Before we begin, please note that certain remarks we will make on this conference call constitute forward-looking statements. Although we believe these statements reflect our best judgment based on factors currently known to us, actual results may differ materially and adversely. Please refer to the company’s filings with the SEC for a more inclusive discussion of risks and other factors that may cause our actual results to differ from projections made in any forward-looking statements. Please also note that these statements are being made as of today and we disclaim any obligation to update or revise them. On the call today are Mary Powell, Sunrun’s CEO; Ed Fenster, Sunrun’s Co-Founder and Co-Executive Chair; and Danny Abajian, Sunrun’s CFO. And now, let me turn it over to Mary.

Thank you, Patrick. I have really been looking forward to this call to share our strong fourth quarter and full year results with you as well as to talk about our outlook and priorities for 2023. We ended 2022 delivering and even modestly exceeding our guidance, growing new installations by over 25% and delivering greatly increased net subscriber values. We exited 2022 with nearly 800,000 customers, 5.7 gigawatts of network solar energy capacity and $5.6 billion in net earning assets. I am confident 2023 will build on this strong momentum as the strength of our subscription model provides market share gains. The year is off to a great start. We are seeing early funnel sales growth in January of over 30% across our entire direct business and even faster growth in California. Part of this is expected acceleration ahead of the changes in California, but it is also indicative of the broader utility rate trends, which continue to rise and the growing consumer awareness of our offering. Our strong traction is also a result of our ability to attract the best sales talent in the industry that is eager to work with the nation’s leading clean energy provider, especially one that is leading on storage and innovation. Sunrun is the clear leader providing energy as a subscription service with over 60% share of new subscriptions across the industry. Recent trends in financing costs for loans, the growing need for advanced systems with storage, awareness of the value of service and performance guarantees, along with the uncertain economic climate have all contributed to the growing relative advantages of our subscription offering. We are already seeing a shift in our sales activities towards the subscription offering and expect it will flow through in a meaningful way in our installation activities in the…

Thank you, Mary. I am so thankful for and impressed by the team leading Sunrun today. It’s been a great honor to have had the privilege of working day in and day out alongside the many talented people who have helped Sunrun grow and flourish from a small company run out of my attic into the nation’s leading provider of solar and storage. While being on parental leave over the last several months, I concluded that I want to spend more time with my children during these important formative years before they are in school. And I also plan to travel with them for a few months over the summer. The company and the leadership team are both in a fantastic position. I frankly don’t believe my full-time day-to-day participation is any longer key to our success and I remain as committed as ever to that success. I’ll continue to be involved in key decisions, participate in management and strategy meetings, and meet very extensively with our capital providers. I am not taking on other work I just believe the time is right for me to focus my Sunrun time in the highest value areas and to recover the balance to spend with my family. Company leadership is in fantastic hands. Sunrun has deep bench strength and tremendous experience across all aspects of the business. Over the last few quarters, the company has been more operationally efficient and enjoyed significant gains in net promoter score while increasing volumes and pricing. The operating results cooperated by intuition that it’s an appropriate time for me to make this transition. I am grateful for all your support and I look forward to remaining part of this great company as we move forward. Speaking of which, I’d like to turn the call over to Danny to share the financial update.

Thank you so much, Ed. Working with you so closely and receiving your mentorship has been a real privilege. I appreciate that your counsel to our team is always a call away. Today, I will cover our operating and financial performance in the quarter along with an update on our capital markets activities and outlook. Turning first to results for the quarter, in the fourth quarter, customer additions were approximately 37,400, including approximately 27,500 subscriber additions. Our subscriber additions were 72% of our total customer additions in the period, a small increase from last quarter. Our recent sales activities and the benefits from the tax credit adders in the Inflation Reduction Act which are only available to the solar subscription model indicate the mix of customer additions is likely to shift towards subscribers more significantly in the quarters ahead. Solar energy capacity installed was approximately 275 megawatts in the fourth quarter of 2022, a greater than 25% increase from the same quarter last year. For the full year 2022, solar energy capacity installed was nearly 1 gigawatt at 991 megawatts, a 25.2% increase from the prior year, modestly exceeding our guidance. Our installation teams and partners performed incredibly well in the fourth quarter, driving strong efficiency and productivity metrics while also remaining committed to safety and high-quality installations. The increased pace of installations is allowing us to gradually work down our pipeline, which is approximately one quarter at the end of Q4. We aim to manage sales and installation activities to maintain a pipeline that optimizes our resource planning and customer experience, although we do expect our pipeline to increase in the first half of the year. We have now installed over 53,000 solar and storage systems. We expect storage installations will grow rapidly in the quarters ahead and attachment…

