Sunrun Inc (RUN) 2020 Q2 法說會逐字稿

Hello, and welcome to the Sunrun's Second Quarter 2020 Earnings Conference Call. (Operator Instructions). As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Patrick Jobin. Please go ahead, Patrick.

Thank you, Kevin, 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 may contain and/or constitute forward-looking statements related to Sunrun, Vivint Solar and the acquisition of Vivint Solar that involve substantial risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed or implied by such statements. All statements other than historical facts included in our discussion, including, but not limited to, statements regarding the timing and closing of the transaction, the potential benefits and financial impact of the transaction, Sunrun's and Vivint Solar's plans, objectives, expectations and intentions, the financial condition, results of operations, and business of Sunrun and Vivint Solar and any assumptions underlying any of their foregoing and 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 from those anticipated to reflect circumstances or events that occur after these statements are made.

Please refer to the Sunrun and Vivint Solar's filings with the SEC and the filings that will be made in connection with the transaction with the SEC, including the joint proxy statement and prospectus, for a more exhaustive discussion of risks and other factors that may cause our actual results to differ from projections made in any forward-looking statements. You may read a copy in any reports of the information filed or that will be filed by Sunrun and Vivint Solar at the SEC Public Reference Room in Washington, D.C. Sunrun and Vivint Solar's filings with the SEC are also available to the public from commercial document retrieval services and the website maintained by the SEC at www.sec.com.

Although we believe these statements reflect our best judgment based on factors currently known to us, actual results may differ materially and adversely from those anticipated to reflect circumstances or events that occur after these statements are made. Please refer to the Sunrun's and Vivint Solar's filings with the SEC and the filings that will be made in connection with the transaction with SEC, including the joint proxy statement and prospectus for a more exhaustive discussion of risks and other factors that may cause our actual results to differ from projections made in any forward-looking statements. You may read and copy any reports or other information filed or that will be filed by the Sunrun and Vivint Solar at the SEC Public Reference Room in Washington, D.C. Please also note these statements are being made as of today, and we disclaim any obligation to update or revise them.

Okay. On the call today is Lynn Jurich, Sunrun's Co-Founder and CEO; Ed Fenster, Sunrun's Co-Founder and Executive Chairman; and Tom VonReichbauer, Sunrun's CFO. The presentation today will use slides, which are available on our website at investors.sunrun.com.

With all that done, let me now turn the call over to Lynn.

Thanks, Patrick. We are pleased to share Sunrun's second quarter results and progress against our strategic priorities. We grew our customer base 21%, compared to last year, now well over 300,000 strong. In the second quarter, we added 10,700 customers representing 78 megawatts of deployment. Our performance exceeded our expectations at the onset of COVID, and we are on track to deliver sequential improvements in our growth and net customer margins in the back half of the year.

Consumer interest in clean, affordable and resilient power is stronger than ever with increased outages from storms and wildfires, combined with more time spent at home. Ongoing technological improvements in energy storage and electric vehicles are leading to an enhanced value proposition, as solar and batteries can affordably replace more of consumers' energy needs and unlock virtual power plant revenue opportunities. These tailwinds, combined with our increased operating efficiency and customer reach will lead to strong improvements in the value we create for our customers and shareholders. Over the last few months, we have accelerated our corporate metabolism and operating effectiveness. Here are a few examples.

Our sales productivity has increased by approximately 50%, we have improved cycle time from customer's signature to install and installation labor productivity is up 20% compared to the same period last year. These changes result in reduced cost and an improved customer experience. We continue to expect $2,000 per customer of enduring cost improvements from these initiatives. Order volumes in March and early April did decline, due to restricted access to certain sales channels not lower customer interest levels. And as a result, we have lower installation volumes near term. We're gradually and safely reentering the retail channel, our sales team continues to successfully execute with virtual selling, and the direct-to-home channel that several of our partners utilize remains robust. Order volumes are now returning to pre-COVID levels, and we expect a significant sequential increase in deployments into Q3 and into Q4. For Q3, we expect over 20% sequential growth.

