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Sunnova approaches profitability ahead of its IPO. Investors should pay attention.

Steven Li

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Sunnova

In mid-June, there were rumors that residential solar unicorn Sunnova planned to IPO. On June 27th, the company confirmed the rumors by submitting a pre-IPO prospectus to the SEC. As Sunnova becomes the first residential solar company to IPO in years, investor interest is piqued. But as the space tapers off, the company’s future is unclear.

Major roadblocks could bar the company from both a successful IPO and in the long run, growth opportunities that its competitors took advantage of in different times. At the same time, Sunnova’s (relatively) unique business model may help it overcome its challenges. Either way, investors should pay attention to the company as it approaches its initial public offering.

Sunnova Lacks Geographical and Installation Diversity

As Sunnova continues its mission to bring ubiquity to residential solar, what it needs is geographic diversity. That is, it needs consumers from at least around the United States to truly make residential solar more popular.

Currently, over half of its installations are in California and New Jersey, serving 26% and 29% of its units to the respective states. An additional 14% of its installations have been made in Puerto Rico. Though an interesting choice granted Puerto Rico ups its renewable energy efforts, the territory makes it true that over two-thirds of Sunnova’s installations have been done in just three regions.

Hence, it’s no surprise that Sunnova has only penetrated 3% of the national residential solar market. State-specifically, the company has reached 15% of the California market and 5% of the New Jersey market.

So far, Sunnova has only penetrated 3% of the national residential solar market.
So far, Sunnova has only penetrated 3% of the national residential solar market.

But Sunnova’s lack of diversity isn’t just geographic; it does over half of its installations with one installer, namely Trinity Solar. Though these issues are widely considered pain-points for Sunnova, the company believes they corroborate its high growth potential. The question is, how fast can Sunnova reach a critical mass of customers nationally before its prime competitor, Sunrun, eclipses it entirely.

Sunnova Not Yet Profitable, But It’s Getting There

Beyond its geographical and installation diversity qualms, Sunnova has a more fundamental problem common to unicorn companies these days: it isn’t profitable. For at least 9 of the last 10 quarters, the company has reported operating losses ahead of its IPO.

Though its cash woes are a cause for concern, Sunrun’s economic situation isn’t unique to the solar industry either. And it’s not the end all be all either. Actually, it’s quite common for companies in the space to reinvest earnings in growth in lieu of immediate profitability.

After all, Vivint, one of Sunnova’s publically-traded competitors, isn’t profitable either. Sunrun, on the other hand, is. The question that investors must ask is, as it relates to the level of risk they’re willing to take on, when will Sunnova’s chance at profitability come?

Positive Potential for Sunnova

The reason investors could potentially be optimistic about an upcoming Sunnova IPO is the company’s unique positioning as it comes to loans. Since 2018, loans have been the residential solar space’s primary financing method. And Sunnova’s offerings in power-purchase agreements and loan options for consumers give it an advantage here.

Since 2018, loans have been the residential solar space's primary financing method.
Since 2018, loans have been the residential solar space’s primary financing method. Source: Wood Mackenzie Power & Renewables

In part, its financing position has allowed the company to increase revenue and reduce net loss. As Sunnova continues to have a much lower overhead compared to Sunrun and Vivint, it is on track to continue reducing net loss. This means profitability might not be too far away.

Conclusions

With risks and challenges ahead, Sunnova’s IPO performance is largely in the air. Though the residential solar industry boomed between 2012 and 2015, 2019 isn’t quite the same, as the space tapered off. Will Sunnova be able to get ahead of the curve in the next boom? Who knows, but either way, investors should pay attention.

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Business

InterContinental Hotel Group Inks Deal With Energy Management Software Company

Rich Bowden

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Energy management software company Tempus Energy has just signed a deal with the InterContinental Hotel Group (IHG). The scope of the deal includes Tempus supplying green energy sensor technology to several of the group’s hotels in Australia. To start, IHG’s flagship InterContinental Hotel in Sydney’s Double Bay will be the first to deploy the software. Specifically, the software senses how much power to use, depending on the real-time availability of green energy in the grid. This allows IHG to alter the time it uses energy to take advantage of when renewable energy is available. 

Energy Management Software Automates Adjusting Energy Consumption In Real-Time

The key benefit of energy management software is that it allows clients to adjust energy consumption in real-time. Further, it does so in an automated fashion.

“We have machine learning models that predict the output of each renewable generator in the NEM, every 5 minutes,” Sara Bell, Tempus Energy’s CEO told theRising.

“Using these predictions, Tempus optimizes energy use to increase their usage of renewables, naturally decreasing usage when renewables are not available. This leads to a direct reduction in the carbon emissions of electricity used by our clients, without changing overall consumption,” she added.

Energy management software allow hotels to reduce their carbon footprint, reducing the need for companies to buy renewable energy contracts.

