Sunnova Energy cofounder John Berger quit. Now the company and entire residential solar industry is on the cusp of collapse, amid uncertainty that Trump is set to undo green subsidies from Biden’s Inflation Reduction Act.
Berger told Forbes in 2023 that if worse came to worse for Sunnova Energy he would get rid of sales and marketing, finance and legal, and eventually himself. This has come to pass. After hundreds of layoffs, delayed payments to installers and a last-ditch financing, Berger finally resigned in early March, replaced by Paul Mathews, formerly of UPS.
The end could be nigh for this onetime green energy darling. Bondholders of billions in Sunnova corporate debt are reportedly discussing the terms of a Chapter 11 restructuring. Shares have plunged 80% in the past month alone, to a market cap of less than $40 million. Its unsecured corporate bonds have collapsed to 35 cents on the dollar. Bond agency Fitch this month dropped Sunnova’s corporate rating to CCC-, i.e. default imminent.
What happened? Over 13 years Berger had attracted $4 billion in tax equity to fund solar projects and sold $6.4 billion in asset backed securities set up to own thousands of solar systems on the rooftops more than 440,000 homes owned by families who pay every month for the electricity generated. Sunnova became the second biggest residential solar name after Sunrun.
But after perennial losses, including $450 million last year, Sunnova ran out of money and options. Trouble was brewing back in 2023 when Sunnova CEO John Berger told Forbes that the industry was running on borrowed time. Rapidly rising interest rates were making it more expensive to finance high-upfront cost solar systems. Meanwhile California, the erstwhile solar Mecca, eliminated “net-metering” rules that had enabled solar early adopters to make money selling excess electrons to the grid. Demand for new solar roofs in the Golden State vanished almost overnight.
At the end of 2024 Sunnova’s balance sheet showed $211 million of cash, but according to Fitch only $35 million of this was unrestricted and available to use. In January lender Atlas Securitized, a division of Apollo Global Management, cut its credit line. In February Sunnova did raise $200 million in issuing a new asset backed security — owning thousands of new rooftop solar panels — but that cash appears to have been already earmarked to contractors and system installers. As a last ditch effort, Sunnova in early March borrowed $185 million from KKR at a 15% interest rate, secured by most of the company’s remaining valuable assets, including years of future residual cash flows from those ABS issues. That cash helped Sunnova pay off other loans, but it also subordinated existing corporate debt and “constrains any future capital market access,” says Fitch.
As a result, Sunnova has little chance of refinancing $400 million of senior unsecured debt and $575 million of convertible debt maturing in 2026. Plus another $400 million of senior unsecured and $600 million in converts maturing in 2028. Already bondholders are reportedly negotiating a bankruptcy and restructuring that could wipe out remaining equity and convertible bonds.
Why now? It’s too easy to blame industry uncertainty on President Trump’s promise to undo the green energy largesse in Joe Biden’s Inflation Reduction Act, which expanded federal green energy subsidies to the point where solar developers can get back tax credits of more than 50% of upfront capital invested. Sunnova’s rival Sunpower went bankrupt last August, well before Trump’s re-election. The president and his team have stated repeatedly that they plan to roll back the IRA’s largesse.
Analyst Julian Dumoulin-Smith at Jefferies & Co. had been assuming a 44% investment tax credit on solar projects, but noted last week that the industry would be happy for a cap of 30%. Dumoulin-Smith is encouraged by the 21 House Republicans (many from districts with renewable energy projects) who signed a letter to the president with a “positive counterargument” calling for continuation of the subsidies. The political uncertainty, compounded by market chaos, has frozen new investment into residential solar.
Whatever happens, it’s likely too late for Sunnova. Key to the company’s restructuring, or liquidation, will be an assessment of its remaining service obligations to more than 440,000 customers with an average of two decades left on their rooftop solar lease contracts. Although Sunnova has sold off these solar systems into its asset backed securities, it still retains obligations to not only maintain and service the panels (mostly outsourced) but also to take old panels off customer roofs at the end of the contract period. A Sunnova spokesman said the company “is operating as usual and servicing our customers, while taking strategic steps to enhance our financial position and ensure stability for our employees, dealers, builders, customers, and partners. We are confident in our ability to manage our obligations and position Sunnova for long-term success.”
One long-time solar industry investor, who didn’t want his name used, believes that these long-term maintenance, repair and removal obligations will ultimately prove to be senior to Sunnova’s corporate debt and will eat up any residual cash flows that would have flowed to Sunnova. The price of Sunnova’s senior unsecured debt has plunged from 95 cents on the dollar last September to a recent 39 cents (according to FINRA data via Public.com). That’s still way too optimistic, says this investor, predicting that holders of more than $2 billion in Sunnova’s secured and convertible debt will see a total loss.
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