Our strategy is to be the go-to company for clean and reliable energy, as our world transitions towards renewable powered electrification. Consumer spend over $180 billion per year on electricity and even more on all energy sources, while utilities invest more than $100 billion per year in new energy infrastructure. Today, only 3% of U.S. households have made the transition to home solar and yet surveys show nearly 9 out of 10 people in the U.S. favor expanding the use of solar power. Over the last few months, we have expanded our capabilities to lead the industry and accelerate the transition to consumer-led electrification. In July, we reached an agreement to acquire Vivint Solar, which will expand our customer reach, provide cost synergies and increase our base of customers. As a combined company, we already have over 0.5 million customers and will be a leading owner of solar assets globally.

In the quarter, we doubled our number of grid services awards now totaling 10 and have over $50 million in awarded contracts or those in advanced stages. These programs are where we network solar and batteries together to form virtual power plants. They present a flywheel opportunity. This grid services revenue, coupled with lower customer acquisition costs, can enable lower customer pricing, allowing for even deeper penetration in regions with these programs. This further increases incremental recurring revenue opportunities, while differentiating our customer offering. We have now developed proof-of-concept programs in 10% of our geographies. This quarter, our team was incredibly busy launching programs with Southern California Edison, one of the largest utilities in the U.S. and Orange & Rockland, a subsidiary of Con Ed; and 3 community choice aggregators in California that provide power for nearly one million Bay Area homes.

In addition, we announced that we've formed a venture to accelerate the electrification of the home with SK Group and affiliated companies. The new venture will conduct research and development activities to accelerate the adoption of renewables, the electrification of homes and the transition to a connected and distributed consumer energy system.

Before I turn it over to Ed, I want to say how proud I am of all the work our team is doing. We're focused on near-term execution, but also building the strategy for Sunrun to lead the industry forward. Our team's ability to drive change will deliver benefits, not only to customers and shareholders, but also our country. Over to you, Ed.

Thanks, Lynn. Today, I'll discuss the financing market for our assets, our asset performance and recap our capital runway. We're now seeing significant tailwinds in financing markets. Our contracted long-term, high-quality recurring cash flows have always been the bedrock on which we raise nonrecourse project financing to fund our growth and offer customers a compelling value proposition. The strength of these cash flows is especially apparent in environments like this one. The positive trend we highlighted at last call has continued with capital costs and continued decline. Senior debt, in particular, is currently pricing at or below all-time lows. Investors increasingly appreciate the low-risk, stable cash flows of our asset class.

Consistent with my comments last quarter, customer payment trends remained strong, supporting capital costs below 6%, as performance continues to be proven through economic cycles. As of July 31, delinquencies as a percent of total PPA and lease accounts receivables in each basket, 30, 60, 90 and 120 days are lower now than before the onset of COVID. This is not surprising as home electricity is at the top of the customer payment waterfall and our customers are home to open the mail. We charge less for power than the incumbent utility and due to the tiering of electricity pricing in many jurisdictions, savings from solar grows as electricity use increases. This further enhances our value proposition.

We continue to maintain a long project finance runway that affords us the ability to be selective in capital market activities. Just in the last 4 weeks, we've continued to raise tax equity at terms similar to those we saw before the onset of COVID. We also have a long pipeline of additional project finance opportunities that we are evaluating. As of August 10, considering only committed debt and closed tax equity funds, the company's prearranged financings provide capital to fund approximately 200 megawatts of lease projects beyond what was deployed through the end of the second quarter of 2020. We also have executed term sheets for additional project finance capital to fund installations.

And with that, I'll now turn the call over to Tom.

Thanks, Ed. Looking now to the second quarter's results and our outlook. In spite of the restrictions we faced during the early stages of COVID, the Sunrun team powered through and executed well. Our Q2 volumes exceeded initial expectations, and we continue to see strong sequential improvements with sales activities back to pre-COVID levels. We also responded to the challenge presented and accelerated efforts to streamline our operations, improving both cost and customer experience. In the second quarter, we deployed 78 megawatts of solar capacity to approximately 10,700 customers. We now have 309,000 customers growing 21% year-over-year, with most of them paying us on a recurring monthly basis for the clean electricity we provide them under 20- or 25-year contracts. Deployments in the second quarter declined from the first quarter as a result of restrictions on our business during the onset of COVID, most notably in retail stores and with local permitting authorities. Project value was approximately $31,400 per customer in Q2, total creation costs were approximately $27,600 per customer, and NPV in the second quarter was approximately $3,800 per customer.

