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The roof is buckling for solar panel companies. Last summer, SunPower, a big residential installer, filed for bankruptcy protection. One of its rivals, Sunnova, has warned it may be next.
Longer interest rates and an American president hostile to anything resembling clean energy are a toxic combination for companies with burdened balance sheets. Sunnova has $8bn of long-term debt. Its market capitalisation has shrivelled to just $40mn. A chunk of convertible bonds soon coming due cannot be repaid or refinanced, the company said recently.
For Americans in warm-weather states, the appeal of solar is glaringly obvious. On average, installing solar panels on top of homes or businesses costs about $20,000, according to EnergySage, a clean energy marketplace. But that total is much less than the cost of buying electricity from the grid for years.
The challenge is that, even with big savings, a large upfront cost is prohibitive for some customers. Enter the rooftop solar business. Entrepreneurs raise enormous pools of cash to buy and install the rooftop equipment. Customers, in turn, enter into 25-year contracts to pay for the equipment they either rented or borrowed to purchase and the electricity they consumed.
Such long-term power purchase agreements have unlocked a very sophisticated capital market in solar financing. Rooftop companies take out corporate debt, project finance and loans securitised on their customer receivables. They also monetise government incentives by selling the tax shields on their future earnings. Private credit firms have even purchased solar contract loans to put against the long-dated life insurance policies that they have written.
Higher interest rates, however, have pummeled rooftop installers’ business models. They hurt the present value of future payments owed by customers. Fewer customers are also willing to borrow to fund rooftop solar. Solar operators cannot invest as much to fund growth.
On top of that, the big subsidies for solar equipment manufacturing and electricity production and home purchase that are embedded in the 2022 Inflation Reduction Act may be at risk from the Trump administration.
All this adds up to slowing customer growth — and dismal prospects for businesses that took on too much debt to fund a shinier future.
Clean energy companies have relied on cheap money and government subsidies to sustain them until they reach escape velocity. Those boosters have all disappeared at the same time. While the long-term opportunities for solar, wind and other technologies remain, entrepreneurial ambitions will, for now, need to be commensurately scaled back.
sujeet.indap@ft.com
