The Exchanges

Q Yeah, I mean, you alluded to the key thing of the moment, which is the, uh, the budget bill, OPPB as you called it. Um, all right, so let's dive into that a little bit. Can you just walk through what that bill does to and for residential solar relative to status quo beforehand?

A The best way to frame what's happening under this bill now is not just in a linear sense, okay, yeah, they've shortened and, and, and accelerated the phase out of IRA, right? Like, okay, sure, I got it. And in fact, in many ways, where that ended up at the, at the end of last week was actually, um, frankly, at the better end of the spectrum of what fears were. Again, everyone understood, right, at the outset that there was going to be some pain to be taken. And frankly, when you saw the House and the House Freedom Caucus come out a few weeks ago, it was like, oh my, They are really taking a hatchet to the residential solar space in particular. So you've seen a lot of major gyrations in the space that aren't over yet, and we'll get to that in a moment, but I really would emphasize that a few, like literally a month ago, you were staring at this being like, wow, like you could see a precipitous decline in residential solar as of next year, right? I mean, whoa, okay. But really what's transpired is like, no, actually leasing companies can be eligible to continue to participate through 2027. Residential storage is in theory extended to the full life of IRA, as, as you saw folks chiming in saying, look, firm capacity deserves to get the full IRA benefits. Got it. And then ultimately, look, the biggest dynamic for residential solar we're looking at right now is really consumer solar …

AI assessment note: “leasing companies can be eligible to continue to participate through 2027”

Q to, like, interconnection timelines and all this other stuff. Whereas in Resi, you're just kind of, like, rolling, doing installations. Not that it's not important, and as you said, like, it affects the 28, 29 volumes, but it feels to me like it's, you know, if you're in utility scale, you're, like, eyes glued to the treasury process, because it's all that matters, less so in Resi. Am I wrong?

A Look, point, counterpoint, right? Look, your point's made, but I'll give you the counterpoint on that. Look, utility scale solar, look, the reality is that market is principally driven by CNI demand, commercial and industrial demand. What is that? Effectively, it amounts, it amounts to tech companies, data center demand, right? Like, am I really worried substantively that someone's not going to step in and want to enter the utility scale market to buy renewables in the future? We've already got a clear deficit of supply Um, to meet what effectively is, is tech and C&I demand out there, right? So if I were to summarize it this way, the ability to pass along the inflation, X tax credits in that market, which is the bulk of the renewable market, is fairly transparent. It's going to be there. In fact, that, that's what makes this IRA conversation, IRA reform conversation, so readily happening, right? It's like, there's like a growing implicit acknowledgement of like, if these IRA credits are going to tech companies, why do we need this? That's the Tension at its core of how this came to be today. But if I were to.

AI assessment note: “Look, your point's made, but I'll give you the counterpoint on that.”

Q that seems to have a pretty meaningful impact on adoption of residential solar, possibly profitability of the companies. And then, Net metering changes, particularly in, in California, just making it less lucrative. So was it, was it a thing where all of a sudden companies couldn't sell profitably? Was it that consumer demand started to dry up? Was it that they were financially mismanaged? Like, what was going on there?

A I mean, I think at its core, to be honest with you, I mean, I think this is a competition. It's probably the single best way to summarize it. I mean, again, I don't mean that to be a cop-out per se. Like, your core, uh, response, your initial response is right, right? Interest rates going up, of course, right? Like, Yes, this is an incredibly interest rate sensitive product. Interests go up. That is the principal driver of raising prices. Now, look, you talk about competition. Look, in theory, if it was less of a competitive space, you would say interest rates go up, the cost of solar goes up to homeowners, and ergo, it just effectively passed along, right? We talk a lot about inflation in the current environment, and we talk a lot about saying, hey, well, consumers are just going to take it, right? Not so much as it turns out, right? I mean, going back to your point, the problem Was having inputs that, um, ultimately weren't necessarily passed along. I would throw in another twist there that, you know, frankly, tax equity in its various permutations also was really stymieing, um, or stymied a number of companies, uh, within the space as well, right? I mean, but look, in many instances, I don't think you can blame tax equity in as much as it was sort of an output or the specific manifestation that, that drove companies to their end, right? In, in, in many, in many ways.

AI assessment note: “competition. It's probably the single best way to summarize it.”