Thanks, Danny. I am so appreciative of our hardworking team whose adaptability and commitment to our purpose helped deliver an amazing year of transformation for Sunrun in 2022. I am confident that our momentum will continue into 2023 as we focus on the fundamentals to make us faster, better and stronger for the benefit of our beloved customers, our amazing employees, the hundreds of communities we operate in across the country and our financial partners. With that, operator, let’s open the line for questions.

[Operator Instructions] Our first question comes from Julien Dumoulin-Smith with Bank of America. Please proceed with your question.

Good afternoon. Congratulations, Ed. Thank you for the time. Nicely done, I would say. And more specifically here, the look for 10% to 15% on ‘23 is impressive. You guys said in your prepared remarks that you are looking for share – market share gains. Can you guys elaborate a little bit on the depth of that market share gain considering some of the commentary on the loan side? Just what are you seeing in terms of your ability to kind of capture some of that shift, if you will?

Yes, hey, Julien, it’s nice to hear from you. This is Mary. Yes. So really, it’s based on the fact that, again, we’re seeing really good signs at the beginning of the year in terms of consumer demand. We believe that we are really well positioned with the subscription model for this year, which clearly has a more valuable customer proposition because of basically its ability to monetize the value of the ITC adders for customers. And then again, we expect to gain market share because, again, you have folks like Wood Mackenzie expecting sort of flattish to 6% and we are looking at we are feeling like 10% to 15%. As you know, we’re very, very focused on sustainable profitable growth. So again, we are looking at that 10% to 15% as being reasonable and conservative. So given that and given Wood Mackenzie, we believe we will probably pick up some market share. And also it’s really what we call the year of storage. And Sunrun is the leader in storage and we feel like we are really well positioned in California, which will be – always is and will continue to be a really important market our products because, frankly, Californians need our product because the utility power is just not as reliable and is very highly priced. So we feel like we are in a good position.

Julien, just to add, the one thing I would just add as a reminder on the – because we do expect a big increase in storage installations this calendar year, a storage installation can take 50% more labor hours than a solar-only one and can take as many as 50 or more days to get installation. And so as you significantly increase the storage attachment rate, you have many more projects in the development pipeline. And when we are talking about the annual growth rate, we are actually obviously talking about the projects that are entering the – exiting the pipeline, not entering the pipeline. And so that’s a factor in there as well.

Yes, that’s actually perhaps the follow-up here. I mean the funnel that you guys talked about 30% plus, you are only at 10% to 15%. I mean, what does that say for ‘24? I know it might be a little early. And then related to that, 16,000 plus per customer here, it’s pretty solid print. How do you see the cadence of that through the course of the year as you say too?

Yes. So we actually, Julien, to build on Ed’s response, like, again, one of the things to think about right when we talk about growth is how we have classically talked about it is installed capacity. But again, as we are becoming more and more of a clean energy storage company as well, that really is very accretive to value. So really looking at growth in the context of the additional value we can create through storage is really, really important as we look to the year. And Danny, you…

And on the net subscriber value, just allow me to do the walk. As I said in the prepared remarks, we did achieve greater than 16,000 in Q4 and we guided to greater than or approximately $10,000 in Q1 in there is the switch from 5% to 6% discount rate. And if we went on a like-for-like basis, at the 5% discount rate, the guide would have been over $13,000 per customer in Q1. And between Q4 and Q1, obviously, there is a sequential decline in installation volume due to some seasonality that’s normal in the business. And as we kind of see that volume drop over that period of time, there is reduced operating cost leverage coming through in the period. But then the outlook would be for – to grow that number sequentially throughout the year as we grow volumes and shift the mix towards higher value projects.

Our next question comes from James West with Evercore ISI. Please proceed with your question.

Thanks and good afternoon everybody.

Hi.

Hey, Mary. I just want to follow-up quickly on kind of where Julien was going with his questions around your expected installation growth versus the increase you are seeing early this year. I guess, as you transition to more of, as you mentioned, a storage company rather than just pure residential solar. The correlation between kind of the top line and what you guys see as installation growth, I would assume that, that starts to break down somewhat at maybe revenue outgrows installations. Is that a fair comment?

