In its 2024 earnings call yesterday, Sunnova Energy said there is “substantial doubt” about its ability to continue operations for the next year.
The Houston-based residential solar company issued a “going concern” warning, shocking investors and causing the company’s stock to plummet by nearly 60%, reaching an all-time low of 66 cents per share.
Sunnova, the second-largest residential solar financier in the country, appears to be burning through cash rapidly; it enters 2025 with $8.46 billion in debt and a negative cash flow. And the company reported just $2 million in cash generation for the fourth quarter, well below its guidance of $104 million. At the same time, the company’s full-year revenue increased by 17%.
In an attempt to address the financial challenges, Sunnova is prioritizing high-margin services like solar lease and PPA offerings, mandating domestic content for dealers in order to obtain higher ITC percentages, and changing dealer payment terms to include less lag time between tax equity and debt funding and dealer payments. The company is also considering raising pricing, if necessary to protect its margins, executives said.
The report comes two weeks after Sunnova laid off around 300 employees, citing high interest rates and political uncertainty. It also comes amid a wider residential solar market contraction — the first such contraction since 2017, according to data from Wood Mackenzie.
On the earnings call, CEO John Berger pointed to “peer distress and stubbornly high interest rates, along with regulatory and political uncertainties” that made consumers and investors more cautious last year. “This backdrop slowed the flow of tax equity, which in turn lowered the amount of capital we were able to deploy,” Berger said.
2025, the company added, will also be “subdued,” thanks in part to “post-SunPower bankruptcy concerns.” The Sunnova competitor filed for Chapter 11 bankruptcy last summer — selling off three business units and laying off more than 350 employees. At the end of 2023, one of SunPower’s subsidiaries breached a credit agreement, causing the company to issue a “going concern” warning of its own.
Another competitor, Sunrun, posted comparatively stronger results in its earnings call late last week; it reported $34 million in cash generation, compared to Sunnova’s $2 million. The company’s relative success may be attributed in part to its 62% storage attachment rate, which far outstrips Sunnova’s 34%. Sunrun saw its stock rise nearly 3% in aftermarket trading.
A growing debt problem
Debt is a central challenge to Sunnova’s operations and financial stability, the company shared in its earnings call. That debt, the company said, includes long-term interest-bearing liabilities including bonds, bank loans, and capital leases, all of which weigh heavily on Sunnova’s financial health, and has made it particularly vulnerable to the macroeconomic challenges it cited.
Rising interest costs continue to plague the company; Sunnova’s annual interest expenses in 2024 were $491 million, the company reported, up from $372 million in 2023. To extend repayment timelines and avoid default, the company said it plans to refinance certain obligations with upcoming due dates. And to increase short-term liquidity, the company also secured a $185 million term loan at a 15% interest rate, adding to the overall debt burden.
The intention behind those actions, Bergman said, is to “just flush everything out.” That means a focus on “taking care of the corporate debt maturities,” he added. “Let’s restart, let’s go tackle this corporate debt, and then get back at it and reset the table.”
However, as the company put it in its financial disclosures, Sunnova “can offer no assurances we will be able to successfully implement any of these plans or obtain financing at acceptable terms or at all.”
DOE’s first VPP loan
Sunnova faced criticism from congressional Republicans after securing a $3 billion federal loan guarantee from the Biden administration’s Department of Energy in September 2023. The loan is designed to support over $5 billion in financing of residential solar, battery storage, and virtual power plant technologies for disadvantaged communities; it was both DOE’s first loan guarantee for a VPP, and the federal government’s single largest commitment for solar power.
The DOE Loan Programs Office has come under intense scrutiny from the second Trump administration, yielding concern that they’ll work to cancel or claw back committed funds.
Sunnova told Latitude Media that it has only tapped “a small percentage” of the partial loan guarantee so far. “The portfolio is performing well,” said a spokesperson, “[but] our commercial focus is primarily on originating leases/PPAs, so we are not originating many loans.”
Political risk notwithstanding, the remainder of the $3 billion is not a pool that Sunnova can tap in this moment of financial trouble. The LPO financing requires Sunnova to provide monthly reports to DOE, including data on hardware and software deployment. The loan is slated to be disbursed in tranches, as key conditions or milestones are met.
So for access to the funds, the company needs to actually sell and install their solar services; the loan guarantee can only come into play when those installations happen and customers start making payments. In other words, if Sunnova doesn’t make sales, they can’t use the loan guarantee.
Following the report, TD Securities downgraded Sunnova Energy International to a “hold” rating. But analysts also expressed some cautious, longer-term optimism: “We see the company as well positioned to capitalize on our view for double-digit CAGR for U.S. residential solar through the decade,” analysts wrote in a note to investors. “We are also encouraged by management’s strategy to maximize cash generation through a focus on leases/PPAs and profitable growth to address balance sheet concerns.”
As Bloomberg Intelligence analyst Rob Barnett told Latitude Media in the week before the earnings call, residential solar’s expected upswing probably wouldn’t become visible before Q2 and Q3 results, in part because of seasonal cooldowns in the beginning of the year.
Sunnova, Barnett added, is better positioned than some to fare better against rising interest rates and California’s switch to NEM 3.0, thanks in large part to its efforts to diversify into regions like Florida and Texas, which are experiencing significant growth.
