Good morning, and welcome to Sunnova's Fourth Quarter and Full Year 2021 Earnings Conference Call. Today's call is being recorded. . At this time, I would like to turn the conference over to Rodney McMahan, Vice President of Investor Relations at Sunnova. Thank you. Please go ahead..

Thank you, operator. Before we begin, please note, during today's call, we will make forward-looking statements that are subject to various risks and uncertainties that are described in our slide presentation earnings press release and in our 2021 Form 10-K.

Please see those documents for additional information regarding those factors that may affect these forward-looking statements. Also, we will reference certain non-GAAP measures during today's call.

Please refer to the appendix of our presentation as well as the earnings press release for the appropriate GAAP to non-GAAP reconciliations and cautionary disclosure. On the call today are John Berger, Sunnova's Chairman and Chief Executive Officer and Robert Lane, Executive Vice President and Chief Financial Officer.

I will now turn the call over to John..

Our track record of executing consistently even through market uncertainty. Our ability to grow the number of services we offer to homeowners, which includes, but is not limited to, energy storage systems, electric vehicle chargers, generators and load managers.

Our cost disciplined approach, which consists of not just limiting spending in periods of high growth but also plans to invest more in software and automation to further reduce costs, reduce the need for more headcount and increase our operating leverage.

Our continued expansion of strategic partnerships, such as those recently announced with Generac, ChargePoint, Home Depot and Brinks. These strategic partnerships are the key to not only being able to offer more services to new customers, but to also upsell our existing customer base.

And finally, the earnings visibility of our business model demonstrated by the fact that 67% of the midpoint of our 2023 targeted revenue and principal and interest from solar loans was locked in for existing customers as of January 31, 2022. Slide 5 summarizes the growth in Sunnova's customers, battery penetration and dealer network.

In the fourth quarter, we added over 18,400 customers. While this was an all-time high for organic customer adds in a quarter, it did fall short of our expectations as our Q4 customer additions were negatively impacted by the late December uptick in the Omicron variant of COVID.

This uptick affected our dealers' ability to build their installation crews and slowed down utilities granting permission to operate. As a result, our organic customer additions for the year ended December 31, 2021, was just under 54,500, which is approximately 500 customers shy at the bottom end of our guidance range.

However, this delayed customer additions, which equaled approximately 2,000 customers have since been interconnected. As such, we are increasing our 2022 guidance for customer additions by 2,000 customers to a range of 85,000 to 89,000.

Our battery attachment rate on origination for the fourth quarter of 2021 was 22%, up from 19% in the fourth quarter of 2020, but down from 30% in the prior quarter. This recent decline was primarily driven by the regional mix of customer originations in the fourth quarter of 2021.

Specifically, in the fourth quarter, we had higher origination levels in markets with low battery penetration, such as those in the Northeast, and lower origination in markets with high battery penetration such as our Island markets.

However, we've seen our battery attachment rate and our unlevered returns bounce up so far this quarter as the regional mix has normalized. Much more importantly, our battery penetration rate continues to grow and reached 11% on a customer base of nearly 200,000 as of December 31, 2021.

Also, we have performed over 1,600 battery retrofit lives to date, a number we expect to double by the end of 2022. When it comes to dealer growth, we are focused on dealers of all business models and sizes from Tier 1 to Tier 5, from the snout all the way through the long tail.

As such, over the past 12 months, we've been able to add 379 dealers, sub-dealers and new homes installers from all peers, which brought our total dealer count to 814 as of December 31, 2021. With the recent surge in dealer growth, we now expect to exceed our target of 1,000 dealers by the end of this year.

This growth remains powered by the attractiveness of Sunnova's business model, our best-in-class technology platform, partnerships with the best equipment manufacturers in the industry, a broad suite of product offerings with all financing types and our brand's growing ability to deliver strong lead generation to our dealers.

Finally, on Slide 5, we have updated our information on customer contract life and expected cash inflows. As of December 31, 2021, the weighted average contract life remaining on our customer contracts equaled 22.4 years and expected cash inflows over the next 12 months has increased to $384 million.

Slide 6 lists out our recently launched service goals, which will provide our customers the level of service unparalleled in the industry and one that is a must for the Sunnova Adaptive Home.

Launching first in select key markets, we've established a goal to provide service within 72 hours for our solar-only customers and within 24 hours for our solar plus storage customers.

In addition to these service goals earlier this week, we launched Sunnova repair services, which aims for 50% gross margins and expands our best-in-class service beyond our current customer base to homeowners in desperate need of repairs to their solar systems, but who do not have a service provider.

Responsive 24-hour service, new and improving hardware technology to provide both energy supplies and managed energy demand and the Sunnova software platform will bring about a superior energy experience for homeowners who are frustrated with the increasing costs and decreasing reliability of their grid power provider.

We will accomplish the goal of the Sunnova Adaptive Home by accelerating the build-out of our software platform, continuing to build on our highly experienced professionally managed service team and improving our logistics capability.

Slide 7 illustrates this vision for the future, the Sunnova Adaptive Home, which will integrate a large suite of energy services to make clean energy even more affordable, reliable and resilient.

With the right mix of technologies from multiple equipment manufacturers integrated into a single Sunnova software interface, our customers will have the option when it comes to staying connected to the centralized grid or not.

It is this option that an increasing number of homeowners are seeking in the wake of bad regulatory policies, increased power outages and the rising cost of centralized power.

By giving our customers the freedom to use very little utility power or even cut the cord, they can eliminate the need for net metering and avoid solar taxes in the form of high fees from centralized power monopolies.

To make this a reality, we will roll out additional key strategic partnerships and continue to invest heavily in both our software platform and in redefining service to our customers. All of which can be accomplished while achieving our Triple-Double Triple plan as these investments are included in our forecast.

Before turning the call over to Rob, I want to briefly point out Slide 8. Over the past several weeks and months, these have been among the top areas of investor concern. We have summarized our positions with and responses to these challenges. We would be happy to discuss any of these in further detail during Q&A. I will now hand the call over to Rob..

