Inside Clean Energy: Sunrun and Vivint Form New Solar Goliath, Leaving Tesla to Play David

Monday night is not a time when I expect to see news that could reshape an entire industry, but that’s what happened this week when Sunrun, the leading rooftop solar company in the United States, announced it was buying Vivint Solar, the second-leading solar company.

Sunrun, based in San Francisco, will become the Goliath of rooftop solar at a time when the industry is struggling to sell its services amid the coronavirus.

“We had known about some murmuring of Vivint being sold, being shopped around, but I don’t think any of us really anticipated that the buyer would be another residential solar company and largest residential solar company,” said Bryan White, an analyst for Wood Mackenzie. “It has been a surprising turn of events.”

Sunrun has an agreement to acquire Vivint in an all-stock deal worth $3.2 billion, subject to approval by shareholders and regulators. The combined company would have a customer base of about 500,000 and a value of $9.2 billion.

When the top two competitors in any industry join forces, I expect the third-place player to be listening to sad music and feeling generally glum.

But this is different because the third-place company is Tesla, a business that mainly sells cars and has the resources to be a much larger player in rooftop solar if it can figure out how to revitalize that side of the company.

Tesla’s SolarCity subsidiary was the national leader in rooftop solar as recently as 2017, but it pulled back on its sales outreach and got passed by Sunrun in 2018 and then Vivint in 2019.

But Tesla is not simply a rival for the new, super-sized Sunrun. Tesla also is an important supplier for Sunrun, part of a partnership in which Sunrun sells Tesla’s Powerwall battery storage systems.

“I don’t think Tesla cares much about what its competitors are doing,” White said. “I don’t think they need to.”

Vivint, founded in 2011 and based near Salt Lake City, became a solar leader through the use of door-to-door sales and an emphasis on leasing its products. Leasing has the advantage of lower upfront costs, which expands the pool of customers who can afford solar.

Sunrun, founded in 2007, also has relied on leasing, but it has not used door-to-door sales to the extent that Vivint has.

The two companies have grown to cover nearly every state that has a large market for rooftop solar. They now operate in 22 states, Washington, D.C., and Puerto Rico, footprints that are almost identical except that Sunrun is in Wisconsin, while Vivint isn’t, and Vivint is in Virginia, while Sunrun isn’t.

Lynn Jurich, Sunrun’s co-founder and CEO, said in a letter to customers that the acquisition of Vivint is a “transformational opportunity to bring cleaner, affordable energy to more homes and accelerate our mission to create a planet run by the sun.”

There is lots of room to grow. As Sunrun notes in the news release announcing the deal, rooftop solar has only reached about 3 percent of U.S. households.

A Tesla Short(s) Sale? Yes, and in Red Satin

Tesla probably isn’t worried about Sunrun buying Vivint, because it has plenty of its own developments to celebrate.

The company’s market value is surging, despite those who bet against it. Elon Musk, Tesla’s founder and CEO, mocked the doubters earlier this week by tweeting about a new product for sale on Tesla’s website: Tesla-branded short shorts, with a purchase price of “$69.420” (not a typo).

“Celebrate summer with Tesla Short Shorts,” the website says. “Run like the wind or entertain like Liberace with our red satin and gold trim design. Relax poolside or lounge indoors year-round with our limited-edition Tesla Short Shorts, featuring our signature Tesla logo in front with “S3XY” across the back. Enjoy exceptional comfort from the closing bell.”

The shorts appear to have sold out quickly.

In Tesla’s world, “short shorts” is a reference to Musk’s battles with short sellers, investors who aim to profit by placing financial bets that a stock will lose value. Musk has mocked short sellers and vowed to prove them wrong in their view of the company.

For now, Tesla’s share price is crushing the short sellers, but Tesla has a long way to go in managing its global expansion and fulfilling its huge potential.

“You have to give Elon massive credit,” said Karl Brauer, executive publisher for AutoTrader.com and Kelley Blue Book. “He has, in his own creative, unique way, shepherded this company.” 

In the last month, Tesla’s market capitalization has grown enough that it has become the most valuable automaker in the world, passing Toyota.

But that’s just the start. Last week, Tesla reported vehicle sales that exceeded analysts’ expectations, and investors responded by buying shares. The company’s share price went from $960 on June 26 to $1,405 on Wednesday morning, an eye-popping increase of about 45 percent.

Based on the current share price and the number of outstanding shares, Tesla is worth about $260 billion.

The value has grown so much in just a few weeks that it has left Toyota far behind, with Toyota worth $174 billion.

Tesla’s market value is based not on current sales or profit but on the idea that the company is poised to become the leader of the auto market of the future.

“You can’t really compare its value to automakers anymore,” said Brauer about Tesla. “You have to compare it to tech companies.”