Yes. I mean, there is a – yes, there is a greater disconnect between the top line growth and the installation volume growth, again, as we shift from more complex to install jobs that take a few more hours. And as we see the ramp up in our installation capability against that volume growth, so there is just generally a lagging effect and an expectation that the size of our pipeline will resume growth after a few quarters of contracting.

Okay, okay. It makes sense. And then maybe just a quick follow-up for me, I noticed obviously, you had some commentary in your prepared remarks about your B2B business. And I saw some commentary in the press release around Lunar and moving to the Gridshare software on your current VPPs. I was wondering how that process is going? And is – are you finding it to be a higher quality product, will you switch to that on all your B2Bs going forward or maybe other parts of your business?

Yes. Thank you for noting that. We are so excited about our work in the virtual power plant space. And as we noted in my remarks, again, the PG&E announcement following the Puerto Rico announcement, we just see this as an area that strategically is so important as we look to the future, particularly as we look to a future with so much more storage paired with solar. So I think as I’ve often talked about when I talk about radical collaboration that we’re going to get to the day, I think, in the not-too-distant future where we literally have regulators and utilities sort of banging down the doors, wanting to have more access to our capacity. So long-winded way transition into your question on Lunar, we are really excited about their capabilities. So that is going incredibly well. Not only are they working on this next-generation storage capability that we’ll have access to in ‘23, but through their work with this grid share program, we just – yes, we find it really highly sophisticated, great performance and we’re really excited to be working with them.

Our next question comes from Brian Lee with Goldman Sachs. Please proceed with your question.

Hey, everyone. Good afternoon. Thanks for taking the questions.

Hey, Brian.

Hey, how is it going? Maybe going back to the market share gain that’s super interesting and encouraging, I guess, how much of that is coming from specific states that you would highlight as areas where you have doubled down efforts, invested more than your peers? And then how much of that is just coming from this broader loan-to-lease mix shift that everyone is obviously acknowledging at this point? And then maybe related to that, just what are you embedding for California, non-California growth in general for your outlook here for the year? And then I had a follow-up.

Yes, I would say, at a high level, Brian, as we have talked about when we have met, our focus, again, has been faster, better, stronger. So we have like one of the areas I’m so impressed with the team in 2022 and that we are going to continue in 2023 is like always like looking at data every week, every market, every geo making decisions around our position and how to leverage the best customer value proposition in that area. So we are going to continue to do that. I mean from a broader perspective though, we are definitely seeing in all the market – like all the markets that we are in, we are seeing great interest for what we have to offer to consumers. We also are feeling really good about our position in California because of are innovating around a product that we really feel will really help customers monetize the value of the new tariff in California. So with that, I would toss it to Danny, do you want to give more specific growth level comments?

Yes. I think Mary covered it well in the lead in as well, where she said 30% early funnel sales growth nationally and higher than that in California and that’s at the moment. And I think the expectation – we have to see it play out, but the expectation is post April, mid-April market transition in California, we think the value prop will still be great for customers in the market and the growth rate there will trend more towards what we’ve seen ex-California.

Okay. Fair enough. I appreciate that additional color. And maybe another one for you, Danny or maybe Ed as well, just high-level thoughts on this transition from PV5 to PV6, I think some investors were maybe expecting to go all the way to even PV7. So just thoughts on PV6 versus PV7 and then general cost of capital trends in ‘23 and what you expect in ABS financing costs and volume this year? Thank you.

Yes. Thanks for the question. Yes. So I think we – as we have said, we want to have a discount rate in the metric that doesn’t – that we think is good for the reasonably long-term and doesn’t fluctuate every quarter. And as you saw in the remarks as well, quarter-over-quarter fluctuations also generate the need to explain lots of pro forma. So just for period-over-period comparability the thought was to select something that allows us to keep it in place for a year. And we were thoughtful about that looking at where rates have kind of moved around in the recent past, looking at long-term rate expectations and felt 6 was a good mark to approximate the system value, but we’re also continuing to give constant guidance on where advance rates are fluctuating at any moment in time relative to market interest rates, and we will continue to give that clarity on how much of the contracted subscriber value, we are able to monetize in the cash proceeds at the point of install. So that number today looking at markets that we mentioned the 75% to 85%, which will be 80% to 90% using the new discount rate. And that’s for equivalent proceeds we still maintain that range. We still maintain that range going into Q1, given where rates are today, probably with an expectation that we’d be around the midpoint or the top half of that range, somewhere between 7% and 7.5% given where we’ve observed markets in the last couple of weeks. So from an advance rate, standpoint, that would put us in the bottom half of the advance rate guidance range based on where things are trending at the moment.