Thank you, John. Turning to Slide 10, you will see the continued improvement in our results over the past few years. 2021 revenues are up 84% from 2019. Although over the same period, adjusted EBITDA increased 78% and the principal and interest we collect on our solar loans nearly tripled.

Thanks to these strong financial results, we were able to continue to produce industry-leading operating leverage. In 2021 alone, we reduced our adjusted operating expense per customer by 15%. We expect to further increase our customer margins through a combination of additional cost decline and increased cash flow per customer.

Slide 11 contains both our gross contracted customer value or GCCV and net contracted customer value or NCCV. As the slide reflects, we are experiencing significant increases in these metrics.

We think of NCCV as our blowdown or roll off value as it only includes locked-in contracted cash flows on customer contracts with a weighted average life of 22.4 years and excludes any value for growth, renewals, upsell, state or national incentive appreciation or other uptimes.

Our NCCV represents what we could conservatively achieve in cash flows given we have locked in our debt terms over the course of the next 22 years. Another way to think about it is NCCV represents a discount of $8 billion to $9 billion in customer payment, absent any upside less debt and tax equity.

This has been discounted by locked-in interest expense, a conservative estimate of service costs and a value loss estimate for default.

We continue to be in a 4% discount rate for our GCCV and NCCV as conservative as our weighted average cost of debt for 2021, which represents approximately 100% of our fully burdened costs with each new customer, equal to 2.7%.

Additionally, the existing long-term cash inflows that make up our NCCV calculation are locked in and thus not impacted by rising interest rates. In just 3 years' time, NCCV went from $957 million as of December 31, 2018, to $2.1 billion as of December 31, 2021.

The amount of NCCV at the end of 2021 equates to approximately $10,800 per customer and $18.56 per share, with cash on the balance sheet, making up $3.46 of the per share amount. Slide 12 summarizes our recent financing activity and liquidity position.

In 2021, Sunnova raised over $2.5 billion, highlighted by $876 million in new and refinanced securitizations, $437 million in new tax equity funds, our restructured loan warehouse facility of $350 million, $575 million in convertible debt and a $400 million green bond, a first for the residential solar industry.

Additionally, while we have been raising capital to grow the business, we have also been paying down previously issued debt to the tune of approximately $121 million in principal in 2021. Turning to this year. We have already raised $150 million in tax equity funds and priced our first securitization of 2022 just last week.

This latest securitization was sized at $298 million, and despite recent concerns of a rise in interest rates, was able to achieve a 3.1% blended coupon, again, below our PV4 discount rate for NCCV. As a reminder, our capitalization strategy locks in our asset level debt, and there are no maturities on our corporate level debt until 2026.

Our total liquidity as of December 31, 2021, was $831 million, down from $951 million as of September 30, 2021, and up from $386 million as of December 31, 2020. This recent decline in total liquidity was driven by an increase in working capital during the fourth quarter of 2021 to support our growth plan.

Included in these numbers are both our restricted and unrestricted cash as well as the available collateralized liquidity we could draw upon from our tax equity and warehouse credit facilities. Given available unencumbered assets as of December 31, 2021, this available collateralized liquidity equaled $439 million as of December 31, 2021.

Beyond that, subject to available collateral, we had $381 million of additional capacity in our warehouses and open tax equity funds. That represents over $1.2 billion of liquidity available, exclusive of any additional tax equity funds, securitization closures or warehouse expansions, including transactions closed in 2022. Turning to Slide 13.

We have updated our sources and uses of cash for 2021 actuals, reaffirm the previous 2022 forecast and made minor adjustments to our 2023 expectations to reflect our current forecast. Our 2021 actuals came in mostly as expected with the exception of lower-than-anticipated investment in new systems.

This variance was due to actual EPC cost being lower than anticipated, which reflects higher-than-expected unlevered returns and a delay in battery and other upsells.

On Slide 14, you will see for full year 2021, our fully burdened unlevered return on new origination was 9.1%, while our weighted average cost of debt over the same period was 2.7%, resulting in an implied spread of 6.4%.

The slight dip in our fully burdened unlevered returns compared to the prior quarter was driven by the same regional mix that impacted our battery attachment rate since battery-enabled systems generate a higher fully burdened unlevered return, any decrease in attachment will put downward pressure on our return for that given quarter.

As John mentioned earlier, we have seen stronger battery attachment rates and returns so far this year. On Slide 16, you will find our 2022 guidance. As noted earlier, we are raising our 2022 customer addition guidance range by 2,000 customers to bring our targeted additions for this year to between 85,000 and 89,000.

We are keeping our financial targets unchanged from where they were set in our last earnings call. We expect to capture 12% of our 2022 adjusted EBITDA, together with the principal and interest we collect on solar loans in the first quarter, increasing to 25% in Q2, 32% in Q3 and 31% in Q4.

We expect our customer additions to occur more evenly with approximately 45% of our forecasted additions happening during the first half of the year. As of January 31, 2022, 81% of the midpoint of our 2022 targeted revenue and principal and interest we expect to collect on solar loans was locked in to existing customers as of that same date.

I will now turn the call back over to John..

Thanks, Rob. In 2021, we achieved scale and origination and captured very healthy margins. We delivered strong financial and operational results and grew our business by expanding into new service territories, increasing our product mix and offering more services to our customers.

For 2022, we expect to see continuing improvement in our overall supply chain, especially batteries, and that will allow us to clear our battery backlog no later than April of this year. Our focus on investing in our software platform and automating our operations will further improve our operating leverage and drive additional cost reductions.

As centralized utilities rapidly increase their rates, we will be able to provide homeowners significant savings while providing an energy service that is more reliable, more resilient and more environmentally sustainable.

As of January 2022, our customers are saving an estimated 23% to the respective utility rates, and we estimate that percentage of savings to increase even further as utility rates are expected to rise an additional 6% or more over the remainder of this year.

We also could see a scenario where dramatically higher hydrocarbon prices could push some utility rates higher by 40% or more this year alone. These rising utility rates are further stimulating our growth as even more homeowners look for a better energy service at a better price.

More importantly, there is a relationship between how much consumers are saving relative to the utility rate and the default rate of our contracts.

