Retail Supplier Touts New Vertically Integrated Model For Solar Through Platform Acquisitions, Expects Margins To Possibly Quadruple

In announcing quarterly earnings, Crius Energy Trust highlighted the transformation from its solar business, through the previously reported acquisition of assets from SunEdison and Verengo, from a reseller to a vertically integrated solar business with margins expected to potentially quadruple as a result

As previously reported, Crius acquired SunEdison's proprietary residential solar technology platform, customer lead databases, marketing materials and human capital. Crius, through special purpose vehicle, Crius Solar Fulfillment, LLC, has also agreed to acquire certain assets from Verengo, including Verengo's residential solar installation platform and certain contracts and human capital (click here for details).

"These acquisitions, once closed, will transform our solar business from a reseller of solar products to a vertically integrated solar business with a track record of more than 20,000 solar installations that's well-positioned to capture market share in the fast-growing U.S. residential solar segment," said Michael Fallquist, Chief Executive Officer of Crius Energy Trust

The technology platform acquired from SunEdison is expected to increase sales by enabling Crius to partner with third-parties for lead generation and sales, and the addition of installation and operational capabilities is expected to result in a higher margin contribution from each solar system sold

Operating under the fully integrated model possible through the solar acquisitions, "is expected to increase [solar] margin contribution from up to $0.25/Watt under the former reseller model to upwards of $1.00/Watt under the fully integrated operating model," Crius said in an MD&A.

"We believe that the solar industry fundamentals are attractive, as the U.S. solar industry is a large, underserved market, with less than 1% penetration to over 74 million owner-occupied homes," Fallquist said

"We believe the retail energy and solar industries are highly complementary, and when combined, create value well-beyond the individual parts," Fallquist said

"First, we expect to see lower cost of solar customer acquisitions as we cross-sell solar to the millions of our existing, former, and future retail energy customers," Fallquist said

"Secondly, we expect higher installation rates through offering a combined retail energy and solar product bundle that uniquely positions us to provide a solar value proposition well before panels go on a customer's roof," Fallquist said

"And finally, we expect lower customer attrition, as we integrate products and leverage the 20-plus year solar customer relationship," Fallquist said, touting Crius's unique end-to-end capability in both deregulated energy and solar

Crius management expects to fully integrate the solar acquisitions in 2016 and through the first half of 2017, resulting in an expected $5.0 million to $7.0 million of Adjusted EBITDA contributed from the solar business in 2017

That being said, solar under Crius's current model was challenged during the quarter ending September 30, 2016, due to challenging market conditions

Revenues from solar system sales in the third quarter of 2016 were $0.4 million, down from $1.0 million in the third quarter of 2015, "and continue to reflect the challenging market conditions in the solar industry as a result of low utility prices in the northeast markets and increased rates for power purchase agreements and lease products offered by our solar partner which resulted in a less attractive customer value proposition," Crius said

Solar installations for the three months ending September 30, 2016 were 0.7 MW, versus 1.5 MW for the three months ended June 30, 2016