Our next question comes from Phil Shen with ROTH. Please proceed with your question.

Yes. Thanks for taking the questions. I know a lot has been asked around the ‘23 guide and the outlook, I want to hit it from a different angle. Mary, I think you talked about the guidance being reasonable and conservative. And I was wondering if another area of conservatism might be around the onboarding of new dealers. So I’m imagining there is a fair amount of dealers wanting to jump on your platform at this point. To what degree could that serve as yet another level of upside as my sense would be that maybe that 10% to 15% growth is maybe more organic with your existing base of dealers. What’s been the interest and activity of new inquiries as well? Thanks.

Yes. I would say, relatively more organic, definitely seeing the flywheel effects as we’ve put the Sunrun and Vivint businesses together now with a 2-year operating period and track record, definitely being seen also as an attractive place to sell directly. So I’d say it’s more direct-driven than dealer-driven. And to the extent it becomes dealer driven, we would view that as relatively more upside to the model.

Yes.

Great. And can you guys comment on whether or not you are seeing a high level of flow in activity from those dealers externally?

With – is the question like with us on our platform?

Yes. Are you seeing a greater – like are you getting inbounds from dealers that you historically have not worked with because you have your in subscriber.

If you would guess, I mean we’re – I think the way to answer it is like, yes. Like again, we’re the nation’s leader. We also like, again, back to how I described our whole go-to-market strategy and how we worked it in 2022 is we’re very selective and we’re very disciplined. So again, our focus is on sustainable profitable growth. And yes, you know that there are definitely different ways we could see a path to creating more upside. But again, we’re really super focused on being selective and disciplined to ensure that we get to sustainable profitable growth.

Great. Thanks, Mary. In terms of my follow-up, I saw on NIM3 in California, Mary talked about this new offering in California. It sounds like it has a strong value proposition and contributes well to net subscriber value. Most are expecting a decline in California once NIM2 installations are done but can you talk about this new offering and possibly how it could serve your customers and potentially result in a situation where could you guys actually grow your California volumes year-over-year in a time when many of your competitors are actually losing or decreasing year-over-year. Thanks.

Yes. I mean I think the most powerful thing for Sunrun as we go into this year in California is that we have deep bench strength around storage. So again, we’re the nation’s leader in providing storage in customers’ homes. We have 53,000 customers that already have storage. So yes, this product, again, we’ve come up with something that is quicker and easier to install and really provides great savings proposition for customers. And so we think it will be very powerful. But yes, I think definitely, our history and our leadership on storage is going to be very, very helpful and is a part of differentiating us for sure, from some of the others. I mean one of the reasons we really were agitating with regulators and policymakers last year for a longer ramp time was we saw that for the rest of the industry, particularly the long tail that may not have the experience in storage that it’s going to be much harder to quickly adopt to this new tariff, which really relies on capabilities around storage. So we’re feeling like we’re in good shape as we go into the year.

And to just underscore or maybe highlight something that I believe Mary mentioned on the call, we are expecting on an installation basis, sequential growth in installations across all the quarters of this year.

Yes. A 100%.

Our next question comes from Kashy Harrison with Piper Sandler. Please proceed with your question.

Hi, good afternoon, and thanks for taking the question. And then congrats Ed. So just first one for me. Just one quick follow-up question on the 2023 guide, how are you thinking about your lease loan mix in 2023?

Yes. We said on the call, 71% went to 72%. And the outlook there is closer to the 80% area. And if you look historically, prior to last year, we were generally in an 80% to 85% range. I think we will trend more towards the kind of the historical norm we saw in the business.

Got it. And thanks to fulfil. And then my follow-up question, you – based on your – the slide that you have with the advance rates, you indicated that you can generate roughly, I think, $3,600 per customer. How are you thinking about the changes in working capital during 2022? It looks like it’s been about $400 million to $500 million these past 2 years. And so I’m just curious how you’re thinking about 2023.