It should be noted that because the default rate affects the value of our customer contracts, but never the debt balance, a relatively small movement down in the default rate will materially improve total cash flows to Sunnova.

Even with the annual price escalators embedded in many of our PPA and lease contracts, which provides us with a significant increase in our expected revenue over time, we are still well below the anticipated and realized utility rate increases. As Rob mentioned earlier, we priced our first securitization in the year last week.

The pricing, which puts the implied spread between our fully burdened unlevered return and our cost of capital somewhere in the low- to mid-500 basis points range, which we previously indicated is more in line with our long-term targets and internal budgeting.

With that said, given that we believe we have the lowest cost of capital, thanks to our strong balance sheet, and we have been and will continue to instruct our dealers to increase pricing to customers in response to the rapidly rising utility rates I mentioned earlier.

We feel strongly our implied spread will be back in the 600 basis points range in the coming weeks and months. Despite our position as the industry leader in growth, we remain focused on optimizing margins and volume in order to maximize cash flow in NCCV per share value creation.

Finally, even with a potential recession on the horizon, we are still confident in our ability to achieve the objectives under the Triple-Double Triple plan.

Remember, we are an energy company that provides an essential service to high credit quality residential customers, a service that is needed in any economic environment and one that will get even more valuable against the backdrop of rapidly rising energy and utility prices. With that, operator, please open the line for questions..

. Our first question comes from Philip Shen at Ross Capital..

First one is on your margin outlook ahead. You had an NCCV per customer of $10,800 in Q4, up for Q3.

How do you expect the NCCV per customer to trend by quarter in 2022?.

Phil, this is John. Yes, we expect that, as we've said in the past, that the NCCV will be a little bit tough to predict quarter-over-quarter, but we've given a very clear projection in terms of the end of 2023. Obviously, a good chunk of that is going to accrete this year.

And we do see a pretty solid movement up in that value creation as you move forward in time. On a per customer basis, that depends on the mix of the types of contracts and so forth.

But we continue to see that the long-term projection of moving on a per customer basis by the end of 2025, up from around the $10,000 that it was now $10,800, which is a pretty good jump, as you pointed out, quarter-over-quarter, up to that $18,000 to $20,000 range by then.

We obviously took a big step forward on that this past quarter, and we continue to see that be the trajectory of the NCCV per customer. So investors buy shares, not customers. And so we focus more on the shares, and we're pretty confident, obviously, in the NCCV per share and have laid that out. And it's -- we're definitely at an inflection point.

We passed through that last year. We've got enough scale. We generated a tremendous amount of margins, cash flow all the way to our first recurring operating cash flow positive year. And we see that moving up substantially as we laid out both in '22 and '23 and obviously beyond.

So the power of the model is really starting to inflect upwards in terms of value creation on a per share and per customer basis..

Great. You highlighted reaching 1,000 dealers by year-end of this year. Some of your loan peers seem to be growing substantially off of very large basis and appear to be winning a number of dealers.

Can you share your thoughts on the competition around winning dealers? I know recently you recently unveiled a bunch of new softwares and service for dealers at your recent dealer conference.

But can you comment on the overall competitive landscape on that front? And then related but separate, can you also comment on the mix of lease versus loan that you see ahead for your business in '22 and then how we expect that landscape to shift as well?.

Certainly. So the competition is -- we've been separating ourselves from the competition for quite some time. I will say this that we needed some improvements done in our processes in our software. And so like I've said previously, I'll take that hit, if you will, and own that -- but obviously, we've been doing quite well, right, on the growth rates.

We continue to accelerate at even a large base. But there's a lot that we're doing. There's a lot that we've already put out in the marketplace for our dealers, and there's a lot more coming, I mean a ton more coming in both the software automation, process change, products and so forth.

This market really in this industry is really transition into something that's much more service oriented. As you start adding all these things that we've now become commonplace that we were one of the first ones and not the first one to really talk about the Sunnova Adaptive home and what that meant.

The inclusion of batteries and load managers and generators and EV charging and so forth, all of this, it's accelerating. And then the macro backdrop of $100 oil, I think, going higher, natural gas rates moving well north of $5 a NIM, I think going much higher.

Utility rates going up by multiples now in terms of multiple rate increases even within the single quarter as we started to see.

And all of these things are going to continue to trend towards having the full package, if you will, as each customer wants more and more to be away from and shielded from these dramatic economic shocks of energy and looking for more certainty and reliability as well. So as we move forward in time, service is going to become more and more important.

We've laid that out, and we're seeing that real time in the marketplace. So that's a key differentiator for us. And you saw that we, earlier this week, launched out repair, Sunnova's repair service so that we can take on all those folks that were abandoned by others and competitors in our space. We're going to take them on.

We're going to make sure that they're taken care of and that's obviously additional recurring cash flow be able to avail ourselves of as well. And that's, again, part of our long-term plan. So we -- back to the dealer side, look, clearly, we're going to achieve that 1,000 dealer target well ahead of plan. And so I don't see us slowing down at all.

We're seeing more dealers enter the space. Witness what's happening with the generator type dealers and some of the other EV charging and so forth. There's a lot of growth in the dealer base, just appeared in the industry.

So look, I think there's multiple winners that are going to happen in here, I've said that from day 1 and so we're not putting ourselves out to be the only winner. I think that's crazy.

And I think there's more than enough out there for all of us to get, but we clearly are separating ourselves from the pack, and we'll continue to do -- to focus on what dealers need and make sure that we do a good job for them..

One more, if I may here, John. I know you had a recent ABS price. I think the pricing was very much in line with what's going on with other ABSs in the marketplace and I know it's up versus your fall deal. But it's the overall macro risk that I understand is the reason why it priced 35 points higher for tranche A.

But in the face of rising grades, what's your view on your ability to maintain PV4 ahead?.

Yes, I'll turn that over to Rob to explain exactly what we see as NCCV per share or PV4.

Rob?.

Yes. Thanks. And I think you made a good point about just sort of -- when we take a look at our margins and how we price, we're always looking at how the interest rates are moving and how the ABS market is moving.