The impact of lower volumes at our business during Q2 led to less advantageous cost absorption, offsetting gains from our operational efficiency efforts. As we saw improving indicators of sales in April, we deliberately maintained a measured level of staffing and in-market presence to be able to respond to opportunities as restrictions were lifted. Additionally, we experienced sequential increases in sales in each month of Q2, which resulted in higher in-period sales and marketing costs for volumes that will be installed in a future period, further pressuring Q2 NPV per customer. The combination of continued operational improvements and sequential volume increases that Lynn mentioned earlier have us optimistic about the second half of 2020. We expect to see customer net values, or NPV, to continue to improve sequentially in Q3 and Q4, with Q4 levels of more than $8,000 per customer. With the operational efficiency improvements, discussed earlier, we expect to enter 2021 with an improved cost structure and higher net customer values as an independent company. We also expect the acquisition of Vivint Solar will provide additional competitive differentiation and cost leverage with the combined entity creating additional value for customers, shareholders and society at large.

Turning now to gross and net earning assets on our balance sheet. Gross earning assets were $3.9 billion at the end of the second quarter, reflecting an increase of $31 million from the first quarter. Gross earning assets is the measure of cash flows we expect to receive from customers over time, net of distributions to tax equity partners and partnership flip structures, project equity financing partners and operating and maintenance expenses discounted at a 6% unlevered WACC.

We generally have several active funds at any point in time. And during the second quarter, our fund mix is more heavily weighted towards a partnership fund that allocates more cash flows to the partner with a competitive cost of capital. As a result, Q2 had less growth in gross earning assets, but more proceeds and less new project debt.

Net earning assets were $1.6 billion at the end of the second quarter, also reflecting an increase of $31 million from the first quarter. Net earning assets is gross earning assets less all project level nonrecourse financings. We ended the second quarter with $354 million in total cash, reflecting a decline of $12 million from the prior quarter, but flat on a year-over-year basis. We believe looking at the combination of cash and net earning assets provides a way to evaluate our performance and generating shareholder value. Despite the lower volumes in Q2 and the corresponding cost absorption challenges, we increased the combination of cash and net earning assets by over $200 million compared to the prior year. We expect to maintain our strong cash balance this year, while also increasing our net earning assets.

With that, let's open the line for questions, please.

(Operator Instructions). Our first question today is coming from Mark Strouse from JPMorgan.

Thank you for the detail on the 4Q unlevered NPV per household, that's pretty interesting. Curious though, when I look at the volumes in 3Q, up over 20%, that suggest we could still see some year-over-year declines in 3Q. Question is, when do you think we could get back to year-over-year growth? Do you think that happens in 4Q? Or is that more of a 2021 thing?

Right now, I think, the place we're comfortable giving real clarity is the 20% sequential into Q3, but also confidence around net customer margins in Q4. And part of that is as we continue to navigate some of the restrictions that are still in place out in the market around retail restrictions, a little bit of slowness in some permanent locations. But the growth into Q3, we feel very good about, and we feel well positioned going into 2021.

Yes. Sounds good. Okay. And then just one follow-up. Just any feedback that you've received from any of your dealer partners, your financing partners, kind of, your entire value chain since the acquisition of Vivint was announced? Any qualitative color you can provide would be great.

Yes. The response has been very strong. They're, the channel partners, in particular, are excited about what a larger scale can bring in terms of product offerings and brand recognition and improved pricing for customers as well. I think as we've noted in the past, it's such a fragmented industry still. And when we look at even just our kind of internal data of how many customers or leads that we've touched end up becoming a Vivint customer, it's about 3%. It's very small. And again, just underscoring that there just isn't a lot of that -- kind of rising tides of burden awareness is really what the industry needs at our penetration level. So I would say that it's been quite positive, the response.

Our next question today is coming from Julien Dumoulin-Smith from Bank of America.

Just to clarify here on the acquisition. How do you think about the integration process in terms of consolidated growth metrics, right? So talk about that in customers, et cetera. But let me put it this way. If you thought about the previous expectations for Vivint and Sunrun separately, especially not just in the next quarter, but sort of compounding through the years, how are your initial expectations trending against that combined pro forma outlook?

