Q2 2019 Earnings Call
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Good afternoon, ladies and gentlemen, and welcome to the <unk> second quarter Financial Conference call.
At this time, all participants I know there's been no one else.
Later, well conduct a question and answer session and instructions will follow what's inside.
If anyone should require assistance during the conference. Please press Star then numbers are on the telephone keypad.
Hi, Jeremiah just its conference call is being recorded.
I would now like to turn the conference over to your host.
Dropping me begins.
Thank you operator, and thank you to those on the call for joining US today before we begin. Please note that certain remarks, we will make on this conference call constitute forward looking statements. Although we believe these statements reflect our best judgment based on factors currently known to US actual results may differ materially and adversely please refer to the companys filings with the FCC for a more inclusive discussion of risks and other factors that may cause our actual results to differ from projections made in any forward looking statements. Please also note. These statements are being made as of today and we disclaim any obligation to update or revise them.
On the call today are Linda <unk> son runs co founder and CEO , Bob Coleman, Sunrun, CFO , and Ed Fenster Sunrise co founder and executive Chairman. The presentation today will use slides, which are available on our website at the investors Dot Sunrun dot com.
And now let me turn the call over to Len.
Thanks, Patrick.
We are pleased to share Sunrun second quarter results and progress against our strategic priorities.
In the quarter, we added 12600 customers, representing 103 megawatts of deployments, a 13% year over year improvement.
We generated 95 million in net present value and created the NPV per watt of $1.11 or $9500 per customer.
We generated 44 million in cash and since the last call have achieved record low capital cost in our financings.
Sunrun offers household the superior energy experience and our value proposition continues to increase.
We were not surprised to see the utility to trade group raises capex forecast, yet again, just a few weeks ago.
He increased our utility capex projection for the next two years by 15% from their prior estimates and now top 250 billion and is that all time highs.
With limited growth in energy consumption and a significant increase in spending double depreciation expense.
Well likely be passed to consumers in the form of higher electricity rates.
At the same time, many customers are experiencing unreliable service exacerbated by extreme weather and horsepower shut off.
These pain points combined with the attraction of clean solar energy and battery storage are driving consumers to engage meaningfully in our personal energy usage for the first time.
Solar is proving to be a unique access point to obtain significant relationships with customers.
Today I want to highlight the California market to show how much customer growth lies ahead and how distributed assets will help create a more resilient clean system first our modeling shows that in California. We are just now exiting the early adopter phase and moving into the early majority phase in the area of the curve that is twice the size of the earlier segments.
Second the California mandate for new homes will be additive to the growth. During the next few years, both from new home construction and the increased category awareness it will bring us home solar and batteries become mainstream.
We are engaged in conversations or contracted with half of the top 10, homebuilders in California and are gaining share.
Finally, many californian communities are racing to retire fossil fuel plants and replaced them with virtual power plants comprised of solar and battery storage.
Los Angeles, Glendale, and Oakland, our recent examples.
So no one is positioned to win with our brightbox offering targeted customer acquisition capabilities and growing density and scale advantages.
In July we added to our energy Services award in ISO New England with another landmark contract in Oakland.
This contract helps replace retiring fossil fuel power plant with home solar and battery system on low income housing.
The contract is particularly meaningful because it will help disadvantaged communities, who often experienced the harmful impact of fossil fuel pollution. The most.
Furthermore, it shows that community choice Aggregators in California are starting to realize that home solar and batteries are a valuable and cost effective resource planning tool.
For context, the virtual power plant opportunity could be nine gigawatts of potential in California alone.
This is the equivalent of 50 fossil fuel power plants or four times the size of the Diablo Canyon nuclear plant slated to retire in 2025, we expect other states will follow that trend.
Because of the huge potential and battery storage paired with solar we continue to invest in brightbox, even though it is causing short term headwinds from slower install times and immature supply chain and permitting and interconnection obstruction.
We now have installed more than 6000, Brightbox battery systems and continue to expect demand is ready to unleash with anticipated cost reductions and severe climate events.
We recently expanded Brightbox of Texas, New Jersey, and Vermont and the service is now available in nine states in Puerto Rico.
