The two largest U.S. rooftop solar companies are merging as the coronavirus pandemic casts a cloud over the market to install panels on homes.
Sunrun Inc.
is acquiring
Vivint Solar Inc.
in an all-stock deal, the companies said late Monday. The transaction values Vivint at $1.6 billion, excluding debt, according to Sunrun. It comes after a tough few months for the home-solar sector, which analysts say faces diminished growth for years now because of the virus.
The companies told investors Tuesday that the merger will allow them to cut operating costs and leverage complementary sales strategies. The combined company will have nearly 500,000 customers.
“It felt like now was a perfect time because we have been through the Covid test,” said Sunrun Chief Executive Lynn Jurich, who will lead the combined firm. “Both companies are emerging stronger from this transition.”
The second quarter was estimated to have been one of the industry’s worst in years as companies grappled with restrictions on making sales in person, as well as delays in permitting and installations. The slowdown is expected to continue as coronavirus cases climb in many sunny states, including Texas, Arizona, California and Florida.
Before the pandemic, energy consulting firm Wood Mackenzie had expected U.S. residential solar companies to add nearly 3,089 megawatts of capacity this year, up nearly 9% from 2019. It has since slashed that forecast to 2,118 megawatts, one-quarter less than last year.
“The timing couldn’t have been worse for the residential segment,” said Wood Mackenzie’s global solar head, Ravi Manghani. “It is basically setting the industry back by two or three years.”
That poses a big challenge for a sector that had only recently regained the momentum it lost after 2016, when Tesla Inc. acquired SolarCity, the market leader at the time. Tesla tried to shift the company’s business online by scrapping door knocking and other means of customer solicitation. Sales fell as a result.
Now, Sunrun and Vivint have been forced to try similar strategies with many cities and states in various stages of lockdown. Both companies have traditionally sought new customers by setting up sales booths in retail stores such as Home Depot, and Vivint has historically relied on door-to-door sales.
Sunrun and Vivint told investors on Tuesday that they had seen some success in ramping up sales online and by phone and expected that momentum to continue. But each cut or furloughed employees at the start of the pandemic and withdrew annual earnings guidance.
“We are performing above our prior expectations,” said Vivint CEO David Bywater, who is expected to join the Sunrun board. “We have innovated, adjusted and quickly learned how to serve our customers by providing a contactless selling and installation experience.”
The shift to an online sales model has affected rooftop solar companies broadly, but proven easier for the industry’s larger players. John Berger, CEO of Sunnova, which sells rooftop solar systems in 19 states, said the company leveraged its network of local dealers to tailor its sales tactics and permitting strategies to conditions on the ground.
“Sales people have to get used to selling digitally, and that’s hard,” Mr. Berger said. “Customer acceptance is even more important.”
Homeowners have become increasingly interested in solar power in recent years as the costs of rooftop systems decline and companies offer more financing options. But adoption remains highest in states with solar incentives and relatively high electricity prices. Some of the strongest markets, including California, New York and Massachusetts, took stringent lockdown measures to combat high numbers of coronavirus cases.
Smaller companies have been especially challenged. Goldin Solar, which sells rooftop systems to homeowners and home builders in Florida, has recorded far lower sales volumes this year as the virus continues to ravage the state. CEO and co-founder Daren Goldin has spent years earning customer trust with sit-down meetings and said he finds it difficult to foster those relationships virtually.
“I’m not sure this is a product that’s really going to be a priority for people who don’t know if they’re going to be in their house a year from now,” Mr. Goldin said. “It’s going to be for millionaires who can ride out this storm with minimal impact.”
The solar industry has shed 72,000 jobs this year, about three-quarters of which were in the residential sector, according to the Solar Energy Industries Association. The trade group has been lobbying Congress for an extension of a federal tax credit available to homeowners who purchase or finance rooftop solar installations. The tax credit is in the process of being phased out by 2022.
Abigail Ross Hopper, SEIA’s president and CEO, said the group would at least like to see lawmakers hold the tax credit at its current rate of 26% through 2021.
“Give us a mulligan, a do-over,” she said. “This has been such a challenging year in a way that none of us could anticipate.”
Write to Katherine Blunt at Katherine.Blunt@wsj.com
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
