Sunrun has formally joined with REC's residential solar unit, according to several sources close to the deal. It's a deal that has the potential to change the landscape in a dynamic and fast-growing residential solar market. REC already has an existing relationship with Sunrun. The structure of the deal, whether it is a merger, JV or preparation for an IPO, has not been disclosed.
The U.S. residential solar market continues to be a volatile scene, as evidenced by our recent coverage of SolarCity, Vivint, and CPF and the solar customer acquisition battle.
REC Solar had a national residential market share of 2.6 percent for the first three quarters of 2013, according to GTM Research's PV Leaderboard. This move gets Sunrun access to a large, established direct-installer channel, but also places a bit of tension between the company and Sunrun's existing dealer network. Will Sunrun move to an all-direct-sales model? Will Sunrun emulate SolarCity and Vivint, thus jeopardizing its relationship with its current clients, all of which compete with REC?
REC, a sixteen-year installation veteran, has more than 100 outside sales reps in twenty offices across seven states. REC had its sales kickoff in Las Vegas earlier this month, and our sources indicate that "Sunrun was there in full force." In a recent article, we noted that REC Solar’s 65 percent year-on-year growth from Q3 2012 to Q3 2013 beats the overall U.S. residential solar industry’s 49 percent growth by a wide margin.
In residential solar, it all comes down to acquiring customers, and this move toward a direct-sales model is one of the ways Sunrun can get to lower customer acquisition costs. According to GTM Research solar analyst Nicole Litvak, "Residential solar customer acquisition currently costs installers $0.49 per watt. Over the next four years, this cost will fall to $0.35 per watt, saving the industry a total of $619 million between 2014 and 2017.”
REC would not provide a comment, and Sunrun's Andrew Pontti said there was "no news to discuss at this time," which typically translates as an emphatic confirmation.
In June of last year, we reported that Sunrun had won $630 million from three new funds. As Sunrun co-CEO Edward Fenster explained at the time, “These three funds, closed over the last few months, are for the installation of $630 million in solar facilities." VC investors in Sunrun include Sequoia Capital, Accel Partners, and Foundation Capital -- three respected names in that curious business.