from all major rooftop solar companies is all the more important. With one company carrying an inordinate burden on the policy front in an industry that is already at a resource disadvantage, the entire rooftop solar industry suffers. As battles relating to issues such as net-metering and rooftop solar surcharges are only intensifying, a united rooftop solar front becomes all the more important.
As rooftop solar's prospects are now a huge point of concern for SunEdison after its $2.2B acquisition of Vivint Solar, the industry will likely get an enormous boost on the policy front. With SolarCity and SunEdison contributing a commensurate amount on the rooftop solar policy front, the entire industry will likely be pushed to new heights. SolarCity alone has been able to accomplish an extraordinary amount on the policy front, so it is not hard to imagine how beneficial another major policy contributor would be for the industry.
While SolarCity only has approximately one-third of market share in residential solar, the company has basically been lobbying for the entire industry on the policy front.
Source: GTM Research

Unhealthy Rivalry

In a fledgling industry like rooftop solar, competition between major industry players is natural and even healthy. With that being said, the rivalry that has developed between SolarCity and Vivint Solar over the past few years seems counterproductive for both companies. In fact, the rivalry seems to have even gotten personal, at least on Vivint Solar's side. Most notably, Vivint(parent company of Vivint Solar) CEO Todd Peterson said some rather unflattering things about SolarCity, stating,
"Elon Musk's cousin, whatever his name is, Lyndon or whatever, he spends his entire day doing what? Recruiting Vivint's sales guys. I'm not joking. Every day, day in, day out, trying to recruit our people away from us. Because all they know how to do is raise capital and run a company."
Whether these claim are true or not is missing the point. Competition on the price and talent front is standard and healthy in a free market. What is damaging, especially to a small industry facing enormous entrenched interests, is the seemingly acerbic relationship between the two major players. As the rooftop solar industry is still facing many uncertainties relating to some very important policies(e.g. the 30% solar ITC), the rivalry between SolarCity and Vivint Solar is especially counterproductive.
The rooftop solar industry is facing many outside threats, which makes in-fighting extremely damaging. The rooftop solar industry is not like the smartphone industry, where a rivalry between companies like Apple (NASDAQ:AAPL) and Samsung (OTC:SSNLF) is relatively benign for all involved given the lack of outside threats. With powerful fossil fuel interest and centralized utilities looking to crush rooftop solar, any energy wasted on in-fighting will be detrimental. With SunEdison taking control of Vivint Solar's operations, the entire rooftop solar industry should take a more cooperative tone, benefiting all involved.


With SunEdison's planned acquisition of Vivint Solar, the rooftop solar industry is going to become a lot more competitive. As Vivint Solar now has access to SunEdison's superior financing capabilities and operational skill set, it will represent much more robust competition to the likes of SolarCity and other rooftop solar players. Despite this inevitable increase in competition, this acquisition will still raise the prospects of the entire industry.
With SunEdison's direct involvement in Vivint Solar's business, it will likely aid in efforts to push forward pro-rooftop solar policies. SolarCity, NRG Energy, SunRun, etc, should all feel the positive effects of SunEdison's growing involvement in distributed solar. These companies represent great investment opportunities, as rooftop solar's prospects are only becoming brighter. The potential in the rooftop solar industry is clear, and has many major solar players jumping into the arena. Investors should definitely consider buying into this sector before this huge opportunity vanishes.


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