We are encouraged by the growth in grid services programs offered by forward thinking utilities that recognize customer centric solutions are a key path to decarbonizing.
Utilities in Vermont Long Island, and Massachusetts are now joining grid operators and offering programs that enable batteries to participate in capacity markets and other grid services revenue streams.
Brightbox represents over 10% of our direct business overall and more than 25% in California.
Our market position and long term potential continues to improve.
Customer demand in our order book are strong we are forecasting more than 20% annual growth in orders for Q3, and our direct business continues to grow much faster than that.
However, the tight labor market is making timely hiring in our direct business more challenging than we expected resulting in growing backlogs.
So on the positive side, our focus on efficiency resulted in cost improvements you can see that someone don't cost improved 7% both year over year and from Q1, despite wage increases tariffs and increased battery mix.
However, we are behind our staffing plan required to realize customer demand in Q3.
We are also prioritizing brightbox, which we believe is the right long term decision, but creates longer cycle times and requires additional crew training.
We expect to deploy between 107 to 110 megawatts in Q3.
We are working to increase capacity to reduce backlog in Q4 and realize the expected growth in orders.
I'll now turn the ball call over to Bob Our CFO to review Q2 performance and to discuss guidance in more detail.
Thanks Glenn.
NPV in the second quarter was approximately $9500 per customer.
For a dollar and 11 cents per watt, an improvement of 13 cents from a year ago and up five cents from Q1.
Project value is approximately $37900 per customer or $4.44 per watt in Q2.
As a reminder project value is very sensitive to modest changes in geographic channel and tax equity fund mix.
Turning now to creation costs on slide eight.
In Q2 total creation costs were approximately $28400 per customer or $3.33 per watt, an improvement of 13 cents or 4% from last quarter.
We expect creation costs will continue to improve from Q2 levels in the second half of this year.
As with project value creation cost can fluctuate quarter to quarter.
As a reminder, our castex not directly comparable to those of our peers because of our channel partner business.
Blended installation cost per watt, which includes the cost of solar projects deployed by our channel partners as well as installation costs incurred by Sunrun built systems.
It was $2.50 per watt.
Eight cents improvement from last quarter.
Install cost for systems built by Sunrun improved by 13 cents or 7%, both sequentially and year over year to $1.82 cents per watt.
In Q2.
Our sales and marketing costs were 80 cents per watt up two cents from Q1.
Our total sales and marketing unit costs are calculated by dividing cost in the period by total megawatts deployed.
Higher mix of direct business results in higher reported sales and marketing cost per watt, but it also means there will be lower blended installation cost per watt over time due to the higher mix of direct business installations at the lower cost per watt.
In Q2.
DNA cost were 28 cents per watt an improvement of one cents from Q1.
Finally, when we calculate creation cost we subtract the GAAP gross margin contribution realized from our platform services.
This concludes our distribution racking and lead generation businesses as well as solar systems, we sell for cash or with third party loan.
Our platform services gross margin was 25 cents per watt Q2.
In the second quarter, we deployed 103 megawatts.
Our cash and third party loan mix was 17% in Q in Q2 in line with recent levels.
We expect this mix to continue in the high teens for the rest of the year.
Turning now to our balance sheet.
We ended the second quarter with 354 million and total cash of $44 million increase from last quarter.
We continue to expect cash generation of over $100 million in 2019.
Quarterly cash generation can fluctuate due to the timing of project finance activities, but this represents our best view based on our plans for the remainder of the year.
We define cash generation as the change in our total cash plus the change in recourse debt also please note that our cash generation outlook excludes any strategic opportunities beyond our current plans and also does not include ITC safe harboring activities.
Moving on to guidance on slide nine.
We continue to expect full year 2019 deployments to grow between 16% and 18%.
As our direct business outpaces, our overall growth rate more expenses are front loaded for sales and deployment capacity.
The dynamics of the tight labor market and more front loaded expenses puts pressure on NPV and cash generation.
Despite this we still expect to generate 100 million or more on total cash for 2019 and to exceed last year's one dollar eight cent NPV result.
We also expect to be in the range of our previous $1.15 cent NPV target for the year.