Sure. One, I just have to emphasize again, the transaction has not closed yet. So we're very much running the 2 companies as separate entities, as you might expect. I think that there -- we don't believe there are any strong revenue or growth dissynergies. And part of -- I give that example of how little the overlap is, is really just to underscore that. I think there -- so no reason to believe that. Just when you put the 2 companies together, they can fill each complementary sales model, can still generate the sort of historical rates that they've each discussed -- that we've each discussed. There's -- but there's a couple of opportunities that I think really unlocks more growth and more value. And the first one is with batteries. We've been -- Sunrun has been a leader in that, Vivint has not had the same penetration levels that we have. And so that's a really immediate incremental value creator, is to increase the mix of battery sold through their sales force. The other thing we're excited about from a differentiation standpoint are the emergence of these grid services contracts, which we really do believe are -- create a sort of flywheel effect in order to take share locally. So we're the company who has the contract with the utility to provide the batteries and the capacity, it gives us a customer acquisition edge, which allows us to pass some of the savings along to the consumers, generating more density, which then makes your grid services that much more valuable to the grid because you're operating at an even bigger scale. And when you look at the direct-to-home model that Vivint brings, it's quite supportive of these grid services-type programs, where you really want to target -- you can more directly target the sales force in the areas where you have the virtual power plant contracts. And then there's some new unlocks around growth, particularly around, not just more megawatts, but increased value per customer.

Right. And can you talk just briefly here on the contracted gross earnings asset? I mean, obviously, somewhat flattish over the quarter. Not -- obviously, there's seasonality dynamics here and cash dynamics. But how are you thinking about that through the course of the year in growing your core earnings base here? And then also just talk about your cash expectations given the sharp recovery here through year-end, if you can, too.

Yes. So as you noted in Q2, specific funds in the area that led to a smaller increase in gross earning assets, but no additional project out there. And so you see that flow through fully on NEA. I think as we move forward, we continue to have a range of funds that we'll deploy. I think the headline here is that we intend to maintain cash and grow net earning assets over the balance of the year here. And so we feel well positioned in that regard.

Okay. Just not ready to commit further on cash?

No.

Our next question today is coming from Michael Weinstein from Crédit Suisse.

Could you guys talk a little bit about the comeback in demand that you're seeing in the second half or at least in the third quarter? Specifically, what kinds of things are you -- what kind of assumptions are you making that demand will rebound? Are you looking at states where only, I guess, the virus is starting to recede or where the second lockdown in any particular place upend those assumptions in any way?

Yes. Good question. I think what we -- a couple of things are different versus what happened in March, even if there's a second wave. One is we've clarified with different jurisdictions that we are an essential service. So we've been through that cycle. We've instituted all the practices to install safely. We've pivoted the sales team digitally. So all of those initiatives, which we were able to get done quickly. But they still took some time to put in force our already operating improvements that we've made and would enable us to continue to perform even stronger if there were to be even additional restriction. At this point right now, we're not restricted from installing anywhere. We still have some of the big box retail stores that were not fully ramped back in. So that is putting a little bit of a drag on the year-over-year comps.

But the point really -- the reason we have the conviction is, one, we have the backlog. Two, the customer interest was never the problem. The problem -- the reason for the slowdown was really just the restrictions in operating. And three, we've worked through a lot of those operating restrictions to have backup plans, if not even -- one of the benefits of this whole situation, which we've touched on earlier calls is, it has forced us to make faster operating improvements that will endure. So yes, this quarter doesn't look right from a year-over-year growth rate and the margin is lower because we have less units to put -- spread the fixed costs around. But it's really the changes we were able to make in this quarter are really going to benefit us, as we exit this and return to more business as usual.

Got you. And as a follow-up, for battery storage adoption, how is that looking in the second half and in the third quarter, specifically? Have the blackouts in the Northeast or are the outages and the storms that we're all hearing about right now and living through, does that -- have these any noticeable effect on battery storage adoption especially in New England.