The fortunate thing for us is everything does seem to move together, interest rates, utility rates, all that is moving all in the same direction, which gives us room to increase our price, and increase our fully burdened unlevered returns to help make up for the rising interest rates that John was talking about.

But really, when we look at NCCV, at the end of the day, we're discounting a lot in cash flows at the end of the year. And what I mean by that is that we talked about having about $384 million of cash inflows over the next 12 months and that that's recurring cash flow stream over the next 22.5 years.

If you look at that, that ends up being somewhere between $8 billion and $9 billion of nominal cash flows. You put that against $3.25 billion of debt, give or take, and about $1 billion of interest in tax equity payments over time. And after that, what you're really left with is a number that's 2 or 3x what we've listed is our NCCV.

So then what are the other components there? There's a service cost embedded in there, we think that's somewhere around $0.5 billion of service cost, and then you have really our default risk. And what ends up happening with that, which is another maybe call it $1 billion of default risk.

That is a number we've been able to bring down steadily over time before we had this huge spike in utility rates that is up and really going up and to the right, incredibly sharp. Really, it is anyone who is using our system is saving significantly more money by using our system. There's no economic rationale for them not to pay our bill.

And by keeping all of our dunning processes in-house, we've been able to really get that number down over time by itself. Just anecdotally, folks that asked us on our latest ABS, can we please break out our Puerto Rico default and delinquency and recoveries, we said, "Absolutely." We love those numbers.

They're just getting better and better every year. And so at the end of the day, you wind up with a number that makes NCCV look incredibly conservative at a PV4.

And you're right, that securitization that was a little bit higher, but that was still all in, including the portion that we allocate towards the high-yield bond, we're still under 4%, comfortably under 4%. So the way that we're looking at all of our capital is being covered -- all our capital spend is being covered by less than 4% cost of capital.

So the PV4 remains, in our view, a very conservative view and a very punitive view of how we look at our asset base. And by just applying cash flows that are nominal against nominal cash flows, you would still look at a number that's much, much higher over time. And that's just for what we added customer....

The next question comes from Julien Dumoulin-Smith at Bank of America..

Congratulations on your continued success here. Perhaps if I may, just going back to the cash deployment expectations. Obviously, you all have been very vocal about your views on the stock, but more importantly, evaluating actively corporate finance decision.

Can you talk a little bit about the $300 million that you still have outstanding as you look to '23 and/or any other proactive steps you might take sort of cognizant of the backdrop here?.

Yes. I mean, Julien, the way we're looking at that right now is that the way that we viewed our high-yield head is that we have plenty of room to increase that level. Even today, we would look at 2023 is probably -- that will be another good opportunity to look at the high-yield debt market first. That is one option that we have.

The -- we continue to have folks who continue to approach us about our -- some of our loans and looking at other opportunities there. One thing that we've seen is that -- and John talked about the Sunnova Service is, really, something where we see a lot of opportunity. We very conservatively forecasted that.

But that's a very high-margin business that could reduce that capital need over time. When we look at our corporate forecasting, the goal is to get to a point where we're not using any more corporate capital at all.

And as we look forward in our corporate forecasting, really, with the increase in the recurring operating cash flow and even with our very high growth rates, we're really reaching that inflection point here over the next few years where we would be able to grow without any additional corporate capital.

My goal and sort of one of the reasons why we left that number where it was is for that hopefully to be the last opportunity of the last time that we go to the market for corporate capital at all. And there are many things that we can do before we get there that might decrease that, including all the way down to 0.

For right now, we don't want to get out over our skis in where the market is. We have got a lot of really great initiatives that we're working on that we think is going to create a lot of value. And by value, I mean cash. And so we think that, that needs to be mitigated.

But at the same time, we want to remain responsible with the balance sheet and make sure we remain the best capitalized company here in our entity..

Got it. Excellent. So it sounds like a lot of non-equity options on the table for that corporate raise eventually..

Very much so..

Excellent. If I may, just on the current year, you've discussed, if I understand, a 2 separate updates in the latest quarter that not only have you elaborated on this repairs effort, but you've got this Generac partnership as well.

Doesn't that, in theory, add to your '22 prospects? Can you talk about sort of the mix shift in '22? I mean obviously, you kept intact a lot of your targets here. Can you elaborate a little bit. Those both seem like positive incremental business opportunities about contracts, obviously, attach rates here moved a little bit lower.

So how are you -- or perhaps another angle of the NIM pull forward? Can you talk about the composition of guidance expectations within '22 as you reaffirmed here?.

Yes, Julien, first of all, and I think I didn't answer Bill's other question previously. I think the loan lease/PPA mix is basically about where it has been for the last couple of quarters, maybe trending more towards, a little bit more towards lease and PPA.

And we do think that, that could trend a little bit back towards lease PPA over a period of time. You pointed out our partnerships and I would also add into that the backdrop of rapidly rising utility rates.

I mean I don't think enough emphasis at all has been placed on what's happening out there to consumers as far as utility rate increases, those that have already happened and those that are coming but they're shocking, absolutely stunning numbers. Some of what we're seeing right now is 21% already this year, probably more coming.

There could be as high as 40%. I think that, to your point, are we being conservative in our growth? The answer is yes. These partnerships are going to generate a lot more customers.

But in terms of where we want to see how these partnerships really get going and moving over the next few weeks and months and then whether those customers fall into this year or next year, but you're right, there's definitely some upside there. And then the overall energy backdrop is providing much more upside.

I mean I'll say this, I'll take higher utility rates, especially these as has as they're moving up over any day over any sort of NIM or ITC or anything. I mean that just helps us tremendously across the financial metrics that we have and really gets customers focused -- potential customers focused on the service that we offer. So you're right.

It's a fundamental set up for even greater growth..

Right.

So you basically let these businesses develop, and we'll hear from you accordingly?.

Correct, correct. I think at this point in time, given the share price, I mean, we've gone from crazy to the absurd. Raising guidance on growth and earnings more is just what does it really get you.