As mentioned earlier in the third quarter, we expect deployments to be in the range of 107 to 110 megawatts.
Now, let me turn it over to Ed.
Thanks, Bob.
Today I plan to discuss our recent project finance activities, along with our capital strategy for the remainder of 2019.
Ill also touch on net earning assets and capital runway.
Reductions in long term interest rates and growing interest in residential solar assets are causing capital costs and advance rates to improve across the entire capital stack.
Since our last call, we executed transactions in the ABS market bank market and subordinated debt market all on record terms.
In May we completed a securitization of assets that have been operating for five or more years. So they no longer include a tax equity investor. The notes were priced at a 4% yield with an 80% advance rate.
The advance rate of 80% is nearly 10 percentage points higher than the senior traunch in Sunrise prior securitization and represents the highest advance rate for any similarly rated tranche in the solar lease in PA transaction to date.
The yield of 4%, it's the lowest yield for any solar leasing PVA transaction to date.
Combined with the subordinated debt on the transaction, which brought the total proceeds to over 100% of the portfolios contracted gross earning assets.
The weighted average cost of debt was 5.75% or 6.17%, including all fees.
This transaction presents another data point in support of using a 6% discount rate to calculate asset value.
Since we are now able to structure. These trends these sorts of facilities solely as nonrecourse debt rather than structured equity.
We're able to retain upside on the portfolio over time.
Although we received significant gross proceeds in this refinancing net proceeds were materially reduced by swap breakage costs.
As we've discussed before when refinancing you hedged portfolio, we don't materially benefit when base interest rates fall and we likewise aren't materially harmed when the rise.
We will begin to see incremental proceeds from these lower capital costs as we placed in the service newly built systems in this new lower interest rate environment.
In July we repriced $229 million of bank debt, we reduced the spread to LIBOR plus 212.5 basis points.
From 275 stepping up overtime to 300 basis points.
We also increased the advance rate from 68% to 72%.
We repriced rather than refinanced this facility for expediency into lower transaction related costs.
We expect to execute another debt transaction in either the ABS or bank market during Q4, depending on market conditions.
Moving to slide 10 at quarter end net earning assets was 1.4 billion, an increase of $139 million or 11% year over year.
Net earning assets is our way to describe the value of the cash flows to sunrun shareholders after payments to financing counterparties.
Cash was 354 million.
Total cash less recourse debt increased 91 million from the prior year period, and increased 44 million from Q2.
Turning finally to our pipeline our project debt commitments provide runway through 2019, while our tax equity commitments expire.
A telephone keypad.
I got ladies and gentlemen, if you have questions at this time. Please press Star then the number one photographer Pete.
Our first question comes from the line of most is Susan from Barclays. Your line is open.
Hi, Thanks for taking my questions in light of the recent events.
There's been a reinvigorated focus on creation cost.
Despite maybe a bit of headwinds this quarter, you've averaged a 7% decline since 2015.
Can you review your base case views and how much further this could go in future years, how this might be affected by Brightbox, maybe any any broader commentary on on creation costs over time, and it's a mix.
Yes, thanks for the question we.
There's a lot of opportunity there so we're pursuing multiple ways to improve customer acquisition costs. So.
On the installation side.
You know what you saw in Q2 was a lot better efficiency and utilization now you know, we maybe even push too hard up out of the Rescap.
But Q3 installed potential that we could have achieved that you thought that that you know significant quarter over quarter improvement there on you're going to see improvement in hardware pricing when the tariffs release and with more competition. There and we're also expecting to see improvements from streamlining and automating the whole process, you know through permitting and interconnection, which will create a lot faster cycle times from a customer sign to to install that which is a massively lower cost for the whole system and then I think finally, the customer and brand awareness that we will get what penetration will help. So all of those are the path that we're pursuing across the board and there's a lot of opportunity in each one of those I would say in the in the short term what's happening is the customer values are supporting the creation costs. So you know so if he if you look at markets, where there are lower customer values that creation costs are also.
