Early in this decade, when energy was in short supply, residential solar was a good business. And Vivint Solar Inc (NYSE:VSLR) prospered during the good years. VSLR came public just as the shale oil boom peaked in 2014, trading as high as $34 per share.
You see, at the time, all you needed was a sales staff that could convince homeowners they needed a solar lease.
The lease promised to deliver power at a set rate for years, and that money would pay down the leasing company’s capital costs. Utilities were happy to take the excess power, whose supply peaked each afternoon, and resell it at premium prices.
The oil glut killed that business, though, and lower solar panel prices helped. Now homeowners see that the early decade’s economic model does not work. They can get a better deal taking loans to buy panels, and maybe get a better deal not buying them at all.
Return to Vivint Solar, which has a market cap below $300, while VSLR stock opened for trading Wednesday at $2.80 per share. And in a day, Vivint is expected to report yet another loss — this time for 45 cents per share.
What Happened to Solar?
Once fossil fuel prices began falling, utilities faced a glut of power and a need to keep their own plants operating to meet their own numbers. They saw residential solar as a threat. They began demanding that solar “pay its own way,” which means paying for their sunk grid costs — costs their own coal, nuclear and natural gas plants did not have to pay.
Given the power electric utilities had in state capitols, the fees started appearing on customer bills, and the economics of residential solar began looking dicey.
This does not mean utilities abandoned solar. Low panel prices meant that specialized solar plants, whose power peaked when demand was highest, still made sense for utilities, and the per-watt costs of permitting and installation were both low.
Companies specializing in this business, like First Solar, Inc. (NASDAQ:FSLR) continued to prosper, matching the lower prices to their own lower costs, at least until the utility power glut became acute last year.
What Happened to Vivint Solar?
Vivint seemed to have found a way out in the middle of 2015, when SunEdison agreed to buy it for $2.2 billion. But SunEdison soon collapsed upon itself, and the deal collapsed the next March, and as losses continued into 2016, the value of VSLR stock collapsed as well.
Vivint did manage to offer positive net income twice last year, but the old leasing model has continued dragging it down. Analysts think they have been late at offering loans, slow to offer storage solutions, and that Vivint itself could easily combine its solar offering with security — its first business.
While Vivint now has 100,000 customers who have installed 654 megawatts of power, its financial situation has grown increasingly precarious. Getting a $375 million revolving credit line extended to 2020 is now a big deal. With interest rates rising, increasing costs both for VSLR and its customers, the future looks bleak.
A Ray of Hope for VSLR Stock?
There are people who consider Vivint a bargain at its current price, noting that the company is well-managed compared with its peers and that it has increased margins.
But these people are a minority. Only seven analysts now follow VSLR stock, and three of them have it as an underweight or a weak hold.
My own view is that Vivint is on the wrong end of the trade. Once the costs of solar panels fell below the cost of fossil fuel power, as happened last year, you wanted to be making the panels, which can start selling themselves in markets where grid power is scarce. I’m among those who think that Tesla Inc (NASDAQ:TSLA) buying SolarCity was good business.
Solar power, unconnected to the grid, is igniting sub-Saharan Africa economies with a pay-as-you-go model. Combine solar panels with batteries and cell towers and the most remote rural village in Asia, Africa, South or Central America is now in reach of the global Internet economy.
That’s the future. Not Vivint Solar.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.