The future couldn't be brighter for solar energy. The cost of installing solar panels has fallen so dramatically over the years that it's on track to become one of the cheapest forms of power. Combine that with growing climate change concerns and an increased emphasis on ESG, and the solar energy industry is on pace to double its annual capacity installations over the coming decade.
That's leading home builder Lennar (NYSE: LEN) to team up on a new strategic partnership with Sunnova Energy International (NYSE: NOVA) to enhance their ability to power new communities with the sun.
Lennar has agreed to sell its SunStreet residential solar platform to Sunnova in exchange for stock in the leading U.S. residential solar and energy storage provider. As part of that deal, Sunnova will become Lennar's exclusive residential solar and storage service provider for new home communities across the country.
Sunnova will pay 3.3 million shares at closing, while Lennar could earn up to an additional 3.89 shares associated with two earnouts. It can earn 2.78 million Sunnova shares if SunStreet achieves a certain annual customer commitment level over four years and another 1.11 million shares associated with the development of microgrid communities over the next five years.
Lennar's technology-focused subsidiary LENX developed SunStreet to provide homebuilders with high-quality, timely solar installations. It's now combining that company with Sunnova to further scale that business, which will reduce costs so more new homes will come pre-equipped with solar energy.
Accelerating the energy transition
The combination of Sunnova and SunStreet will enable solar to become a standard feature of new homes built by Lennar and other homebuilding customers of SunStreet. That will save Sunnova money since it won't have the added expense of marketing its products to these future homeowners. That will also benefit these homeowners, as they'll be able to save even more money by having their homes come with energy-saving solar energy systems already installed.
Lennar has a multiyear supply of homesites, which gives Sunnova highly visible revenue growth as it installs solar energy systems on new homes as they get built. Meanwhile, by separating SunStreet from Lennar, Sunnova can offer its products and services to more national homebuilders that compete directly with Lennar.
Another benefit of this partnership is that Sunnova will have the opportunity to equip many of the 250,000-plus existing homes Lennar built over the last decade with solar if the current homeowners opt into one of its programs. Sunnova can also offer battery storage service options to owners of the roughly 40,000 solar-powered homes built by Lennar. It can also upsell future homes built by Lennar and other SunStreet customers with battery storage.
Finally, the partnership will pursue opportunities to develop community microgrids, a local energy grid that operates independently from the traditional energy grid, reducing the likelihood of outages from storms.
The partnership should further accelerate the widespread adoption of solar energy and battery storage in newer residential communities. That should lower the energy costs for homeowners, reduce their carbon footprints, and improve their electricity's overall reliability through the addition of battery storage and microgrids.
A bright forecast for solar
Homebuilders like Lennar have steadily improved the energy efficiency of new homes over the years to reduce their impact on the environment. Now, Lennar is taking another step in environmental stewardship by joining forces with Sunnova to accelerate the number of new homes powered by solar. This solar-focused investment could pay big dividends for Lennar and its investors and customers in the coming years.