Lower so there's a there's a there's a you know economics one on one here, where you know with these attractive customers with our and each one of our customers on a net present value, it's worth almost $10000 to us and so the the cost support that you're also going to see as we discuss with this you know sort of unprecedented <unk> in a while anyway labor market. There's there's you know pressures there and so what we have said is throughout the year. We would expect you know modest improvements of Christian cost, but not big ones. So you know the way I would summarize that is you know we're very bullish on the opportunity to reduce and tightened those costs across the board, but in the short term I'm you know the project value is an MPV, they're really strong.
And we're going to see slight improvements, but I wouldn't expect significant improvements in the short run.
That's very helpful.
I don't know if this relates but they were one of the metrics that seemed to be different than prior quarters was the average lease system size.
About 8.5 kilowatts.
Anything there is it just mix.
Maybe you can provide any comments there also on the renewal value of I saw a 40 cents per watt usually are more in the 50% range based on your calculation.
Got it all all I'm I'll take the system size.
There are some of the newer markets that we are growing and you tend to have larger system side. So when you know one noteworthy stand out would be Texas, which is a you know market where people use a lot of air conditioning, how bigger houses that in California. So I think as you as the mix starts to penetrate in markets like that you're going to see the size improve I think we're also always getting better at finding the more you know more attractive customers and larger system size is generally yield more profitable projects. So I'm, where we also we're constantly refining our models to achieve that as well.
On the renewal I would say, there's just you know variations you know quarter to quarter and we have also introduced you know 25 year contracts in some places, whereas before we were exclusively 20 or so that would kind of you know that piece of that renewal and half in those instances.
Got it and.
Last one from me not sure. If you can provide this but how much of your ongoing revenue and or retained value is driven by escharex.
We see the broader category of incentive revenue as well as some deferred revenue details, but the clean revenue number either nominally or as a percent of total it's a bit off he skated I'm just wondering if you can provide that.
So in the definition of the of the AV any AG eight you're asking how much of that is attributed to abstracts that we.
I'm going to defer to adhere to make sure I'm, saying, it's packed with a bad it's just that contracted what is actually contract. It is reflective in that number so uncontracted anthrax anything that we don't have a contract for would be incremental to two that data.
Got it.
Thank you.
Our next question comes from the line.
Sure.
Ross Capital Partners. Your line is open.
Hi.
Yeah.
Just on the Q3 guide.
How many megawatts do you think you left on the table as a result of or do you think you will have left.
As a result of the longer cycle times, and so forth you know historically your Q3 guide is between you know is up 10% to 20% sequentially over Q2, and I think today, our guidance is just 5% quarter over quarter. So I'm guessing, it's the cycle times, the tight labor market and so forth, but what could have been had.
You didn't have you didn't have to deal with those issues.
Oh, yeah, the way I the way I would describe it as we enter the back half of the year, we have visibility into that customer deployment upper all that work adding to sell.
It does look like a steep ramp in Q4 based on the Q3 guidance, but it's really just two components and reducing on the backlog that we've accumulated and then the actual Q4 and then for a pretty organic Q4 growth rate to hit the overall number. So that's how I would describe the two components in the backlog.
Okay, and you're right it is pretty steep for the implied Q4.
Call. It 134 242 megawatts.
And slide you know, that's a 19% quarter over quarter growth rate from Q3, or <unk>, you expect to be able to reduce the labor tightness in cycle times enough to you know to realize the Q4 guide and imply Q4 yard.
And what are the risks potentially around that.
We do and again, we you know most importantly, we have the visibility into the orders and the demand is there and so we need to execute on hiring and or finding third party capacity to realize that I think ideally we wouldn't be exiting Q3 with such a large backlog, but we'd really rather era that way then having higher cost from under utilization. So if you're going to air on one side. We were you know maybe a little too too tight on that but you know the orders are there. So we believe we can execute to that capacity enhancement.
Okay. Thanks, and then you had mentioned in your remarks that you expect another maybe us or I think bank are fine.
Financing in Q4, if you were to do it in a B S.
Do you expect it to be pretty flip assets or if not you know what kind of asset base do you expect a four for the Q4, yes. Thanks.
Hi, Phil Yes. The Q4 anticipated transaction wouldn't include recently placed in service system. So there would be tax equity in that transaction.