The Scale In Which Energy Management Software Can Reduce Carbon Emissions

Tempus’s technology will help clients like IHG take reducing their carbon footprint into their own hands. By doing so, there is no need for additional government involvement.

Responding to increasing customer calls for more sustainability, the sensors allow the group to reduce emissions by accessing green energy. Moreover, it helps to reduce the reliance on energy from fossil fuels

“By optimizing for the use of renewables on an air-conditioning chiller energy unit in Australia, we are able to achieve up to 15% reduction of carbon emissions,” Bell told me.

Summary: And A Look At Sustainability Trends In Australia

With the increased focus on climate change in Australia — including the rapidly growing school strikes —  forward-looking companies are responding to the climate crisis.

One of these new technologies is the Tempus Energy sensor. It gives hotel groups and other companies flexibility and act as a base for further sustainable measures.

Australian, NZ, and South Pacific readers of theRising who work in environmental sustainability may reach out at richbowden3@gmail.com.

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E-Waste Is Becoming A Sustainability Disaster. And Investors Have Taken Notice.

Avery Maloto

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E Waste

As technology continues to evolve (and end up in landfill), e-waste is proving to be a sustainability disaster. In 2018 alone, humans generated approximately 2.01 billion tons of waste worldwide. To put things into perspective, 2.01 billion tons is comparable to 287,142,857 elephants or 275,342 Eiffel Towers. Certainly, that volume of waste sent into landfills is a significant concern. And along with it, potentially reusable resources are continuously wasted as a result of careless disposal. 

Shockingly, e-waste is responsible for 50 million tons of the total generated waste produced each year. Not to mention, it accounts for 70% of the toxic waste lying in landfills. 

To uncover more about the e-waste issue, I recently interviewed Amanda O’Toole, a fund manager at AXA Investment Managers (AXA IM). She is a part of the firm’s investment team as the Lead Portfolio Manager for Framlington Equities’s (AXA IM’s qualitative equities business) Clean Economy Strategy.

We discussed the primary challenges in e-waste as well as why financiers are looking towards waste management as an investment opportunity.

Why Is E-Waste So Hard To Recycle?

When dealing with the improper disposal of hazardous materials, there is a constant risk of land and water pollution through contamination. E-waste similarly causes these pollutive consequences.

For example, batteries leak heavy metals such as lead, barium, and lithium into the soil when placed in a landfill.

As a result, these heavy metals seep into groundwater channels, which eventually enter larger bodies of water like ponds or streams. And as technology continues to develop, the demand for new electronics continues to rise. Estimates show that the number of connected devices will reach 31 billion by 2020.

In O’Toole’s words, “without fundamental change throughout the electronic supply chain, the e-waste epidemic will get worse.”

Amanda OToole
Amanda O’Toole tells us “without fundamental change throughout the electronic supply chain, the e-waste epidemic will get worse.”

Although many companies do already run their own programs for the recycling of e-waste, the reclamation of e-waste is a difficult and complex process.

While complex electronics can contain up to 60 elements from the periodic table, the process of recovering these devices can be complicated and costly.

The question now arises: If it is complicated and costly, what other ways can we deal with e-waste?

Future Economic Potential In E-Waste

The way that O’Toole sees it, e-waste is of particular interest from an investment perspective because of the value of the materials it contains.

When a company is able to extract these raw materials safely, they are able to create a valuable product that can generate revenue.

If the extraction process is cost-effective, it is possible to generate a financial return by reducing e-waste. And in some cases, securing a stable supply of a material may be challenging.

Striving For Clean Technology Through Investments

For the last six months, O’Toole has been working to launch a successful new strategy focused on promoting clean technologies.

In her Clean Economy Investment strategy, she talks about how the fund adopts a unique approach that invests in diverse areas of the market that enjoy structural growth.

Surprisingly, many of these areas are not dependent on macroeconomics. Instead, the product gears towards the interest of mainstream investors.

Through this strategy, O’Toole engages with clients who are not typically interested in environmental value. And with her guidance, clients begin to move towards these areas of the market.

Appealing To the Public

Recently, the rise in social awareness of environmental issues is driving change. This change is partly due to regulations such as building performance regulation and effluence discharge monitoring.

However, consumer demand for things such as meat alternatives and recyclable packaging comprises a majority of the market’s change. In return, brands accommodate this change by developing responsible sourcing policies.

To its advantage, the fund is utilizing this societal trend and implementing it in their own main areas of focus. 

Currently, the fund identified four sub-themes to best represent opportunities for long term secular growth in the Clean Economy:

  1. Sustainable Transport
  2. Smart Energy
  3. Responsible Nutrition
  4. Recycling and Waste Reduction

Framlington Equity’s intention is to invest in publicly listed equities in areas of the global economy which benefit from secular tailwinds. And In the long term, O’Toole argues that consumers will continue to demand the transportation of goods and services; the provision of energy, food, and water; and the use of materials. 