I mean, they get it really goes down to looking at the equity valuation and what kind of actions can we take to try to get the equity valuation more back up. I mean we thought clearly, the Board and I thought that the equity valuation was cheap in the 40s, certainly, where it is sitting now is just absurd..

The next question comes from Joseph Osha at Guggenheim Partners..

Thanks for your comments. I've got 2 completely unrelated questions. First, your comments on a post NIM world are interesting. I'm wondering if you look about how you allocate your own source and how you engage dealers and so forth. Are you looking to maybe shift some of your efforts away from high NIM and volatile NIM markets towards other markets.

Does this impact your strategy at all?.

Joe, no, it doesn't. When I founded the company, now bordering on a decade ago, I always wanted to have an ability and the vision is that you would be able to run off the utility system, whether you -- hopefully, we have a good local policy where you don't need to do that.

But I felt very strongly that the technology, mainly surrounding solar and batteries with some software and some other hardware pieces to manage both the supply and the demand. I felt like we would be able to get there over the course of a few years.

And I feel more strongly about that, again, as rates rise and reliability drops, there's more and more financial reasons for consumers to push ahead and move in that direction.

What that could mean is just using very little utility power to not needing -- pushing back power at all under the grid, all the way to having to operate off grid, which more and more consumers are saying they at least have to be able to do for a few hours in a few days and that's spreading.

But our geographic reach, as energy prices rise again, we're seeing some moves in some of these markets, and we'll continue to see them on utility rates that pop up from it's not really that interesting to us because the utility rate was so low to becoming something that's really interesting. Texas is a great example.

There are other rate movements that are going to be happening across a multiple number of states that have really not been that big markets for us. So we're seeing -- we're going to see a mushrooming of geographies that make a lot more sense for our industry and even having the battery cost laid in on there. So this is a long-term strategy.

It's -- everything that's happening with debates on NIM and so forth in California and other states, that is something we entirely anticipated..

Okay. Okay. And then the second question, I'm hearing a lot of words like inflection point and rising cash generation and more coming to the market for corporate capital or stuff like that.

Wondering if you can update everyone on what sort of the longer-term path is towards return of capital to shareholders?.

Yes. Good question. I'll answer it as direct as I can as always, Joe. Look, the Board and I recognize that our equity valuation is substantially undervalued relative to our fundamentals, especially with regards to our contracted cash or roll-off value, as Rob mentioned.

As we have consistently met or exceeded our financial performance over the years, and we expect to continue to do so as we've laid out a Triple-Double Triple plan, which is a priority for us in terms of maintaining that execution, and we're well, well on our way to do so, witnessed the 67% of 2023 locked-in that I mentioned in the prepared remarks.

We have had and continue to have discussions as a Board around our options to create long-term value for shareholders. And those options that are being discussed include but are not limited to, share buybacks and the establishment of a long-term dividend.

Our strong cash flow right now, as Rob laid out, you get -- just to dig down into the numbers and look at this in a very objective way. The cash flow is strong enough to support these kind of endeavors.

And once we complete the Triple-Double Triple plan and certainly, any time between now and then, we certainly have enough of the pretty -- very, very substantial cash flows to be able to do some things like this in terms of returning capital to shareholders. So we're on it, we're focused on it..

The next question comes from Sophie Karp at KeyBanc Capital..

Congratulations on strong results there.

Could you maybe talk a little bit about value stacking for a customer as you move more towards concept? And what I mean by that is we all know some idea you, but how much more is the customer work to you when you start adding all those other components? What is incremental value in charger or in all the other components that you outlined on the slides where you're going to plan to integrate into the Adaptive Home solution?.

Thanks, Sophie. Yes, I think what we've laid out for over, I guess, a couple of years now and reiterated it in our last call back in late October, is looking at the NCCV per customer, again, moving from $10,000 to $10,800 and we see that moving up to the $18,000, $20,000.

And embedded in that, a large part of that is -- are these additional opportunities. So EV charging, both the hardware and some service away from the home that we discussed in the past, the generators, the additional batteries that we're more upselling.

And then in addition to that, there's a lot more than I anticipated of additional panels, inverters and so forth as these systems expand as people get electric vehicles, they need more power. You've heard some commentary from some others in the industry to this and I can confirm that.

I'm actually surprised at how much that's happening in our existing base, which is obviously tremendously positive. So if anything, I think we've been conservative in this per customer world about how much more value we can get out. I don't want to go into because it does vary quite a bit about how much value can go in from each of these pieces.

I think I have made some comments in the past that I think somewhere between 1/3 and a half of that value is going to be the batteries. And then obviously, generators provide a lot of value to us as well.

And then when you look into some of the EV charging, that's going to be of less value, right? But then you start adding more panels and you got load managers in there. That can add a pretty good chunk if frankly, I hadn't really contemplated to be as much of a part of that.

So again, the numerics are -- we've moved this up from $10,000 to $18,000 to $20,000 over the next 4 years or so, and we took a big step last quarter, moving that up for just shy of $11,000 a customer..

Got it. And then also along continuing, I guess, along the same line, right? You talk about eliminating the need for net metering and I think positive considering what is happening with net metering. But, again, I'll push you a little bit further and say, are there any markets in the U.S.

where grid deflection is actually a viable choice right now for our customers given the technologies that are available right now in the market? And if so, what are those markets?.

Well, I think what you're going to see -- I know what you're going to see because we've already seen it in some of our markets. So any time you have worldfire generation in the market, so like Hawaii does pretty well without NIM.

We also have some other island markets out there that have done quite well with whether they choose to avail themselves of NIM or not. Basically, they don't really use it that much because they're using so much batteries because the grid is in such bad shape.

But I will tell you that I think in terms of markets like in California and the Northeast and really growing in the South as well. When you start seeing the utility rate move up so much, that starts to buy you a lot of batteries. And so look, I think that over the long term, this is where we're going with NIM.

And that's an appropriate way to view this is I think, for instance, on the California 3.0, we need a few years as an industry to get there, and we need a glide path, and that's where the industry has been from day 1, right? And what we're laying out here is that glide path is real.