[noise].
Great. Thanks, Bill I think operator, we can take the next question.
Our next question comes from the line, Brian Lee from Goldman Sachs. Your line is open.
Hey, guys, it's Rebecca and on for Brian . Thanks for taking my questions. So can you provide some details on your Idcs Safe Harbor strategy and maybe thoughts on the odds of an extension and then are you able to position for both outcomes. If say, we don't get an extension until near year end.
Hi. This is Ed Great question. So first we are planning to avail ourselves of the IRS Safe Harbor rules by carrying excess inventory into next year, which obviously would extend our access to the 30% credit.
We've been we've begun accumulating small amounts of this inventory already.
We're on track to close a nonrecourse credit facility for the equipment in Q4.
We are doing our best to structure it such that.
Whether or not there is an ITC extension we have.
Kind of covered our bases in terms of risk and profit.
And some of that review proprietary but we'd be happy to discuss.
On a subsequent call.
To your question about the odds of an ITC extension I think our best thinking is still that's probably about 25%.
And if it occurs it is likely to occur very close to the end of the year.
Potentially in connection with the appropriations bills or a tax extender bill.
There is a measure introduced to extended just recently, which we think if it were act enacted in law would be in connection with.
Other larger bills that are there will need to be considered by the Congress between now and the end of the year.
And I would just add we're certainly of course planning that's nets to not count on that.
Okay. Thanks.
And then it looks like there was a heavier mix of megawatts from channel partners during the quarter on than where its been trending recently and so just how should we think about the mix going forward and a reduction in the blended cost per watt.
Mm Hmm.
So the perhaps what you are referring to is there and have a higher mix of cash sale. So I think we have the cash sales increase from 15% to 17% or are you looking because we got the underlying the.
Channel versus direct which as you know we don't break out our direct business is actually growing faster than our channel business and so what that does do over a period of time as you mentioned is reduced the blended installation cost I think the comps first as you know if you look at last year's Q2 that was part of that.
It was that unusual conscious because in that quarter that project value is down and the cost was down and that wasn't there is fluctuations from quarter to quarter, but if you look more normalized you'll see that it's not it's not really an outlet or in fact is down eight cents versus Q1, So we would expect that.
The direct business is growing faster, we expect that that input cost will come down inline with that.
Okay. Thanks.
Our next question comes from the line.
Hi, guys.
Hey.
Hey on a high level are you guys comfortable with Dr. team for what MTD as a target.
Especially as we see more battery financing grid service monetization.
You bet.
We are thinking about landing going forward.
Our year, saying more generally or for the year.
More generally and ill.
So for the year for the year you know, we're pleased with it and ending in that area. As you know as Bob said, there's under <unk> in that number there is a lot of fast growth in our direct business, which put some pressure on it because we do recognize the expense as you know earlier overtime. We do believe there's the opportunity to improve that and just even in our core business. So you know we certainly.
Do you see opportunities to do that it does also help as I talked about it in that commentary that utility praised prices continue to really rise with these capex increases. So you know there's a lot of tailwinds on our ability to charge higher prices and there's cost reduction tailwinds as well so we get weren't getting benefit in both directions in terms of the potential on the grid services revenue we.
We're really encouraged by the movement in the eye on grid services with utilities and with me. It some of them units in California. So that continues to be an opportunity. We're very bullish about but it's going to take a little while to build so you know we estimate that grid services can add 2000, plus an MPV per customer and we have a lot of proof points that really support that I'm you know in our pipeline and an active discussion. However, if you look at the percentage of our customers that are going to be with a great services contract. You know that's going to build slowly over time, so could it be 50% of our customers over a you know in the foreseeable future, yes, but it's not going to be a meaningful percentage over the next couple of years.
Gotcha.
And also could you comment a little bit on the labor tightness in installation sales and customer acquisition.
Where are you really seeing that showing up and also what happens what happens with that next year as the California rooftop mandate.
Starts to really kick in and that markets or expand.