Yes, absolutely. There's two things that are happening in the back half of the year that should increase storage adoption. The first one is that consumer pain point from the storm and the outages, and we haven't had any wildfire shut us yet. We're just emerging into that season here in Northern California. If you just think about numbers, there's 1.3 million New Jersey residents didn't have power; in California, last year, there's 2.5 million that lost power. So again, think about even just penetrating in those sort of markets, where we, as a combined Vivint and Sunrun, we're, again, one of the largest solar assets globally, solar owners globally, and we only have 500,000 customers. So even just if you think about the market size available to us in places where people have felt real restrictions in terms of how they are living, I think that, that will increase adoption considerably. The other thing that we have happening is for the first time really in quarters, we are seeing price improvements on the battery system. So we will be -- the price improvements for the battery that we're selling back half of this year is 15% lower than first half. And again, we're going to be passing through some of that on to our customers to just make the value proposition stronger. So those 2 factors give us confidence that we'll start to see increased adoption. Then the third is really as these grid services programs get more traction, we're having -- we have the utilities marketing on our behalf, making customers aware that solar and batteries is a resilient, technologically ready, affordable solution. So those all combine to make us quite optimistic.

Our next question today is coming from Brian Lee from Goldman Sachs.

Maybe, Lynn, just to follow-up on a part of the answer you just gave. I might have missed some of the details here. But you mentioned, I think, 10 grid services contracts during your prepared remarks and then $50 million in revenue opportunity. Is that annual revenue? Or is that over the course of the committed contracts in aggregate? And then you also mentioned a pipeline, can you give us a sense of how many more negotiations you have at advanced stage? And any sense of what the incremental revenue opportunity that pipeline could be worth versus the $50 million?

Sure. So the $50 million is at over the life of the contract. And our strategy is really how do we -- because you have to open up these markets. The markets have not been necessarily designed to have a mechanism where they can pay for the value that the battery adds. So just let me give you one small example. In California, for example, we get paid for reducing the amount of load the home is using, but there's no mechanism to actually get paid for pushing extra power back into the grid. So what we're doing is going across the country, trying to find the areas that would most benefit from these virtual power plants and really helping change the rules and pilot programs that prove these assets work and they can replace traditional CapEx. So today, we've sort of convinced or made the market development, for lack of a better term, about 10% of our geographies to start to pilot and test these virtual power plants. Our pipeline would have us being able to address about 50% of our current geography. So it's very early still. And again, we want to caution people that these early programs do affirm our view that grid services can add an incremental $2,000-ish per customer. And that is really affirmed by the negotiations in these early contracts, but they're still very much pilots proven out develop the market. And so it'll be meaningful, but it's not going to be a huge revenue line item in 2021.

Okay. Fair enough. Appreciate the color. And then just a second question here for -- maybe for Ed on the financing markets. I appreciate the update as usual on your runway. But can you speak a bit specifically on maybe the tax equity market? There seems to be a bit more chatter and maybe concern about 2021 availability, just given how banks are posturing right now. Just wondering if you can speak to that some and then what sort of confidence or visibility you have to secure the funding needed for next year from that particular financing partner group?

Sure. So we continue to feel comfortable with the tax equity pipeline, both the committed capital that we have and the discussions ongoing that we have to lengthen it. Our pipeline is -- our committed capital brings us into next year. Vivint announced the same in their reported earnings. And frankly, I think, if there's a little tightness, it might actually accrue to our benefit. Residential is a flow business. It's a smooth earnings profile for banks that use it. It has much more diversity of risk than do utility-scale projects and the counter-parties find it relatively easy to transact. And we're obviously the massive market leader. So I continue to be comfortable in tax equity, both -- certainly in 2021.

Okay. And just maybe as a quick follow-on. Any thoughts around, not trying to get you to look into your crystal ball for the election, but dependent on election outcomes, do you think there could be implications that are meaningful for the tax equity markets and kind of your availability?

Well, so I mean, obviously, there are an increasing number of paths -- winning paths in terms of federal outcome currently. So there are a large number of paths to an ITC extension. That could come with a new Senate, a new President, a big relief package, corporate income tax rates could go up, which actually are a benefit for an industry like ours, which has as much depreciation as it does. You may recall when the corporate tax rate was reduced, we lost about $0.10 a watt in project value. So we actually prefer higher corporate tax rates. Higher corporate tax rates would also suggest that other companies would pay more income taxes and that might help the depth of the market. But again, whether or not we see an increase in the depth of the market, we feel comfortable with our ability to finance the business in 2021.

