Equity Research

Generac’s Off-the-Grid Solar Opportunities

December 2019 / 3 min read
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A rising number of U.S. power outages caused by an aging electrical grid, increased stress from solar and wind energy generation, and worsening weather events like storms or fires are creating greater demand for reliable backup power systems.

Traditionally, consumers have turned to emergency generators powered by diesel or natural gas. But a growing trend is to turn to photovoltaic systems—a combination of solar panels and cutting-edge batteries that can provide electricity when the power goes out. Customers are saying the solutions are both greener and cheaper.

Generac Power Systems, a Midwest manufacturer of fuel-powered generators, has jumped on the renewables opportunity. The 60-year-old company is evolving from being solely focused on fossil-fuel generators into a global provider of solar power and energy storage, monitoring, and management solutions.

In the first half of 2019 Generac entered the residential solar market with its purchase of Neurio Technology and Pika Energy. Pika offers solar storage batteries and Neurio has a system that monitors how much electricity home appliances use so consumers can reduce energy use and costs.

Explaining the acquisition of Pika and Neurio this spring, Generac CEO Aaron Jagdfeld said the three companies "share a vision to develop groundbreaking technologies that modernize the way electricity is generated, stored, and used in homes."

The company's opportunities in California and clean energy markets are providing a long runway for growth.

BRIAN DRAB William Blair Research Analyst

In December, Generac launched a new line of solar products that offer an energy storage system and a stand-alone energy monitor. That will allow homeowners with photovoltaic panels to capture, conserve, and store their solar power.

"These are really good strategic decisions the company is making," said William Blair analyst Brian Drab, who covers industrial technology companies including Generac. "They want exposure to these important long-term trends of solar-power generation and whole-home energy management."

Solar panels

Sunny outlook for solar storage

Demand for solar storage is expected to grow steadily as many consumers generate more energy at their homes than what they can actually use. In recent years, such customers have been selling their overflow power that they've put back on the electrical grid to local utilities.

"But an interesting trend is taking place where utilities are becoming less willing to buy back all the excess energy consumers are producing," Drab said. "So they're paying less—driving consumers to look more for battery solutions."

The federal government, states, and local municipalities also continue to offer solar incentives to encourage sustainable energy growth. The local solar power markets are bound to keep growing, making their own demands to reshape and replace the existing grid.

In a landmark development, in 2020 California—with 40 million people, by far the most populous state—will become the first to require all newly constructed homes to include solar panels.

California has given Generac a boost. Demand for the company's generators has spiked in California as its largest utility PG&E has been periodically cutting power to communities in an effort to prevent its transmission lines from sparking wildfires in drought conditions. Prospects for Generac’s solar storage and generators in the sun-drenched southern parts of the state are bright.

"The company's opportunities in California and clean energy markets are providing a long runway for growth," Drab adds. "These growth drivers along with other initiatives are expected to drive 9%-10% revenue growth at Generac over the next few years."

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