Q to rise even more in the future. How do you think about that in the The economics to a customer of residential solar are a function of how much does the solar cost versus how much does your grid electricity cost? So if electricity prices are, like, inflationary across the board, presumably that's a helpful signal for resi-solar, but I don't know how quickly that flows through to actual demand.

A So yeah, I, look, I, If I were to answer the question directly, I would say, look, we ran this math a month ago as we were looking at the prospects of O triple B phasing out the IRA incentives and said, look, utility rates are going up. So when we ran our math, right, assuming that you benefited on a, you know, your starting point was, um, an ITC that includes some degree of domestic contents and energy communities. Um, the point is, if you're talking roughly 40% tax credit to begin with, and you roll that off, You know, you're effectively talking about ballpark a three cent a kilowatt hour increase in pricing, right? So again, is that the end of the world? No, not necessarily. Is that if I were to use kind of like, ah, a trip, you know, year-over-year, ah, bill increase, ah, you're talking about a, call it almost a seven percent, um, five-year trajectory, right? If you think about like this phase-out happening cumulatively over a five-year period or something like that, we're talking about this being like a seven percent per annum increase over a five-year period, right? So, it's not trivial. And, you know, are we expecting utility rates to increase at that rate? No. But I think the historical growth rate of utility rates at two to three percent, could we expect that to, you know, increase, relatively speaking? Sure. Um, I think that's, um, that's, that's certainly in the card…

AI assessment note: “utility rates are going up. So when we ran our math”

Q ask you, which is, What is or was the financial structure of the major players, the public, let's say the public players in the market, companies like Sunrun and, and Sunova and so on. Like, how are they structured financially? And when things happen, like, I don't know, tax equity becoming more expensive, interest rates going up, like, how does that flow through to the economics of those businesses? Yeah.

A To be fair, I mean, I think, you know, you, you hit on another core point. Like, if you're going to focus on the existing large companies that are public, I mean, look, I think a lot of the story there was just leverage, right? Like, how they financed themselves gave them much less latitude when things went against them, right? Let's, let's call a spade a spade. This is true across any sector we cover. I mean, you and I have talked over the years. You've seen a lot of these different permutations. Leverage is a, is a real killer over the years. And look, ah, to be honest with you, I think that is definitely a contributing factor as we saw here yet again in, in recent months. I mean, to, to cut to the chase, like one should have had more of an equity structure given the volatility. And again, you could talk about the volatility. You're like, what are you talking about? You customers sign up for a 20 plus year term volatility. What do you, I mean, that doesn't resonate. Yeah. My point to you is you don't necessarily know how many customers are going to be signing up. You just, you don't know The discrete terms that you're going to sign up that next customer, the volatility of the business that we just described, whether it's interest rates or otherwise, that's where there's ambiguity in the business model. It's not in the discrete, um, decision of like, hey, a customer signing up…

AI assessment note: “a lot of the story there was just leverage, right? Like, how they financed themselves”

Q savings or whatever the number was, something like that. Um, is there, do we have evidence of sort of how much demand elasticity there is? In other words, do small changes in price To the consumer really drive meaningful demand changes? Or is the market less elastic than that? And what's actually happening here is more about, like, the profitability of the individual unit for the supplier, for the installer.

A Yeah, I mean, look, I'm not going to try to argue that this is a, like, a truly competitive landscape. Um, what I would argue is, you're right, like, there's a lot of different inputs that are going against companies, and their inability to, in a linear fashion, pass those along to customers has been unfortunate. Um, not to rehash too much from the last second. I mean, and, and frankly, we've seen, uh, a lot of different oscillations in the last years. It has been striking, I think what, what I would argue is it was somewhat counterintuitive to the Cumulative challenges that we've seen post IRA, it was almost like the best day was day one after IRA, and after that, there was just an ongoing, like, train of challenges, whether it was the, the wider trade narrative, or frankly, as you put your finger on a second ago, the, the NEMP .O changes in California, and how much that pulled back participation, um, in California, and that was a big volumetric impact that really cascaded, not just across the, The actual lessors and installers, but also across the equipment manufacturers, right? That really challenged the system, um, just from a volumetric perspective for, for quite some time. And I think we were just coming out of that last year, and then we started talking about, oh, and now we've got this IRA question, right? And I think that's really what's, what is in front of us now. It…

AI assessment note: “their inability to, in a linear fashion, pass those along to customers has been unfortunate”