So as long as we have good policy, not the policy that came out in the proposed decision, but good policy in California, then I think everything syncs up and we start getting a higher storage attachment rate, much higher. We start getting in some of these other new technologies on load management and so forth.

And we're not going to -- NIM will not exist in the way that we know it today, several years down the road. So this is -- it will vary by market, Sophie, but it will also vary by the utility prices.

So if you tell me that utility prices are going to be 20%, 30%, 40% higher, which is kind of looking like where it's going at this point, at the end of the year, and those may be sustainable given the geopolitical situation that we're involved now in, in the globe, then I think that at that time where you're not needing NIM as we know it, is going to rise much sooner than everybody anticipates..

The next question comes from Brian Lee from Goldman Sachs..

I had a few, I guess, more modeling and financial-related ones. First off, if I look at Q4, it looks like the purchases of property and equipment spiked a bit after being pretty stable through the first 3 quarters of the year and then cash burn correspondingly increased the decent amount in the quarter.

So did you guys build any inventory into year-end? And just kind of how should we think about the cash balance specifically here in the near term? Should we see that swing back more positive as you dip into some of the available liquidity, i.e., does the tax equity and the securitization proceeds, do we see those in Q1 numbers and so cash kind of bounces back up here?.

I think what you're going to see for a little while is sort of continued moderation in the cash. If you look at Q1 that's traditionally been -- from an operating cash flow that's been on lower operating cash flow quarter.

What you saw happen though with the assets themselves is that a lot of assets were put into service and a lot of assets were installed. And we generally make our stage payments to our dealers when assets go -- when assets are fully installed and when assets go into service.

And there was a huge push at the end of the year to get assets both installed and in service. As we talked about in the prepared comments, we missed really because you had we're having -- we have a bunch of installed assets that weren't yet put in service.

So a lot of folks were given the payments, usually it's about 80% of their cost in the fourth quarter. And then if they were actually able to put the asset into service, they get maybe 100% of their cost put in that quarter. So it really has to do with the timing of the installation.

So any time you see us put a whole bunch of assets into service, it should really follow that we have in that same quarter, a much higher purchases of property, plant and equipment when you see that in -- how we classify that in our balance sheet. At the same thing, you're going to see the customer notes receivable.

That's on a slightly different timetable because we don't actually purchase the note receivable until the asset goes into service. So I think you could expect to see that number sort of go up a little bit, but it didn't go up as much because the assets were installed but not yet put into service.

So it's -- it gets little wonky and bounces around a little bit. We will expect to see the cash flow, I would say, moderate throughout the year. I don't expect it necessarily the cash flow liquidity to go up.

That is why we are looking at 2023 as an opportunity to add some additional corporate cash and high-yield debt in lieu of other financing sources. But that's really when we sort of reached that inflection point where the amount of recurring operating cash flow that we're bringing in starts to moderate the growth of our working capital.

The last thing I'll say is Triple-Double Triple is a very aggressive growth plan and a very achievable growth plan. But growth is going to be something that causes a slight delay in working capital. Right now, we originate assets profitably. We are creating recurring operating cash flow.

The only thing that is really using that at this point is our growth. It is the timing of working capital. The timing of when we can fully securitized and receive payments and get our full tax equity payments for projects versus how we're making our stage payments to our dealers for those projects to help bring them into service.

So with the incredible growth we had last year, you would expect that, that would have been a drag on cash flow, but it catches up. And that's part of the reason why we look forward to the opportunity to go back to the question that Joe was asking earlier about how do we then try to get some of this capital back to investors.

We have that opportunity here, we believe, in the coming years..

One other thing I'll add to that, Brian, is that another aspect of this is we did have a surge battery deliveries that we then installed for what Rob is saying. And so there's a reflection of that. So that's probably the next question you'll ask us.

And then when you look at so far in Q1 on the battery deliveries, what's that trend look like because this has been a big concern, right, of everybody. And it's much better than even Q4. So we're seeing I laid out in the prepared remarks, we'll have our backlog cleared by April. We feel pretty confident on that.

So that's part of this is catching up with all these batteries, and that's obviously a tremendously good positive story..

All right. That's super helpful context. I guess that kind of leads into my second question, John and Rob, around liquidity and the need for corporate capital. Do you -- I guess the simple question is, do you need to pull that forward in at all because what I'm hearing you say is, in the near term, cash flows are going to be moderate.

It sounds like there's still a little bit of burn. The last time you guys -- you're at $240 million on the cash balance, last time I think you guys are the mid-hundreds earlier in '21, you did the convert in the green bond to give you some breathing room in terms of the balance sheet. And so a couple more quarters at burn, maybe you get back there.

And then if I look at the Slide 13, where you lay out your liquidity forecast, I know you still have the $300 million corporate capital in 2023, but you do have another $100 million of burn relative to what you laid out the last quarter when you gave us this update.

So just kind of putting all that into context, does that need to pull forward at all? I'm just trying to think about all the moving pieces here with cash where it's at and a slight more burn in '23 per year updated forecast.

Just kind of how you're thinking about maybe needing to pull that forward a bit?.

No, it's an emphatic no. I mean we do not feel the need at all part of the reason and part of the sizing of why we did. The corporate capital that we did last year was let's give ourselves, as you said, that grieving. So we're not having these questions ease the base in '22 that -- and that's really how that would size.

Now if you take a look at 23%, and yes, you're going to see some movement there, but it really has to do with the timing of how we are doing our securitizations and the sizing of our securitizations. Basically, the way that our corporate model works is that once we reach critical mass to do a securitization, it triggers the securitization.

So it just has to do with how many securitizations we were planning to do in '23 versus how we're planning to do those securitizations in '24. And what you can also see is that there was a little change in the -- an implied change based on the net processing tax equity and what we anticipate the loan growth to be relative to the TPO growth.

And so that's also going to affect when do we actually do the timing of the securitization. And that one is just now a delayed -- one of the securitizations we are anticipating to do in '23 now we think we end up doing in '24..

. The next question comes from Maheep Mandloi at Crédit Suisse..

Just following up on Brian's question. On the customer creation cost, the costs fell below 22,000 and Q4 versus 30,000 in the last 3 quarters.