Yes. The working capital is, I would say, mainly associated with the run-up in sales, right, which results in a lot of the cost structure of our sales organization being incurred ahead of the realization of proceeds. And then as we ramp the operational capacity, some fixed investment there to grow the footprint as well as, in particular, this year with a meaningful growth in the battery attach rate. And just general growth, continued growth in supply chain spend and inventory balance, and you’ll see a pretty substantial move in the inventory balance on the balance sheet kind of in line with that already occurring in the period in Q4.

Sorry, just to clarify, are you saying that your changes in working capital in ‘23 will be lower than 22%. Is that what you were getting at?

Yes. I don’t have the exact comparison, but I would say the amount of installation growth last year being 25%, this year being 10% to 15% would suggest lower. But the amount of offsetting that would be the amount of equipment cost per installation with the higher attach rate would also be higher, right? So that the value of equipment per job is going up, but the number of installs we’re ramping up into relatively year-over-year. It’s a lower growth rate, obviously. So they are probably offsetting factors there.

Yes, I would say the other thing I would add to that is just, again, in the vein of faster, better, stronger, our team is actually very confident that we still also have again, more operational improvements and efficiencies to harvest that will help us, particularly as we look at like moving the backlog through that will help us definitely sequentially, you’re going to continue to see improvements in that regard.

Our next question comes from Joseph Osha with Guggenheim Partners. Please proceed with your question.

Hi, thank you. Ed, we are going to miss you, man.

I’m going to be on the call. I’ll be here for you, Joe.

Okay. Good. Good.

You may not miss him.

I feel better now. In terms of this transition, obviously, in California, obviously, the deadlines, April 14 or whatever it is, but I’ve heard you refer to installer backlog. How much installed backlog do you think you could get? Could we be installing NEM 2.0 systems, say, through September or so? I’m trying to get a sense of that.

I mean, what we’re aiming towards is likely months, not quarters of backlog. So again, back to what I was speaking to in the answer to the last question, we still see this team is like very focused on faster, better, stronger, and we still see like sequential improvements we’re going to continue to make that are going to allow us to digest that backlog or that pipeline, shall we say, we’re building a healthy pipeline and we’re trying to resist having as many customers as possible become backlogged. So we’re very focused on moving that through.

I would say last year is the track record for that right? If you track through the quarters, I think at the peak, we were at about two quarters of backlog and we brought that down throughout the year and through tough work on finding the efficiency gains in the business. And as we transition more towards battery installations that we’re kind of bullish on our ability to find those efficiency gains there as well.

Okay, got it. Thank you. And then my other question, given the talk about working capital, if I look at 2022, you guys did manage to put around $100 million or so of cash on the balance sheet. Should we perhaps not expect to see that level of cash generation this year, given what I’m hearing?

Yes. I think the unit level – I think we did the unit level cash walk, which moved by about $700 per customer. So a lot of the margin gain was also offsetting the interest rate increases. So we’re, I think, starting the year a little bit better off on a cash unit margin perspective. Certainly, we just talked about, I think the inventory, kind of the preparation for the run-up in volume will be consumptive from a working capital perspective. And as we travel through the year and transition and realize more higher-value projects we do expect the sequential growth in the unit margins, but we will see offsets from working capital through the year.

Okay, thanks a lot. Thank you very much.

Our next question comes from Maheep Mandloi with Credit Suite. Please proceed with your question.

Hi, good evening. Thanks for taking question. Just one question on the NPV per customer net subscriber value, you talked about a sequential decline in Q1 versus Q4 and ramping it through the year, but could we expect it to ramp up back to that 16,000 on a like-to-like basis by Q4? And also just want to understand the variables going into where are you assuming the 30% ITC or any of the adders for your customers here? Thanks.

