Accessible Solar Power from Neighborhood Sun

Key Stats:

Summary

The Neighborhood Sun team has been selected as a “Top Deal” by KingsCrowd. This distinction is reserved for deals selected into the top 10% of our due diligence funnel. If you have questions regarding our deal diligence and selection methodology please reach out to hello@kingscrowd.com.

Problem

The science is in. The benefits of solar — both on a personal financial level and on a broader environmental level — are clear. However, adoption of solar energy has not been widespread. High upfront costs for the installation of solar panels can be prohibitive for many consumers. Some rooftops are not adequately designed to host panels. Additionally, occupants may not have the ability to adopt solar power when they are leasing a property. These problems are pervasive throughout the US. According to one source, between 50% and 75% of households in the country are incapable of transitioning to solar. 

Solution

One company focused on solving this problem is Neighborhood Sun. The company’s founders started it with the idea of tackling solar in a different kind of way. Instead of installing panels on a homeowner’s rooftop for a fee or on a long-term contract basis, the company champions “community solar.” Solar panels are installed on property that is not a singular person’s home, but rather a plot of panels. These community projects are often large, usually capable of serving hundreds or even thousands of households. Management ensures that the system is connected to the local power grid. All of the energy generated is then transferred to the relevant utility operator. Interested home occupants subscribe to Neighborhood Sun’s service. In exchange, the subscribers are provided a ‘solar credit’ on their utility bill. This enables consumers to easily switch to solar while avoiding solar panel installation. 

Since launching, Neighborhood Sun has grown rather rapidly. As of the end of its first quarter this year, the company had around 2,700 customers subscribed to the 16MW (megawatts) of projects it has installed. At this time, Neighborhood Sun’s stronghold is Maryland, where it boasts a 24% market share of the state’s 16.5MW of installed community solar capacity. In the near future, management intends to launch in other states, including New York, New Jersey, Colorado, and Illinois. If its expansion plans go as projected, the firm hopes to have between 6.4 million to 8.8 million subscribers nationwide by 2029. 

To further add value, management has other initiatives planned. A major focus for the company is launching and running its Sunengine IT platform. This system will integrate with its sites and allow customers to access data such as billing details, account information, the environmental impact of their energy consumption, solar project status, and more. The SaaS platform will also result in improved sales-agent tracking and customer management. For enterprise users, the platform will enable better asset optimization and team oversight. Neighborhood Sun also wants to white label this system for other parties who would be interested in it. 

In recent years, the management team at Neighborhood Sun has done well to grow their business. In 2018, revenue at the firm totaled $416,906. This grew 74.5% to $727,676 last year. The firm’s net loss of $349,978 from 2018 shrank considerably to a loss of only $211,339 last year. Operating cash flows followed a similar result, improving from -$325,558 in 2018 to -$102,103 in 2019. Debt for the firm is also low, at a net amount of only $39,023. The company does also have accounts payable of $106,320 stacked against receivables of just $18,858, but that’s not much to worry about.

A Growing Market

The market for community solar is, so far, quite small. However, it’s growing rapidly. According to one source, just 2,056MW worth of capacity has been installed in the US through 2019 in this niche. What is presently installed is geographically disbursed. In all, 42 states possess community solar projects, and 19 states (plus Washington D.C.) have enacted policies and programs of their own to promote it. 

If all continues as it has been, community solar will grow to become a material player in the US energy industry. One source pegs the recent 5-year compound annual growth rate of this niche at 53%. That’s double the 26% growth rate of the other pieces of the solar industry over the same period of time. Although solar as a group has exhibited tremendous growth over time, it still accounts for a small piece of America’s energy capacity. Even so, the space is making amazing strides. In 2019 alone, 40% of all new electricity capacity that came to the grid was from solar. 

One report from 2018 estimates that by 2030, community solar will be between 50 and 80 times greater than it was then. That would place it at between 57 and 84GW (gigawatts). To get there, we will need to see between $81 billion and $121 billion invested in projects. Most of this growth should take place in the second-half of the decade. Over the next five years, it’s believed that around 3.46GW of community solar capacity will be added to the market. This is enough to power about 650,000 homes. 

This rapid growth is fueled by a few factors. The first is the fact that over the years solar costs as a whole have dropped materially. Back in 2010, the average cost per watt from solar was $6. This year, the expectation is for that number to drop to $1.50 per watt. This alone is a huge contributor to solar’s appeal, but for community solar in particular there’s another element: accessibility. As previously mentioned, between 50% and 75% of households across the US are not compatible with solar panel installations. Community solar projects solve and bring significant cost savings with them. About 43% of households in the US today are low to moderate income. For these customers, the savings are believed to average $213 per year. That’s not much for high-income households, but for ones struggling to make ends meet, it can have a big impact.

Terms of the Deal

In order to continue with its plans, Neighborhood Sun is trying to raise additional capital. This includes between $100,000 and $500,000 that it is raising by issuing a SAFE. Investors must contribute at least $100 into the deal. In exchange, they receive the right to receive stock in the company upon certain triggering events. This will be subject to a $13 million valuation cap and a 20% discount applied to the value of the company when converted. As of this writing, Neighborhood Sun has received commitments totaling $185,424 for this raise.

An Eye on Management

Neighborhood Sun has identified a team of four individuals, but two of these appear to be the key persons in charge of the business. The primary operator of the firm is Gary Skulnik, Neighborhood Sun’s CEO. In the past, he has served as an owner and Marketing Consultant of Deeper Green. Before that, he was employed as a President and Chief Revenue Officer at Clean Currents. He has also served in the past as a Senior Lobbyist for Chesapeake Climate Action Network. The other key person at Neighborhood Sun is Emily Tokarowski. She serves as Neighborhood Sun’s Marketing and Operations Director. Tokarowski has served in the past as a Sustainability Assessment Coordinator at South Bend Woodworks / the University of Notre Dame. She was also a Climate Change Adaptation Team Member at the Executive Office of Environmental Affairs and Energy for the Commonwealth of Massachusetts. 

Rating

Neighborhood Sun’s traction and growth in recent years has been impressive. The industry it operates in is large and rapidly-growing. In particular, the niche it’s in is quite small, but it could go on to become solar’s largest segment in the long run. Another huge plus has been the continued cost improvements that solar energy has exhibited over time. Add in society’s push to move away from fossil fuels, and it becomes clear that this is an excellent opportunity. 

In truth, there are few negatives that investors should be worried about. The firm’s net losses and cash outflows are discouraging but to be expected for a business so early in its life cycle. The fact that they are showing year-over-year improvement, though, is excellent. With customers signed up under long-term contracts, the recurring, subscription-like revenue opportunity Neighborhood Sun enjoys should accelerate its path to profitability. Therefore, Neighborhood Sun is a Top Deal.