That's a good that's a good question on the on the rooftop expansion I think in terms of your first question on where are you seeing it it's across the board I think most acutely where I'm seeing it on the downstream installation side and and pretty acutely, saying it end markets you know some key markets like California, and so it's it it really is across the board in terms of sales people staffing people in our home depot stores and on the construction side. So I would say across the board I like our chances in that and not because we.
Yeah, I think we're developing a differentiated talent brand and a company that people want to work towards.
In terms of the new home construction I mean, typically that is outsourced and there was a lot of contractors that serve that market. So I think you know that market is fairly boom in Boston expansion homebuilding as you know it's quite cyclical. So I think they can ramp up and ramp down.
Pretty easily on that so I don't think that influences it in a huge amount.
I mean does this.
Higher labor costs, and make you think that dealer to dealer model might be more attractive at this point.
They're not really part of your question.
No there would be no difference I mean that would flow through to a dealer.
Just as it would flow through to to summer and I think if anything you know again developing a high quality place to work in a talent brand and you know and and other sort of retention.
Efforts are going to benefit some of the larger.
Players like ourselves, so I would I could see that as a competitive dynamic favoring us as compared to the dealers.
Okay. Thank you.
Thanks.
Our next question comes from the line of Julien.
Bank of America.
Hey, good afternoon, rather how does my mind.
How are you guys.
Good afternoon.
Yep.
Excellent. So quick question given the meaningful proactive de Energization is going on in California, specifically PGT through the latest quarter and even today.
Can you discuss the customer demand inflection I suppose youve already alluded to.
A large backlog if I if I quoted you are right there Lynn.
What are you seeing in terms of customer uptick it seems there's some some of the other public data points out there seem to be very meaningful in a very late but I'd be curious what you're actually seeing on the ground.
Yeah, I think that those tailwinds will be huge and but they're mostly on the comp. So I mean that the two tailwinds I mean, maybe three tailwinds, you're going to get from that as one that electricity prices are going to have to increase and we haven't seen those really flow through like as they're going to so that's going to cause some consumer pain.
Two people are going to feel the pain of their power getting set up but they haven't really felt that yet it's been pretty small.
Group of people, so far and wildfire season really is just on the comp. So I don't think people have really felt it yet.
And then three there's a whole new appreciation for the dangers of climate change and just willingness for individuals to on a chip in and make good decisions about their homes. So those tailwinds are enormous and you know give us confidence that you know, California has a ton of runway. However, I would say that you know we're just entering the fire season, and we're on early days in that and so you're not going to see the demand uptick in a meaningful way until you know people have been through a couple of outages.
But maybe to just clarify real quickly I mean, you talked about them huge and omnicom have you seen an uptick even in the isolated geographies that have experienced system is this something that is perceivable in your numbers as you look at them, where you have seen so these blackouts or you're really waiting for threeq, you to see that uptick to materialize.
And and also maybe even within this the storage component because presumably this would be a solar and storage sale rather than just to say so.
Yeah, I mean, the way I would answer that so we expect our order volume to grow 20% year over year in Q3 independent of this outages I would still expect it to grow at that level. So it's not it's not that the single issue. That's moving US you know above into these fast growth rate. So I, it's not it's not materially influencing our numbers in the <unk> in the current quarter or even over the next couple of quarters I do believe that well, but it's not it's not materially changing things. This quarter next quarter got more of a wait and see but it seems like a good tailwind kind of thing.
I would say it could go stronger than wait and see I was I would say customers people just need to live it before they make a decision to you know.
Put panels on the roof and about.
If I can just one more real quickly can you discuss the opportunity to leverage like Oh, the Oakland contract and and other similar constructs around expanding your CCH penetration to existing customers in a more enhanced.
Customer acquisition venue.
Absolutely I think this is Beth is another on you know entry barrier and scale advantage for US is entering into these key programs because what we're going to be able to do is offer our customers. All the benefits of the solar plus storage, which has cleaner cheaper energy plus backup power, but we're also as being part of our virtual power plants are going to be able to monetize that battery you know four additional values. So it just enhances the customer value proposition. The other thing. It does is it gives you a marketing and urgency message to the consumer. So now as you know the the city of Los Angeles that can be it can help us replace this.
