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Generac Holdings Inc.

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Msg  27 of 35  at  9/26/2022 11:38:29 AM  by


Solar Panels Don't Power Your Home and Other Insights From an Energy CEO

Solar Panels Don't Power Your Home and Other Insights From an Energy CEO

Powering a home is getting more complicated as outages rise and options—such as solar panels, generators, and batteries—proliferate. Sorting it all out isn't easy.

Just take solar roofs.

"The power you generate on your rooftop with a solar system, you don't use a single watt of that in your house," says Generac CEO Aaron Jagdfeld .

Say what? That might be a little confusing to potential solar customers—or any homeowner. And it leads to a question: Where does the power go?

"Solar is nothing more than a distributed power plant for the utility," Jagdfeld said. "100% of [the power] goes back to the grid."

That is why, in an outage, the lights go out for a homeowner with solar panels, just like they do for everyone else.

Jagdfeld runs the largest provider of home standby power in the country. Generac (ticker: GNRC) is the largest by a mile with roughly 75% market share, according to Baird analyst Mike Halloran . It is a very good business. Generac has a market capitalization of $11 billion and is expected to earn about $11.80 a share in 2022, up from $9.63 in 2021.

Investors might assume Jagdfeld has it in for solar. Far from it, he loves the business and relayed his factoid from the Solar Power International conference in Los Angeles. Jagdfeld is just explaining how the grid works, noting three things.

First, with solar, customers get paid for delivering power back to the grid. That power is typically netted out against total power consumption.

Second, utilities will lock out solar roofs from the grid during outages to protect utility line workers. Power flowing out from the home can shock, too.

Third, Jagdfeld points out that homes with solar power can keep running if they have battery backup power.

Residential battery storage is a business Generac got into about three years ago, entering with a mind-set the CEO describes as defensive: "Could our internal combustion engine [generators] ultimately be displaced by a storage device."

Disruption seems like a long way off. A solar roof plus a battery storage system are still multiples of what a backup generator costs. Still, for Generac, it was time to understand the business.

Generac acquired Pika Energy , which manufactures batteries as well as power inverters like competitors Enphase (ENPH) and SolarEdge Technologies (SEDG).

"What we found though very quickly is, you know what, this is a whole new business opportunity," Jagdfeld said about the deal.

He is trying to turn Generac into a leader in smart home energy systems and the company has made other technology purchases including smart thermostats and other electrical components. Generac also formed a grid service business back in 2020.

Sales for all the services and clean energy products Generac offers are expected to double in 2022 compared with 2021, hitting roughly $500 million. Total Generac sales in 2022 are expected to be about $5.2 billion.

That is impressive growth from a cold start in 2022. All the things impacting the grid—renewables, outages, distributed power generation—all seem to benefit Generac to some extent, which is why Jagdfeld remains confident in his company's future.

Investors aren't so sure these days. Generac stock is down 51% year to date while the S&P 500 and Dow Jones Industrial Average are off about 23% and 19%, respectively.

There are a couple of things to consider. Investors are focused on the short term now amid inflation, rising interest rates and a slowing economy. What is more, Generac, historically, has been a storm stock and, frankly, the 2022 hurricane season in the Atlantic has started out slow.


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