Yes. That’s a good observation on the last. A good question on the last piece. The $10,000 guide with the new 6% discount rate does not assume the realization of any ITC adders in Q1. To the extent, obviously, the low income would be the most material piece of that and we did address the kind of the timing concerns around that. But that would generate upside to the number as those get realized. Energy Communities is another adder that is not assumed who are waiting more specific guidance on what will qualify, but we have reasonable reasonably high confidence on the portion of our business we’re already doing that when it installs and gets realization of those adders that we would also see further upside to the metric from that source. Domestic content, similarly not assumed. As we talked about, we have almost a couple of hundred megawatts of supply there. To the extent the guidance comes out and we install those in a way that qualify and then confirm that, that’s further upside. And then the rest of the sequential growth will be related to higher pricing realization in general, but also the shift towards higher-value projects as we increase the battery mix throughout the year. All of those are contributing factors. But again, the 10,000 doesn’t include the upside from the adders and we expect the sequential growth. Also, as we see the decline in installation volume and as we report the metric on an installation basis, largely on the creation cost back, you will see some of the reduced operating leverage on operating costs in Q1 and you’ll also see relatively fewer on the top line for subscriber value relatively fewer subscribers getting realized into that metric. So there is some operating leverage considerations in the Q4 to Q1 walk as well.

This is Ed. I would just add also more sales activity in Q1 than Q4. And because the metric is just looking at the number of installed customers and then all the cash costs in the period as we move from Q4 to Q1. As Danny said, we have fewer installations and more sales activity, both of which create a headwind in the metric that does reverse over time.

Got it. Thanks. And then maybe just one question and it’s probably been asked different ways around cash generation. But maybe just a question on the focus from a metrics point of view. Should we expect the focus on this NPV or net subscriber value per customer or looking for any new metrics to kind of help investors, but I appreciate the story here? Thanks.

Yes. We will continue to focus on the primary metrics. Obviously, one of the things, if we – there is creation there is value creation from subscribers. There is also headline megawatts. One of the dynamics also to keep in mind is the value per megawatt is also appreciating considerably again because of higher value installations throughout the year. Ultimately, the GAAP financials are also a place where there is probably opportunity to simplify, although that’s something we continue to evaluate on an ongoing basis. And then ultimately, the objective is to grow unit margins and continue that march forward as we did throughout last year. that as we get into a stable interest rate environment and we continue to grow our unit margins, like cash flow generation ultimately is the priority, but we’re also kind of being cautious on – given the amount of growth we’ve been seeing, it is also consumptive from a working capital standpoint as we previously discussed.

Our next question comes from Biju Perincheril with Susquehanna. Please proceed with your question.

Hi, thanks for taking my question. Going back to 2013 guidance, can you sort of bridge the installation growth in the first quarter being sort of 3% or so to the 10% to 15% growth for the year. Is that all sort of market share gains and from the shift towards more [indiscernible] systems or is there some other factors there as well?

Yes. The Q1 so we typically see a decline in Q1 from Q4, if you look across years. The percentage decline can fluctuate a bit. Again, if you look at past periods, the year-over-year comparisons can look a little bit irregular quarter-over-quarter, year-over-year comparisons can become a little bit irregular. So definitely, again, expecting the sequential growth and to that to get realized at a 10% to 15% annualized rate, where we had think there is more upside opportunity than downside risk to that range. And the opportunity, again, comes from the extra volume we’re seeing but more specifically, the ability to fulfill all that extra volume we’re seeing in the period as we grow our build capacity.

Okay. Were there any sort of abnormal impacts in that first quarter number from weather or anything else?

Not unusual. A little bit of weather, a little bit of, obviously, like delivering the strong – against the strong growth against our guidance we did accelerate a lot of our pipeline, but nothing unusual.

Yes. No, there is a lot of seasonality that just shows up.

Our next question comes from Steve Fleishman with Wolfe Research. Please proceed with your question.

Thank you. Good afternoon. Questions on the IRA adders, so the I guess first thing is if you find later on that you would qualify for a low-income adder or energy community for someone that you added in Q1 or Q2, can you go back and capture the adder later on?

As currently set on the low income piece, as currently set forth, the answer, unfortunately, is no and that does read a little inconsistent with the legislation, which we thought was January 1. So but as soon as that kicks in, again, it will be upside we have not planned for here. On the energy communities, I think the REIT is stronger than that would be January 1, but the particulars of the exact geographic qualifications and how big is the intent – how big is the map, which four quarters are picked up. Those sorts of things are more nuanced and require the guidance.

Same thing with the domestic adder.

Yes. And from a funding perspective, certainly our investors would be happy the tax equity investors would be happy to realize that tax credit value provided they have the appetite and pay for it in the advance.

Just to clarify your question right, the constraints, is it available by law? And if it’s available by low, can we monetize it. What we’re working on is it available by law pretty confident that the – we can monetize it if it’s available by law as a check box.