Next question is coming from Philip Shen from ROTH Capital Partners.

First question is a follow-up on storage. Sorry if I missed this, but I was wondering if you might be able to share what your storage attach rate was for Q2? And then how -- what do you expect it to be in Q3 and 4?

Sure. The -- we're seeing strong incremental improvement on -- it's highly variable based on geography, as you know. So it's 100% in Hawaii, California is in the high 30s percentage. And then some of the other markets are at 0%. So it's -- based on some of the disclosures we've provided previously, it's incrementally improving, but we're not giving an overarching number, just especially given that we don't really manage geo by geo, we -- that's not how we run the business. So I think for the other reasons I listed, which is we're coming out with a lower-priced option as well as the pain that people will feel from these outages, I would expect more acceleration in that attach to happen in the back half than it happened this year. But certainly, it's steadily growing. It continues to grow much faster than the solar-only product is.

Great. As it relates to your grid services, historically, I believe, you guys have not been too keen on integrating generators into your offering. But some say that solar plus a generator can be complementary. And so just wanted to see if you see any benefits in adding generators as an option to VPPs and to your customer base? And just what's your latest view on generators, in general?

We'll -- certainly, there's one of the things that's unique about the residential market is there's a lot of different use cases, and there's a lot of -- each home can be specific, each area can be specific with some of the constraints or the energy pattern use in the house. So there are probably applications where solar battery plus generator, it can make sense, especially if you really want reliable off-grid power. I do think that, that's a minority of cases, you -- with the battery and the solar as we've proven through the multiple outages over the last couple of years, they work, they work for multiple days. The solar recharges the battery, the battery powers through the night. So it's unclear for sort of an average customer that's just looking for relief from -- for a temporary blackout, why a generator is necessary. The other just structural advantage of the battery is because of the ability that use the battery for grid services and load ship every day. It's just a useful asset. It's just a useful asset. It's a useful asset versus a generator that just kicks on when the power is out. So it's a much more efficient technology when you look system-wide, in addition to being carbon free and in addition to the fact that with our business model, selling it as a service with solar plus the battery, people can adopt it with 0 upfront cost.

Okay. Great. And then one more, if I may. In terms of -- you talked about your NPV per customer being $8,000 in Q4, I was wondering if you could kind of give us a little bit more color on the cost per watts trend. We saw a $3.72 per watt in Q2. Where do you see it in Q3 and Q4? I can imagine it's inversely related with that customer NPV, which turns out to be about, I think, $1-plus per watt. But I wanted to see if you could comment on that a bit more. And then also, as it relates to safe harbor in Q4, given the many paths to an extension and so forth, what is your view now on safe harboring in Q4 and for this year?

So on the questions around Q4 in terms of the cost and what that looks like, obviously, the improved volumes and again, over 20% sequential increase into Q3 and then expecting continued increases into Q4 helps us a lot with cost absorption. You'll notice we're really trying to shift towards talking about these in customer terms because that is the appropriate unit of measure, especially as you deploy more things like batteries that don't divide back into a per-watt thing on a very reasonable basis. So you'll see cost improvements there, continuation of both cost absorption and higher volumes and operational efficiency gains that we've talked about. You're right that $8,000 does translate to more than $1 per watt. And so that's, I think, a good framework to be thinking about.

And as to safe harbor, so first, I would make the point, we executed an approximately 500-megawatt safe harbor program heading into this year. And so expect to have a triple-digit number of megawatts safe harbor at a 30% credit in 2021 regardless. Obviously, we are carefully tracking, as I mentioned before, the different possibilities that may exist for extension. One of the advantages we have here, as an extremely large purchaser of equipment who's regularly in the market and the clear industry leader, we have a lot of capability with our suppliers to make these decisions as late as possible. We also have balance sheet flexibility. So this will probably be a decision that we're going to make over time and closer to the end of the year based on evolving information, and we'll be able to share more at a later time.

Next question is coming from Colin Rusch from Oppenheimer.