The Bigger Picture

The common theme across the investments that AXA IM makes through the Clean Economy strategy is that these are companies whose goods and services make economic sense for their customers.

Adoption is not dependent on subsidies or a desire by corporates to address environmental issues.

The business case for adoption is based on the need to meet more stringent regulatory requirements. Additionally, companies can gain market share by addressing the growing demand for sustainable consumer products.

Brands would want to invest in order to mitigate potential reputation damage associated with a poor environmental footprint and build a sustainable production cost advantage.

Summary

Companies operating within the clean economy have a critical responsibility to ensure they offer the best solutions for clients while being mindful of the environment.

What’s more, is that when companies demonstrate how their goods and services outperform on relevant environmental metrics, they can gain a competitive advantage.

Financiers have noticed and made waste management a part of their investment strategy.

Final Notes: Is your company doing something to reduce its e-waste or carbon footprint? If so, we’d love to hear from you at tips@mediusventures.com.

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GreenTech

Hypoxia Is Killing Marine Life. Oregon Scientists May Have Found A Solution.

Maddie Blaauw

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Lake hypoxia is killing marine life.

California has wildfire season. The southeastern states have a rainy season. Now, Oregon has a hypoxia season … and it’s killing fish in their lakes.

What is hypoxia in lakes, and what causes it?

Lake hypoxia occurs when the dissolved oxygen content in the water is too low to sustain marine life. The microorganism phytoplankton is at the base of the mechanism creating regions of hypoxic water. The number of nutrients in the water and water temperature are the main factors affecting the growth of these microorganisms.

They will continue to grow until either of these factors limits them. Increasing water temperature or the number of nutrients in the water can trigger massive phytoplankton blooms.

Though the growing phytoplankton population causes other problems in the marine microenvironment, it isn’t the root cause of lake hypoxia. The trouble begins when once these massive populations of the microorganisms die off. They sink to the bottom of the body of water, where bacteria decompose them.

This step of the food chain underlays the depletion of oxygen. Bacteria use up much of the oxygen in this deepest part of the water when digesting the dead phytoplankton. The more phytoplankton there are to decompose, the more oxygen the bacteria will use. Increased use of oxygen by the bacteria does not significantly change the natural rate at which dissolved oxygen is added to the body of water. Thus, oxygen concentration at this depth decreases, and other organisms in this habitat can die. 

Regions where hypoxia is prevalent

Hypoxia is not a new environmental condition. Runoff from farms contain fertilizers and high concentrations of nutrients. Wastewater from cities piped into rivers can combine with this. And when drained into lakes or oceans, it accumulates to create a great environment for microorganism growth. The Gulf of Mexico has low oxygen levels, especially where the Mississippi River drains into it, due to these factors.

In Oregon, however, the main cause of hypoxic water conditions is an increase in the water temperature. This is due to increased overall temperatures, ultimately attributable to climate change. Summers are especially bad times for phytoplankton growth, and because of this, summers have become Oregon’s “hypoxia season”. 

With decreased water oxygen content, many of the native fish species in Oregon are struggling. This is an even larger problem for marine life that is place-bound. In other words, in such scenarios, marine life cannot move to another place fast enough to get more oxygen. 

A temporary solution to help marine life?

Professor Mason Terry’s research group at the Oregon Institute of Technology is working to help increase oxygen concentration in Oregon rivers where endangered species live. Earlier this month, the group finished designs for and deployed a solar-powered aeration system in the state’s Upper Klamath Lake. 

The system is on a raft and obtains power from four 310-watt solar panels. The system is also equipped with a battery that can run the device for up to 32 hours. Hence, it can add oxygen to the lake even when the sun isn’t shining. 

Terry’s aeration system is essentially a much larger version of the smaller air pumps used in fish tanks. Two compressors take power from the solar panels and push air from the environment down into the lake. A hose helps ensure that the air is deposited at the bottom of the lake, where it is needed the most. 

While this will only help small portions of the lake, the raft has been placed at a spot the endangered species can gather at. 

While it is not possible to know the effectiveness of this system until the next fish counts, it is a step forward in helping sustain the diversity of animal life. 

Scalability of this solution

As climate change continues, rising air temperatures will lead to increased water surface temperatures and correspondingly lower levels of dissolved oxygen. It is possible that hypoxia in bodies of water could become an increasingly big problem in the future.

If this project from the Oregon Institute of Technology is successful, it will be a victory because it will show that humans can aid in helping marine life suffering from not having enough oxygen in the water.

However, we will also need to consider how to make this a more scalable device. This solution is still low-impact, but with increased research, there is a possibility of maintaining marine diversity.

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