So is that related to the timing thing which we're talking about? Or is there anything else? And for 2023, also we saw some of that CapEx needs kind of come down, but are you expecting higher cost reductions in '23 as well?.

It does have to do with that. But again, that -- as you know, that's not really a metric we're focused on. We're focused on the return. We're trying -- for us, the question is if we spend $1, we would need to make sure that we're making a heck of a lot more than the dollar when we do that.

So to your point, if we have the delays in the battery installs, that's going to have an impact there. But ironically enough, solar battery-only customers. So a lot of these customers will come back in and we do retrofits for them, that's going to end up being lower.

I think that you're going to see is a lot of these partnerships end up coming up here as we do a lot more with our friends at Generac and elsewhere. We had the opportunity to one-off generator sales or to just do single upgrades to folks who have -- who may have started their solar system with someone else.

Now they need an EV charger and that's going to require more -- a few more panels and batteries. That's going to be a lower per customer creation cost as well because they've already got a solar system. They had it without service. Now they get serviced as well. But all of those are going to sort of come into effect.

And we're sort of -- when we're building our model, we're taking all of that into account. But at the end of the day, were guided by the returns much more than we are on what are we actually spending per customer..

And Maheep, this is John. What I would say is that's why we've consistently said that you need to look at the value creation per share.

Keep us honest on stock issuance for whatever purpose and look at are we creating value per share? If you're creating an NPV per customer, and it doesn't show up in the bottom line, something is not right, right? And ours is creating a lot of value on a per share basis..

Got it. And just last one for me. In terms of the growth guidance, I know you talked about all these new partnerships not being baked into your guidance here.

But just in terms of California, can you just talk about or remind us how much are you expecting? How much of that incremental NCCV per share or growth is coming from California in '22 and '23?.

Yes. Right now, it looks like that 3.0 decision is going to be pushed off indefinitely. I don't know how many months, but it is being measured in months from what is being set out there. Obviously, they need to spend some time and I think will and get this right.

When you look at it, our percentage of growth coming from California has been staying consistent. It probably does go down a bit over time as we add these new geographies, it's just math. But we continue to see growth in the overall California origination. So we're much lower than everybody else in that regard.

But what I would also say is, as you sit here today, when you look at 2023, if you look at roughly about 195,000 customers moving towards in the Triple-Double Triple plan that we will execute on, and we have plenty of capital to do so, as Rob laid out. When you look at this, we need about 205,000 customers, right, to hit that plan.

We have about 1/4 of that today, either in service, installed or under contract. So -- and we laid out that we have 67% of our cash inflows for 2023 already locked in, too. So if you're thinking that we're pretty far down the path of achieving that plan regardless of whatever happens in California, you're right.

And so look, the job here is to execute regardless of what happens. That could be COVID, it could be anything else. Our slight miss in customer count, I own that. we didn't try to do anything other than saying this is what we were shooting for the midpoint. Everybody knows that, and we slightly missed it.

Now the point here is, it does not affect our EBITDA and our cash flow. As you can see, we exceeded those. And that's because of the conservative nature of both counting customers and our recurring cash flows. That's why this capitalization strategy is the strongest one and is the right path.

And so when you look at here about any sort of issues with California NIM and so forth, we're going to navigate that, are navigating it and we're well ahead of plan even when you look at the Triple-Double Triple looking towards the 2023 time frame. We're in good shape..

The next question comes from Mark Strouse of JPMorgan..

I know we're running over time here, so I'll stick to one. Just want to make sure that I'm clear on your pricing strategy when you're talking about new contracts.

And when you mentioned getting back to your 600 basis points return, is that dependent upon you increasing pricing, kind of the same magnitude as what your local utility retail rates are increasing? Or are you able to get back to that spread with an increase that's lower than the utility rate.

And therefore, that -- I think you said a 23% customer savings on average, that number could actually go higher..

Yes, Mark, Bottom line is we've assumed multiples as everybody else has, clearly, multiple Fed rate increases. Although given the events of last night, and I'm not so sure what ends up really happening here.

More and more economic stress is occurring, right? And as I ended with my comment, I have for a while, as I'm sure you're aware, viewed that we're heading into a more economically challenging environment to, I think, the outright recession and brought on by high energy prices and maybe some overreaction on the part of the Federal Reserve.

And so with that said, we built in the higher rates. And when you look at the utility rates, they're going to go up much, much more than any sort of interest rate increases by definition. And so we have already been pushing our dealers to raise rates in consumers. So if you want to know who's going to pay more, it's going to be the consumers.

Whether you look at all the equipment manufacturers, raising price, who's going to pay that, the consumers. Now they can pay it. And increasingly, you don't have to even get close to the utility rate increases to make up that differential, right? And so we're doing -- encouraging our dealers to do that, have been.

We've already started to raise some price. It's going to -- we're going to raise more price as we move forward in time and who's going to pay more is the consumer. Now the discount, I think, grows.

So I think that there is an ability to pay, and this is the part that it appears the equity markets are totally completely missing is that the utility rates will go up much further and faster than the interest rates when you look ahead and the consumer has a higher willingness to pay and we'll even end up with, I think, a better deal than what they have now on top of having to pay more, just given the utility rate increases.

So we're already doing it. We're going to expand those margins back. And we're going to make sure that consumers are still taken care of and they're going to have a pretty healthy discount to say the least.

I mean some of our -- a lot of our customers are growing a number of our customers, our customer base are starting to pay half, half of what the utility is charging. I mean it's unbelievable..

The next question comes from Sean Morgan at Evercore..

I just wanted to drill down a little bit on the attach rates. So pretty marked drop-off from 3Q to 4Q, still, I think, decent at 22%. But just wondering, you said in the prepared remarks there's geographic mix issue with the Northeast and maybe the territorial island is doing a little bit better in terms of the attach rates.

And I'm wondering, is that strength in those regions? Or is this really a reflection of uncertainty in California with consumers deciding that they don't know what NIM will look like and effectively delaying decisions on the capital outlays for storage because they're concerned about the rules..