Gas power plant Weve Indoor center and as you know our provider it really helps on the customer acquisition.
On the customer acquisition cost in a pretty differentiated way. So we are very excited for the promise of these opportunities.
Alright, great well, thank you very much.
Yeah, one of one other thing I would add on.
You know adds there at that you will see in our in our 10-Q is that we've also expanded our capabilities to be able to develop solar on multifamily and low income buildings, which you know is part of the Oakland contract. We won so we're also working to bring a more comprehensive solution for these virtual power plant. So we can but solar on our single family home plus you know low income communities plus multifamily. So we can really provide more solar access. So we're excited about that progress on those efforts as well.
Great.
Thanks Julien.
Okay, ladies and gentlemen, if you have questions at this time. Please press Star then the number one.
Next question comes from the line of Joe Osha.
So James.
Hi, everybody.
Hi, Joe Hi.
Kind of following on on drilling of line of questioning there for a moment when you look at some of these communities that are out there in areas that.
Our risk of being de energized has anyone looked at the possibility or when you de energize the line of.
Well the I still what you sort of iowans, an entire community. If you have a capacity arrangement in place.
That is that type of thing possible or is the is the protection or a day. The backup power. If you will still going to be available only on a resonance by residents basis.
Yeah, I think I think.
We are absolutely working those opportunities now one of the things that is the one of the reasons why we're having success in the early days with the Muni isn't the Ccas is they don't have quite as a complex regulatory framework.
As you know some of the I O you do so I think there is some blocking and tackling to get through that that those in the market and the market mechanisms on where the market mechanisms are really working nicely for good sources in the northeast. So the northeast is really so anybody who is competitive in California. The northeast is crushing California. So it you know they're already you know the ISO new England is allowing batteries into their wholesale capacity market. There's multiple utilities that are setting up you know simple programs, where we can plug or batteries into their you know capacity and ancillary services market. So that's happening in the northeast and that's going to be a model in California, where the early wins and the early attention to those are really through the FCC AIDS in the Muni and and then at the same time, we're working that regulatory structures in the market structure as to you know try to provide these concessions could they totally make financial sense I don't probably want to add something.
Oh, Okay, yes, so I would say there are two types of.
Customers, who could be impacted by a blackout.
You can have a community that is at the end of a long transmission or distribution line that is at risk and fires or you can have a community who is an actual wires or in a risky spot. So the best opportunity for the micro grid, which is what you're describing where you Islander community.
Is where it's the transmission line, that's at risk rather than necessary the distribution lines in that neighborhood. So there's definitely a lot of interest in that and it will take some coordination between the companies like ours and the utilities, but also largely the regulators to realize that you know about Pete you need for an example, send an email to its customers encouraging them to buy portable generators.
So I think there's going to be a little bit of work.
You know in order to sort of realize the benefits.
And to manifest the benefits that solar and storage together can bring but we do see that as a mid to longer term opportunity.
Certainly in the meantime, anyone can take action immediately to ensure the security and safety of their own system.
You know I was on a standalone basis.
Okay, and then kind of as a follow on from that when you are looking at how you think about pricing right box. At this point is is there kind of an implicit assumption there that there will be some additional monetization from grid services war or is brightbox just with the initial contracts still a positive NPV proposition you guys.
More of the latter so we've been we've been really consistently focused on you know generating day, one cash so really more of the latter I think there could be you know these again, it's market by market a judgment call on how likely you think those revenues are going to be but you know weve taken weve been a little more conservative on that.
Okay. One cookie question and then one other one through the Cookie one would given the the the expertise through developing and going to your communities in 60 days and Youre use and so forth would you ever potentially being the position of doing a sleeve or somebody elses capacity I mean, you've had these companies are green charge and stem and whatnot, putting batteries out there that they can't monetize.
Would would you ever start aggregating other people's capacity or is that just silly.
Hi, Joe This is Ed so absolutely there is an opportunity and in fact, several developers have called us to propose that.
Particularly I think see United developers.
And you know right now obviously, we're heads down operationalizing everything for ourselves, but in certain instances, we actually have partnered with other people, we do see that as a growing opportunity over time, but one that we haven't quite you know activated on the priority list yet.