Okay. And then my other question is just as you think about the adders availability later in the year or next year. How much of that do you think you can retain? i.e., how much is it the risk of kind of being competed away to get customers or is it likely that you can retain a good amount of these?

It’s likely we can retain a good amount of it. Yes. I mean we’re feeling like the size of the opportunity we’re feeling is one that we will absolutely be able to take advantage of on the low and moderate income adder, it’s more an issue of like when it’s going to kick in. And the other two are more in the like final definition of the energy communities and what exactly like applies to the domestic content adder. But as I said in my remarks, like we feel like we’re really well positioned against what we think is a likely outcome on the domestic content adders. We already are doing business in what we think are likely areas of energy communities and again, the low and moderate income adders will kick in, we know for sure, by the end of ‘23 going into ‘24. And who knows, could end up being sooner given the different dialogues going on about those adders and the timing.

Our next question comes from Christine Cho with Barclays. Please proceed with your question.

Thank you for taking my question. I just wanted to start off when we think about the cadence of the installations that will take place throughout the year in California, you mentioned that you expect that it will take a couple of months. But I would assume if someone wants to be grandfathered under NEM 2.0 they aren’t really looking for a battery. So should we think that those 2.0 applications will be prioritized over solar plus storage installations, especially if it takes 50% longer to do those? And so by that logic, should we think that the solar plus storage installations will be more back-end loaded this year?

I mean, definitely, to your point, we’re seeing a lot. Yes, we’re seeing a pull forward of demand. Yes, to your point, I think it’s absolutely logical to believe that there will be a higher attach rate once we get past April 15, for sure. In terms of how we manage our pipeline now and how we set customer expectations, we’re being really clear with customers now that are trying to get in before the cutover that like the time required to get them to installation as that pipeline builds. So we’re, of course, very, very focused on making sure it’s an amazing customer experience for those customers in the pipeline and that we’re meeting all the requirements so that they technically can count having made that cutoff date. So that’s also a really important part of it. But in terms of prioritizing it, we very much will be moving customers along in the order in which they came into our pipeline.

Okay. And then like I don’t know how easy it is to answer this question, but is there anything you can provide around the difference in subscriber value for a solar customer versus solar plus storage customer in California? Just as we kind of think about customer installations might be down, but there is an offset because of the subscriber value for a solar plus storage customer is higher.

Yes, 100%.

Yes. with backup, in the low single digits out like thousands per customer would be the incremental margin for a customer, getting the battery in a backup product. Of course, that will vary depending on the size of the home, the number of batteries they have, the number of loads they want to back up. So that’s more of an average number, but probably with a big range.

Our next question comes from Corinne Blanchard with Deutsche Bank. Please proceed with your question.

Hey, good afternoon. Thank you for taking my question. Just one follow-up also on pricing. Do you still have any room for pricing power I mean increase in pricing over the next couple of months?

Yes. We continuously monitor the macro environment with respect to interest rates on the one hand and utility rates on the other hand. So that’s something we’ve continuously done. As we talked about last year, pricing was more of an event that we had to talk about last year as we were exiting a declining rate environment and transition. I think the whole industry is transitioning into a rising rate environment and how dynamic it gets as to pricing. And today, it is fully dynamic. And we’re constantly looking at those two factors as well as our own volume and optimizing on profit. So I would say there is opportunity, but we’re kind of looking at all of those factors and being deliberate and more specific from a geographic perspective as opposed to thinking about it kind of as a national thing.

Okay, makes sense. And then the next question I had, and maybe I missed it earlier on the call, but can you just provide more color on if you expect like further increase in expense, I know some of your peers have commented it heavily investing to support California growth. Is that as well what you intend to do over the next few weeks or few months.

I think the cost increases that you’ll see will be related to, again, higher cost equipment or higher ticket price equipment going into jobs, which is the battery. So you’ll see a general creating cost increase against that. But if you look at last year, we’re just kind of in a more stable period on the attachment rate, you saw costs generally remain flat. But over that period of time, you also saw equipment prices going up, equipment prices going up, but offsetting that from efficiency gains on the installation side and we expect to continue to grind for that dynamic throughout this year and see the net subscriber value of the bottom line continue to increase.

Our next question comes from Abhi Sinha with Northland Financial. Please proceed with your question.

