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.