Okay and then the last one Ed for you.
That comment you made on it.
The RMBS deal with the subordinated debt on it being more than 100% of contract does that mean that subordinated wonders or lending to you on renewal or help me understand a little bit what what the underpinning ones there.
Sure. So so obviously you know.
Lenders base case, I don't always see so their exact assumptions are on are uncertain to me, but my assumption is that there is value being provided you know to the renewal.
Portion.
But I think fundamentally just as a debt instrument.
What matters is the face value in the interest rate.
As far as were concerned and so we just see it as.
You know an instrument that is more than 100% of their contracted value out of certain interest rate, but potentially refinance sorry recon renewal revenues.
You know maybe necessary to repay that note.
If it were to fully amortize out you know over a multi decade period.
Okay. Thanks, I could go on all day, but I'll I'll step aside thank you very much.
Thanks, Jeff.
Last question comes from the line of calling wash.
Thanks, So much guys. So if you're looking at the the portfolio or the potential capital partners and it sounds like you're moving closer to having more capital come earlier in the process of.
Earlier in the lifecycle and can you give us a sense of the diversity of options that you have in front of you and you know, particularly given the deal that you did with with Con Edison you know the sort of transaction, where you have basically no cash up front kits equity stubs seems pretty compelling from cost to capital perspective, but can you give us a sense of you know the depth and the breath of options that you're evaluating them. How we should think about the cost of capital and structure evolution horse on run over the next call it four or six quarters.
Sure. So we're seeing significant increase in depth of market.
You know some some data points. There you know the subordinated debt transaction, you know priced I'm pretty confident at least 200 basis points below what we've seen from.
Peers.
And you know was a competitive process with a great deal of interest, although interestingly is still probably 200 basis points above what you might see in utility scale transactions.
You know where are where.
You know I believe over a three to five year period of time, we ought to be able to demand lower spreads than utility scale transactions given that they have a single week investment grade counterparty.
Certainly, California utilities, you know our extreme examples that today.
We continue to see growing interest in the ABS market the transaction or you know that we clear there had a number of new investors and we've seen new investors come into the space during the year.
When we repriced the bank deal that I mentioned, you know we had seven lenders that was a syndicated facility we lost none of them in the repricing and so I'm very comfortable in the depth that market at the moment and the interest in the asset.
Okay, and then just on the technology side, you know certainly there for a period of time weren't number of companies looking at figuring out how to shorten installation times through new device is used to see real innovation happening in that area. At this point and is there a way to mitigate some of the labor tightness through migration to different technology solutions.
Mhm.
Yeah. There are there are opportunities certainly so you know there's still a lot of.
Physical that that to the home as an example, so you know sales person to the home is also typically for most times you would need to send the subsequent person out there to examine features the riverfront things. So there's solutions like drones and other things that are showing some promise to eliminate you know some of that so that's one example on the installation like once here at once you've shipped accrual you know on site. If you shave an hour or two that's helpful. But that's really not quite as meaningful but more meaningful you know reduction in the overall creation cost like I think will come as the industry moves from Hey, It said.
You know 60 day cycle time from a customer signed two at getting installed where there's a lot of time to go back and forth a lot of kids customer questions, you know customer apathy and things and moving it tighter to you know what you see in international markets, where someone signs up and they get installed seven days later, that's what really is going to help eliminate a lot of the waste and I think we are making good slow, but good progress ha by age shade to try to get.
The online and automated permanent interconnection rule, so that we can really tighten those times.
Okay and then just one final question for me just in terms of continuing the growth trajectory do you guys feel like you need to expand geography used to support growth into next year and are you, making those investments now or should we start seeing those on the financials sooner than later.
No you know any you know strong growth next year is not does not necessitate geographic expansion. So we would not we would expect even deeper in our existing markets first says thank you expansion.
Thanks, a lot here.
Thanks Huh.
There are no more questions at this time.
I'd like to turn the call back.
All right well with that well get back to work increasing our capacity for installations and we'll look forward to talking you guys next week.
Excuse me next quarter.
Everyone else has left the call.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation.
Give me.
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