The residential solar business has always been more of a finance business than most people think. Sure, solar panels and inverters and labor costs matter, but without financing Sunrun (NASDAQ: RUN), SunPower (NASDAQ: SPWR), Sunworks (NASDAQ: SUNW), and other solar energy stocks wouldn’t have a business.
What’s never really made sense long-term is the way residential solar financing has worked. The main financing method is the solar lease or power purchase agreement (which I’ll call leases for simplicity), in which a solar company finances and owns the solar installation and customers pay monthly payments for decades. Tax credits flow through the solar company to investors, and other cash flows are often sold off in securitization deals.
In the wildest “innovation,” companies have convinced investors that there’s value in a solar installation after the upfront 20-year contract ends, assuming that customers will want to continue paying for 20-year-old solar panels. And this is a big part of the business model, with Sunrun claiming that $2.54 billion of its $4.17 billion of net earning assets is from this renewal period 20+ years in the future.