Item 8.01 Other Events.
Risk Factors
The following should be read in conjunction with, and supplements and amends,
the factors that may affect our business or operations described under "Risk
Factors" in Part I, Item 1A, of our Annual Report on Form 10-K for the year
ended December 31, 2022 (the "Annual Report"). If any of the following risks
actually occur, our business, financial condition or results of operations could
suffer materially.
The transition by California to new net energy metering policies that lower the
export rate to consumers of solar energy sold back to utilities has had a
negative impact on our operating results and capital resources and may continue
to negatively impact our operations in the future.
Net Energy Metering (NEM) is utilized in California to allow consumers to
participate in transmitting solar power generated from their systems and selling
the power back to the grid. The price at which such power is sold back to the
utilities is referred to as the export rate. This benefit has allowed consumers
to improve the economics of their investment in solar by lowering the consumers
overall energy bill and shortening the payback period. In December 2022, the
California Public Utility Commission (CPUC) issued a final decision to update
its NEM policies that adversely impacted the economic benefits of residential
and commercial solar projects by lowering the export rate, a key benefit of
solar, by approximately 75%.
To obtain the benefit of NEM in California, the local utility servicing a
customer must approve an application for interconnection to the electric grid.
Once the interconnection application and permits are received, Solcius, our
residential operating subsidiary, installs the solar system. Customers that
submitted their solar applications (through solar providers like Solcius) by
April 14, 2023, qualified under the prior, more economically beneficial NEM
regulations. This change in regulation by the CPUC resulted in a surge of
applications prior to the application deadline that has caused significant
delays, with the average application approval time by utilities increasing from
less than a week to more than one month beginning in March of 2023. As a result,
the pace of new Solcius installations have been delayed. We believe the delay in
installations resulting from longer application approval times will negatively
impact revenue and cash flow in 2023. In 2022, we generated 41% of our revenue
in California, 29% of which was attributed to residential installations. The
surge in applications may also lead to a decline of applications in subsequent
quarters, once the current backlog has been processed.
While the reduction in export rate is significant, the cost of solar relative to
current electricity bills and the expected inflationary pressures on future
utility rates is likely to continue to justify the economics of solar,
consistent with our long-term market view. Additionally, homeowners may augment
their solar systems with batteries to ensure that excess power generated during
the day is exported to the grid during periods of peak pricing.
Tightening credit markets have reduced the availability of advanced funding for
solar projects and negatively impacted our operating results and capital
resources and may continue to negatively impact our operations in the future.
We partner with various financing providers that offer our customers financial
products that allow them to monetize the benefit of solar power generations. At
the time of sale of a solar installation, we have historically received advanced
funding from lenders to support our working capital needs. Credit market
tightening related to recent bank sector volatility and general economic
uncertainty have begun to materially change how lenders manage their risk
profiles. In view of changing market dynamics, some lenders are either reducing
or eliminating advance funding, which delays the timing of payment to us and
negatively affects our available liquidity. Additionally, lenders are modifying
their payment milestones and timelines, which may further reduce our available
liquidity. If lenders continue to reduce or eliminate advance funding for solar
installations, our liquidity available for operations may continue to be
negatively impacted.
Climate change may have long-term impacts on our business, our industry, and the
global economy.
Climate change poses a systemic threat to the global economy and will continue
to do so until our society transitions to renewable energy and decarbonizes.
While our core business model seeks to accelerate this transition to renewable
energy, there are inherent climate-related risks to our business operations.
Warming temperatures throughout the United States, and in California, our
biggest market, in particular, has contributed to extreme weather, intense
drought, and increased wildfire risks. These events have the potential to
disrupt our business, our third-party suppliers, and our customers, and may
cause us to incur additional operational costs. For instance, natural disasters
and extreme weather events associated with climate change can impact our
operations by delaying the installation of our systems, leading to increased
expenses and decreased revenue and cash flows in the period. During the first
quarter of 2023, unusually adverse weather conditions across the United States
and California, in particular, have caused significant installation delays that
have resulted in decreased revenues and negatively impacted our operating
results and available cash resources. We estimate that weather delays in the
first quarter of 2023 resulted in the delay of approximately $7.8 million of
revenue during the period. Natural disasters and extreme weather events can also
cause a decrease in the output from our systems due to smoke or haze.
Additionally, if weather patterns significantly shift due to climate change, it
may be harder to predict the average annual amount of sunlight striking each
location where our solar energy systems are installed. This could make our solar
service offerings less economical overall or make individual systems less
economical.
Cash for Operations
The risks described above and other factors that contributed to lower revenue in
the first quarter of 2023 have had a negative impact on our available cash for
operations. We had approximately $8.1 million and $3.7 million in cash and
restricted cash at December 31, 2022 and March 31, 2023, respectively.
Cautionary Note Regarding Forward-Looking Statements
Certain statements contained herein are forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995. Any statements
that are not historical fact (including, but not limited to statements that
contain words such as "anticipate," "believe," "can," "continue," "could,"
"estimate," "expect," "intend," "may," "plan," "project," "seek," "should,"
"strategy," "target," "will," "would") should be considered to be
forward-looking statements. Forward-looking statements involve risks and
uncertainties. Actual results may differ materially from the results anticipated
in or implied by these forward-looking statements and as such should be
evaluated together with the many uncertainties that affect the businesses of the
Company, particularly those mentioned under the heading "Risk Factors" in this
Current Report on Form 8-K and in our other filings with the Securities and
Exchange Commission, including the Annual Report. Except as required by law, we
undertake no obligation to update any forward-looking statements to reflect
events or circumstances after the date of such statements.
The forward-looking statements included herein relate to, among other things,
statements about: (i) the impact to our operating results and capital resources
caused by California's transition to new NEM policies; (ii) the impact to our
operating results and capital resources caused by the tightening credit markets;
and (iii) the impact that climate change, natural disasters and extreme weather
could have on our business.
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