Can you help us understand how you guys are thinking about potentially passing on cost savings on to customers, expanding the addressable market and moving into new geographies?

Yes. I think that's a great question and something we're going to work through, and there's probably a different strategy for different segments and different geos. I mean if you kind of add up the opportunities that we have, that we see available to us, I mean, we sort of see, as we mentioned, our operating improvement can generate $2,000 of NPV per customer, grid services could generate another $2,000 per customer, the synergy number that we feel confident in with Vivint at $90 million is another, almost $1 a watt -- excuse me, $1,000 per customer. So all those opportunities are available to us. And then we'll be -- and then we have the battery hardware cost improvements and other improvements on the costs on the materials cost side. So there's a good solid bucket of value to be distributed to the customers in order to grow share. And that -- again, when we look at the potential market size of -- and we see that 3% of U.S. homes have adopted growth, really delivering good value to customers and growth, is really the priority for us.

Great. And could you give us an update on trends in sales conversion from these into actual sales, especially as folks are spending more time in the home and -- like at home with permanent projects throughout the COVID?

Yes. It's an exciting -- it's really an exciting development. If we look at what we've seen, 50% uptake in productivity per sales rep, and that really -- it's simple, but it's attributed to the fact that the majority of them say they've saved 10 hours per week driving. And so you see as -- there's puts and takes to the wholesale process. So one, our salespeople are able -- 50% more effective in getting -- converting customers per week. You see a little bit of a lower conversion from the virtual sales versus the in-home sale, but you make up for it really in terms of how many of those customers are actually really being fulfilled all the way through to install. So again, we -- the initial indications are this could size to about $1,000 of savings per customer in these productivity improvements. And we're really encouraged that they're sticking.

Our next question today is coming from Jeffrey Campbell from Tuohy Brothers.

Offering a benefit to an existing customer to participate in VPP is easy to understand. But I'd like to better understand how this aids in new customer acquisition? Does this essentially mean that Ron will devote any of its margin that it receives from the VPP to lower the new customer costs and gain that market share? Or is there something else?

Yes. Our plan certainly is to pass on a portion of the savings to the customer. We think that there's -- when you, again, look at the combined benefit of the lower acquisition cost plus the grid services revenue, it definitely makes sense to pass them through to the customer and generate more assets in that -- on that virtual power plant. And as I said, it's sort of -- it's kind of a flywheel effect because the more then you can contribute, the bigger your VPP, the more opportunities there are to open up some of these markets and to really change some of the regulations and the way these things are compensated to really get fair value for all the services that the batteries provide. So that's just -- it's a calculation that we're going to make sort of program by program. And just to give a really tangible example, with these CCAs in California, so the programs are the utilities, we'll spend on marketing for us. They'll spend on e-mailing their customer bases, saying there's this opportunity available. We'll give customers a discount, but it's more than offset by just the efficiencies gained by the lower acquisition costs and then the increased grid services revenue. So there isn't a specific formula. It's very much going to be market-by-market value proposition-driven. But, again, our ambition is we need to electrify the country, and we need to be in all rooms and have batteries in every single home. And so we're driving hard on lowering that cost to make that not a barrier to make us more competitive in more geographies, that's strategy #1.

And just to quickly follow-up on what you just said, which was very helpful. When you're talking about catalysts to regulatory change, that looks back to what you were talking about earlier where you may not be getting paid for power that you're putting onto the grid and you want your credit for that. Is that kind of thing we're talking about?

Exactly. And the more you're a reliable and scaled resource, the more motivating, the more airtime you're going to get to actually affect those changes because it's worthwhile for the regulators.

Right. Yes, definitely. My follow-up is can you just provide any kind of color regarding the sort of R&D that you expect to do in the JV with SK E&S to obtain your acceleration goals that you outlined in the press release?