Yes. Hi, thanks for taking my question. So I just wanted to – if you could share something on Puerto Rico, your progress from Puerto Rico, I mean, whether it’s in market share, what it is now? What do you expect in the next 3 to 5 years, your impact of agreements with span anything on those lines? And also like when I’m comparing a VPP, what you have in Puerto Rico versus what’s the PG&E customers? I mean I think Puerto Rico you said about $2,000 per [indiscernible] value in NPV. Is that something of that what you get? I’m just trying to understand that compare and contrast the two VPP plants Puerto Rico versus PG&E in here.

Yes. Thank you. I actually just spent some time in Puerto Rico with our partners down there and with all the folks that are so important from a virtual power plant perspective. I mean, Puerto Rico, to your point, is an incredibly important market for us. It’s one as I like to say a lot, to folks I speak to, it’s like Puerto Rico is one of our post cards from the future in the context of how they have a really incredible high storage attach rate. They – we’ve also been deploying the span panel in Puerto Rico. So we’ve really been utilizing Puerto Rico’s forward-leaning need and desire for clean energy technology transformation to really leverage the strength of Sunrun in the context of the innovation that we’ve been doing and bringing there. So we are very, very bullish on the opportunity in Puerto Rico. We’re very glad that we work with so many incredible channel partners in Puerto Rico and that we’re able to leverage what we bring from a perspective of storage capacity panel capacity and to your point, really helping to leverage all of that from a grid perspective. And one of the meetings I was so excited to have when I was there was with the Governor and his team about how do we expand. So how do we take the work we’ve already done and really transform the system so that we can be leveraging more and more solar plus storage systems going online to help really rethink how the grid is managed in Puerto Rico. So yes, it’s a very important market for us.

Any comment that you put in terms of market share we have now versus what you might expect in 3, 5 years?

I mean we expect it to continue to go up.

Our next question comes from Colin Rusch with Oppenheimer. Please proceed with your question.

Thanks so much. Ed and Danny, this one is for you. Just around this last financing, can you talk a little bit about where you’re able to push the cost of capital a little bit lower and how durable those advantages are? Is it around things like construction, underwriting assumptions, performance of the systems in the field? Just trying to get a better understanding of what’s happening with the portfolio that’s helping enable that cost of capital advantage.

Yes. I think the last one was execution strategy. We had been signaling for a while that when markets move especially in a rising credit spread environment as markets move, the debt capital markets can be faster to move than the commercial bank markets and that kind of goes in both directions and the fact that we have very deep multiyear relationships that we’ve built and sustained for almost a decade. It’s really valuable to us in those periods of time. And we obviously appreciate that relationship capital as well. So I would say that was kind of the key driver and where today, spread up quickly in the ABS market move to where – to a similar spot to where we executed that bank transaction, just underscoring that markets can fluctuate more on the ABS side and on the bank side, where we have access to both at our scale. Allows us to be nimble and shift back and forth as we balance our deals throughout our multiple deals throughout the period of the calendar year

Just as Danny pointed out, understanding what’s happening in all the markets and setting in a strategy according with that and then having strong relationships when the market is tightening, being a respected leader with a long-term relationship pays probably more dividends, frankly, than in a fantastic market, and I think we benefited a little bit from that as well.

Okay. That’s super helpful. And then on the VPP technology side, obviously, there is multiple layers of control and software that you guys are working with. But I’m curious about any real meaningful innovation or hardware specifically that are – that you guys are seeing as emerging as really meaningfully contributing to the functionality and granular control that you need to really manage those assets or if it’s still really at the system will for you guys to really capture the value out of that system?

Yes. I mean the VPP software that LUNAR has, as I hit like it’s – we find it very strong. I mean make no mistake, we’ve been doing – Sunrun has been doing virtual power plant work for years when I was the executive of a utility we launched a virtual power plant like 7 years ago, like the technology has existed for a long time. It’s more the culture of the utilities that’s been the bigger challenge to be quite honest with you. But yes, the technology is improving and advancing. And I’m really bullish on what LUNAR can do in this space and in this context. So we’re really excited about it because, again, I see no direction but increased demand for these kinds of distributed assets to be used to help the grid of the future.

We have reached the end of our question-and-answer session. This concludes today’s conference. Thank you for your participation. You may disconnect your lines at this time.