Why SunEdison is buying Vivint Solar for $2.2 billion
Clean energy company SunEdison announced on Monday morning that it plans to acquire Vivint Solar, one of the largest U.S. companies that installs solar panels on home rooftops. SunEdison plans to pay $2.2 billion in the deal in a combination of cash and shares of SunEdison common stock and convertible notes.
The news sent Vivint Solar’s stock up over 40% in morning trading. Vivint Solar went public in late 2014 on the New York Stock Exchange and has financed and installed over 40,000 solar panel systems as of the end of March 2015.
SunEdison’s subsidiary TerraForm Power is acquiring the actual solar projects of Vivint Solar, both the ones already built and future projects in development. TerraForm Power is a yieldco, which is a publicly-traded company that bundles together the assets of clean energy projects based around the long term and predictable revenue generated by the reoccurring energy payments.
The deal is the latest move by SunEdison to aggressively expand across the clean energy industry and it highlights the quickly growing market for rooftop solar panel systems. In recent months, SunEdison acquired wind energy projects in India, and also First Wind, one of the largest wind energy developers in the U.S.
The news also shows how as the market for home solar panels grows, it will face increased consolidation. Bigger companies, with larger war chests, will more effectively battle for the valuable rooftops that can cost effectively go solar.
In the early 2000’s, SunEdison, led by entrepreneur Jigar Shah, was the pioneer of the business model that offers residential customers little or no money down on rooftops solar panel systems. The model generates money by charging customers a monthly energy bill like a utility does. Before this method became popular, customers had to mostly pay up front for solar panels, which could cost tens of thousands of dollars.
A decade later, many solar companies are using this model, including Vivint Solar, SolarCity, Clean Power Finance and Sunrun. SolarCity is the largest solar financier and installer in the U.S.
In 2009, giant silicon wafer and solar module maker MEMC Electronic Materials acquired SunEdison, showing how lucrative this new potential “solar-as-a-service” model could be. MEMC was originally an arm of Monsanto created in 1959.
In recent years, MEMC changed its name to SunEdison, reflecting how it wants to grow its business around clean energy projects. MIT Tech Review called the company one of the “50 smartest companies in 2015” for its strategy to buy up clean power assets.
Those assets now include a bigger piece of the growing market for home solar. More solar panels were installed on U.S. homes in the first quarter of this year than ever before. In the first quarter, 437 megawatts of solar panels were installed on home rooftops, which was a 76% increase from the first quarter of 2014 according to the Solar Energy Industry Association.
While 437 megawatts might not sound large, it’s like half the output of a large natural gas plant spread across tens of thousands of home roofs. Over the next five years, another 3 million new home rooftop solar systems are expected to be installed in the U.S.
Vivint Solar has 523 megawatts of contracted rooftop solar assets built or under development. While Vivint Solar is smaller than SolarCity (SCTY), it has been growing quickly.
As the market for home solar projects grows, companies are entering into a fierce battle over rooftop space. The industry is highly regional, dependant on state subsidies and the sunniest locations, and companies are fighting for the lowest hanging fruit in these markets.
Companies that can raise large funds to pay for the installations of the systems and can spend a lot of money marketing to targeted customers will win out. Sunrun, a smaller solar installer, is looking to go public.
The biggest companies are trying to expand vertically across the sector, adding on more types of businesses to lower their costs. For example, SolarCity is planning on manufacturing solar panels for the first time. SunEdison already has the benefit of its history as a solar wafer and module maker.
With the announcement of the news, SunEdison (SUNE) also said that it’s raising its 2016 annual guidance of 2,800 to 3,000 megawatts of clean energy projects under development, to 4,200 to 4,500 megawatts under development. That’s a 50% increase.
The acquisition requires approval by Vivint Solar stockholders and will face reporting requirements. The deal is expected to close in the fourth quarter of 2015.