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Electrified - Issue 33
What can we learn from Sunrun’s Vivint Acquisition?
Thank you to everyone who emailed about the new name, the response was overwhelmingly positive.
It was a big week in energy on the M&A front as Dominion sold it’s natural gas assets to Berkshire Hathaway and Sunrun acquired Vivint for $3.2B.
Let’s take a look at the latter in more depth.
This week, Sunrun acquired Vivint in an all-stock deal.
Interestingly, Sunrun was mostly championing the reduction in costs instead of the growth potential of a combined entity in a market with only 3% total penetration.
The SG&A of each business is particularly interesting. It appears both businesses have started to stagnate when it comes to turning sales & marketing dollars into revenues.
Why might this be happening so soon?
Solar is a commodity at its core. For most people, electricity is electricity. Other than Tesla, there’s no “brand” in solar and by a brand, I mean instant recognition / organic customer acquisition. This leaves little room for differentiation.
Until recently, consumers weren’t as informed on emissions and climate, though this is beginning to change rapidly, and the consequence is an emphasis on price over other value props. The result is a need to run a business that is as efficient as possible without subsidization from private equity dollars or tax credits.
Friction in the solar and residential energy market is extremely high. Between the sales process, the financing process, and finally installation the solar purchasing cycle can be confusing for uninformed buyers.
All three of these factors are changing in favor of the solar market which is why I think the public markets have reacted well to the news of the merger.
So, what can we learn about new sectors of consumer electricity from this merger?
The gap between innovators (first 2.5% of the market) and early adopters (the next 13.5% of the market) isn’t equal across sectors or products.
Said more specifically, the passion and motivation between the two groups is likely to be significantly different by market and all market maturations aren’t created equally. Lastly, while all markets might cross the chasm, the timeframes in which they do so vary wildly.
Unlike B2C software or CPG, this means the traditional “land grab” strategy potentially exhausts itself much more quickly in complicated markets.
As a result, the importance of refining your business model and value prop is brought forward in your company’s lifecycle.
It’s too early to say if this is a trend worth watching, especially since it is so early in the solar industry’s lifecycle and these are just two companies in a very fragmented space.
The good news is, the residential solar industry supported at least 2 (3 if you count Solar City), billion-dollar companies with only minimal market penetration. That’s the type of potential that should excite everyone.
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Utilities around the country are promoting their growing use of renewable energy like hydroelectric dams, wind turbines and solar panels, which collectively provided more power than coal-fired power plants for the first time last year. But even as they add more green sources of power, the industry remains deeply dependent on natural gas, a fossil fuel that emits greenhouse gases and is likely to remain a cornerstone of the electric grid for years or even decades.
“Fighting the transition is not going to stop the transition,” Dennis Wamsted, an analyst for the Institute for Energy Economics and Financial Analysis, said. “Economically, it will happen inevitably.”
Dynamic rates with price signals that flatten peaks and shift load to match supply are becoming the favored rate design. But the subscription rate concept, coupled with enabling smart home energy management technologies, is gaining momentum and could offer the benefits of both.
"New energy service subscription concepts can stabilize the bill, increase clean resources, and lower electricity costs for all customers."
— Momentum grows for piloting Netflix-like fixed subscription rates
In order to better prepare for the future, companies can consider formally incorporating climate change risks as part of the supply chain risk management strategy. Attention to climate change risks will not only make the company’s supply chain more resilient but may make the company more attractive to its employees, customers and investor
“There’s some evidence that companies with long-term, sustainability focused strategies are weathering the consequences of the [Covid-19] disruptions better than those who have not,
What I’m thinking about
“Recklessness” is its own kind of prudence, and “caution” its own kind of complacency. - Janan Ganesh
See you next weekend,
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