Toyota sold 10.7 million vehicles worldwide last year, while Tesla sold 367,500. The global sales leader was Volkswagen, with 10.9 million.

To underscore how market value is disconnected from present-day performance, Volkswagen’s market value is about $70 billion, less than half of Toyota’s and less than one-third of Tesla’s.

A ‘Virtual Power Plant’ Is Coming to Oregon. So What Is That?

Portland General Electric is the latest utility to announce a virtual power plant, which provides me with an opportunity to geek out over the possibility of this kind of technology one day being deployed on a large scale.

So what is a virtual power plant? It’s a system in which utilities combine the power of many batteries installed in homes and businesses, making it so the batteries collectively can send power back out to the grid during times of high demand. Often, this power comes from rooftop solar that consumers are using in tandem with their batteries.

The key element is software that coordinates the use of the batteries.

The individual owners of the batteries can decide if they want to be part of this, and they get paid for selling their electricity. They also get the benefits of having batteries, such as backup power during outages.

Portland General Electric said last week that it is conducting a pilot project to provide incentives for 525 households to receive the batteries, adding up to 4 megawatts of capacity. Larry Bekkedahl, a vice president for the utility, said the project is an example of how the company is increasingly using “creative partnerships and diversified energy resources.”

There are dozens of virtual power plant demonstration projects across the country. The National Renewable Energy Laboratory issued a report in 2018 about the 23 projects that were around at that time, finding a growing potential for this method of making many small systems work together for the greater good.

“There is a big opportunity for these to serve the grid in a big way,” said Jeff Cook, an analyst at the lab who was lead author of the report.

He told me that the continuing trend of utilities making their first forays into virtual power plants is a step toward this being done, potentially, on a much larger scale.

I find this an intriguing possibility because it reduces the need to build power plants, and points to decentralization of the way we produce and consume electricity in the future.

Offshore Wind Is Coming to California—Very Slowly

Despite California’s leadership in the clean energy sector, its offshore wind industry has been slow to develop.

The Interior Department’s Bureau of Ocean Energy Management, or BOEM, has been working on identifying potential sites for offshore wind in California for years, but the Department of Defense consistently challenges these siting plans, arguing that the turbines could interfere with military exercises. 

On July 1, the California Energy Commission held a virtual workshop to inform the public about the current status of offshore wind in California and solicit feedback on proposed sites near Morro Bay.

The Department of Defense isn’t the only obstacle to offshore wind in the state. The physical landscape is challenging, with a deep sea floor that requires the construction of floating wind turbines as opposed to turbines that can be bolted to the sea bottom in shallower waters. And most of the federal waters off of California with wind speeds suitable for turbines are part of national marine sanctuaries.

BOEM previously identified three small areas along the California coast, each located about 20 miles offshore, that are not automatically disqualified by limitations on wind speed and water depth or by sanctuary status.

In 2018, the Department of Defense declared that the two potential sites in Central California—labeled by the department “Morro Bay” and “Diablo Canyon”—would be incompatible with its operations, forcing the Energy Commission to rethink its plans.

Since then, a working group of state and federal officials has identified three other possible areas for development near or partly overlapping with the initially proposed area of the Morro Bay site.

Two of those areas, labeled “North” and “South,” are spots where turbines could be placed without directly interfering with Department of Defense operations. The third, labeled “Discussion Area,” is part of the Monterey Bay National Marine Sanctuary. Right now, BOEM doesn’t have permission to lease the discussion area, but it is including the space in early siting conversations as it gauges public opinion and evaluates the turbines’ potential impacts on wildlife, fisheries and shipping.

The farther offshore that turbines are sited, the smaller their environmental and human impacts are expected to be.

“These will be long-term energy projects and we want to ensure that we site them as well as possible, because we will be living with them for a long time,” said Jean Thurston-Keller, BOEM task force coordinator, during the workshop.

Several public comments, submitted after the workshop, expressed concerns about the visibility of the turbines from shore. One commenter equated offshore wind in the Big Sur region with installing a solar farm on the pyramids at Giza.

Tom Hafer, president of the Morro Bay Commercial Fishermen’s Organization, wrote in a public comment that the fishing industry has “grave concerns that need to be addressed.”

The fact that officials held this workshop is a sign of progress, but don’t expect anything to happen quickly. Officials will need to approve sites for development before beginning the evaluation process for the projects themselves.

Developers are much deeper into work on projects along the East Coast, but offshore wind on the West Coast may be worth the wait. The National Renewable Energy Laboratory found substantial potential for offshore wind energy and jobs in the region.

Reporter Nicole Pollack contributed to this story.

Inside Clean Energy is ICN’s weekly bulletin of news and analysis about the energy transition. Send news tips and questions to [email protected].