Sure. Thanks for asking about that. We really do believe that we're at a tipping point around big scale electrification of homes and cars. I think people are just now starting to really realize that it's only going to grow that, you know what, life is better with renewable powered, all-electric, energy sources. It's better to drive an EV, electric heating is better, solar and batteries provides resiliency, it's a better power source, and it can all be done affordably. Like if you run the math on converting the home, eliminating a natural gas line into the house, which a lot of communities are banning now, a lot of utilities are saying, "Hey, I don't want to actually invest in this infrastructure anymore because it's going to be obsolete." So we just believe strongly that this trend of electrification around the house and the EVs are going to happen. And so the JV is really exploring different ways of attacking that problem, different products and services. And then again, making sure that we're not just providing a solution for a single home. We're actually networking everything together to build really an energy Internet. So the specifics are, we're not commenting on, but what the vision is, is really to accelerate this home electrification.

Our next question today is coming from Moses Sutton from Barclays.

Any update on ABS issuances, perhaps the chance to do another transaction this year? Or are we looking at 2021?

Sure, Moses. This is Ed. So the ABS market is definitely recovered nicely and could potentially make for a good issuance. Generally speaking, spreads are still a little bit wide of where I expect them to be, even over the next 6 months. And so that would, in our mind, make a bank market transaction more attractive on a full-term basis because they can be called immediately and refinanced as spreads compress. So while I think you might start to see some very attractively priced solar ABS transactions, I still think probably, for us, it is more likely a 2021 next issuance?

Got it. Very helpful. And then switching gears here. The renewal per watt, I'm really speaking per watt here, it's dropped another $0.10 per watt or so. Is this a function of sort of geographic mix, areas with lower PPAs, lower escalators? How should we sort of think of the drivers there?

Primary thing on renewal there is just the continued shift to more 25-year contracts versus a larger mix of 20-year in the past. And so you see renewal decreasing due to the shorter time horizon there.

Got it. Are 25 years now more...

Maybe just to clarify that, right, we only report through the 30th year, irrespective of the contract life. Not all of our peers do it that way. So I just want to underscore that.

Got it. Very helpful. And are you more toward 25-year contracts now or it's still sort of an even blend?

Correct. 25 years, the primary.

Great. Great. And then one last one. Committed financing, already, you still have in place for 200 megawatts go forward. How much -- are you able to give a number of how much the term sheets would cover if we sort of added that? I know that's not the same committed level, but how might we think of that level?

So obviously, we have term sheets for and can exist in multiple areas of the capital structure, tax equity, senior and junior debt. And so as you start to move past that, some are longer than others. So we thought this was a nice place to cut it. But certainly, if I think about the term sheets that we have and the discussions that we have with counter-parties, hundreds and hundreds of millions of dollars of additional capital.

Our next question today is coming from Marshall Carver from Heikkinen Energy Advisors.

You talked about the VPPs is not being approved yet in most areas, so there's no way to monetize that. If that does get approval, could we see an immediate uplift to growth in net earning assets?

This is Ed. So currently -- Lynn, you want to go ahead?

No. Go ahead.

I was just going to say, we currently do not estimate uncontracted grid services revenue in our reporting of contracted and renewal gross earning assets. So to the extent that there were some sort of change in policy and it were contracted, you would start to see it. But if it were just a change in policy and uncontracted, although that would be a significant value enhancement. At this moment in time, we're not including that in the reported numbers.

Okay. And a follow-up. So Vivint talked about offering batteries in only a few states and talked about it being either barely profitable or were not profitable in most areas. You offer batteries almost everywhere. Do you see the battery offering as a profit center or more of a way to attract customers?

Definitely both. I think we've been innovators on figuring out how to deliver the battery and the solar-as-a-service, again. So if you look at where our competitors are in terms of pricing for -- if you want to purchase a battery with all the labor and everything it can range from $8,000 to $12,000 plus a lot more if you want multiple batteries. So I think if you're -- it depends on, again, also how important reliable power is to you. And so I think also, maybe that seemed expensive before a 2.5 million people in the area had their power shut off and 1.3 million in New Jersey. When you have that happen to you, maybe that doesn't sound as expensive. Also, as I mentioned, we've really delivered as a service and helped arrange the financing for it so that it can be a compelling value proposition out of the gate without a huge capital outlay. So we have -- we did announce as part of the -- when we were on the call together announcing the signature for the acquisition that we did see this as a pretty strong synergy.

We have reached the end of our question-and-answer session. I'd like to turn the floor back over to Lynn for any further closing comments.

Nothing further from me. Thank you all for listening, and we will be in touch soon. Take care.

That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.