Sean, no, not at all. We're actually seeing, as I mentioned in the comments, and Rob mentioned a higher uptick and take rate on storage.

As we've been able to go back to our dealers and our existing customers and say, "Hey, we have batteries now and more and more are coming." And it's a very dramatic increase in availability on the storage side as well. So absolutely, that's not the issue.

What happened was is that candidly, some markets that have 100% attachment rate like our island markets, had a blowout year. And at the end of the fourth quarter, a lot of those folks have, basically, got to enjoy the holiday a little bit.

And didn't increase near as much as the -- in particular, the Northeast, we saw just a massive surge in volume in the fourth quarter there. And that attachment rate is very low. And we're working on it and we're pushing the dealers to go out there and get the storage. We're giving them confident that we have the supply as they've laid out.

And so we see that ticking up as well. But it was simply just one region just went way up in the quarter and one region just kind of stayed flat to -- went down relative to third quarter. But again, we see that normalized already here in this quarter. What I would also say is that we keep pointing to the penetration rate for precisely this reason.

It is too volatile. We're the only ones that give out the quarterly origin -- on origination basis the attachment rate. I'm not going to pull it back on you guys, but it will be volatile. I've said that over and over, look at the penetration rate, and that's been much more consistent over time.

And yes, I still think that storage attachment over the next 4, 5 years will go north of 50%, as I've laid out..

Okay. And then I think in the prepared remarks, you said the opportunity to safe harbor some inventory related to ITC, but then I guess, of course, if the ITC goes through, then you'll be buying equipment in advance that you would risk obsolescence.

So how aggressive would you be in sort of procuring some inventory ahead of time with balancing the expectation that the ITC should hopefully get extended at some point?.

Yes. We're not acquiring equipment for safe harbor purposes right now, so that was probably a misunderstanding. What we're doing, and we could do that, and we certainly have enough available capital to be able to do that. But look, I'm quite confident that something is going to get done here. Look, we're in a full-blown global energy crisis.

We've shifted over from looking and talking about dealing with the calamity that is climate change. We now have a full-blown energy crisis here, and it's global.

And so I think something is going to happen here where there's much more -- even maybe even some bipartisanship that's put in place and an energy bill gets through Congress at some point sometime this year. Now there's not -- those are early days in that kind of idea forming, but it's shocking to see what happened last night, crude trading $100.

I think that the realization that we're in a full-blown energy crisis is starting to rapidly creep in to members of Congress on both sides of the aisle. And I think we're going to get something done. Whether it gets done sooner rather than later.

Obviously, that would be best for us and best for everybody, frankly, in the country, i.e., voters, but even if it takes to the end of the year, we'll be fine. So I do think -- and my confidence in that ITC extension has gone up because of the energy crisis. And -- so I don't think we're going to need to do safe harbor.

But if we needed to, we got that covered..

All right. That's an interesting perspective, and I think you're probably approaching to acquire on that one..

The next question comes from Kashy Harrison at Piper Sandler..

John, you mentioned that you're going to clear the storage backlog by April. I was wondering if you could just maybe give us more specifics on what you have in backlog. And I know you just literally just mentioned that you expect the attachment rate originations to be volatile throughout the year.

But just directionally, if you could maybe give us some help on how you're thinking about that in '22 and '23. That would be great..

Yes. I think as you move forward in time, Kashy, the utility rates are going to basically give you the ability as a consumer to afford storage, and again, we see more availability of storage coming, both companies -- more companies showing up with good product and then more product being produced. I mean a lot more product being produced.

And so I think the trend over time, through the year is going to be up. I mean, we're already seeing that. I don't know where it's going to land, and I think that would be foolish of me to try to predict that. But we do see that broadening and the ability to pay from consumer and the willingness to pay is going up and up markedly.

In terms of what I was saying to clear the backlog, at any point in time, we should have a number of thousands of contracts that need batteries that consumers have purchased, right, as a part of their service.

And so what I'm saying is that, that needs to be on a normalized basis versus where we've been in the last -- previous to the last quarter, which is you've got quarters and quarters of backlog.

And so you should be able to have like 2 quarters at the most backlog out there because that's about what our -- the WIP duration is for us, a work in progress. And so we'll have that narrowed down to about a couple of quarters here by the April time frame.

That's what we're seeing as far as the delivery schedules, what we've already been delivered, and we're going to -- that's going to be a good sign because we think what that does. We know what that does. It gives dealers confidence to go out there and sell more batteries.

And so again, going back to that point about we see the battery attachment rate going up..

Got it. And my -- just my second question here. So just following up on the discussion on net metering. Just wondering if you guys have done some work on the required utility rate on a per kilowatt basis for solar and storage to be attractive to a customer, assuming net metering doesn't exist within that given area.

Is that $0.15 a kilowatt hour is the $0.20? Where do you think that threshold is for solar and storage to look attractive if there is no net meter in place?.

Yes. I think anything that you get as $0.20 or higher is going to be pretty attractive across markets. But you also can see that. And remember, a lot of the storage is going to be about reliability. So there's a willingness to pay that even above the grid rate, right, and that goes to generators as well.

And you can see that in some markets is low in that $0.15 range. However, you got to be respective of the cost structure and the utility structure. So for instance, in a place like California that's higher and in place like -- that's lower cost in a place like Texas or so forth that maybe it's going to end up being lower.

So the unfortunate answer is that the answer varies based on the economics of the locale.

But look, I think we're pretty -- it's what I'm interested in, and this is what I've always thought would happen and it's starting to happen in real time is rapidly rising utility rates are going to incent people to go ahead and say, "Look, I can afford that battery and maybe more than that with load management EV charging." If you look right now, if you've got an EV, I mean, you're loving life, you're saving a ton of money at the gas pump and it looks like it just keeps getting more money that you're saving.

So that's a part of our business as well. So everything that we sell is going to go up. We're an energy company. Some people are like, you're a finance -- we're not a finance company. No more than everything that's capital intensive in the industry at Exxon and other companies out there, they have a lot of financing activity. We're an energy company.

Energy prices are way, way up and going higher. We're going to make more money. Bottom line. We're going to sell more customers, more customers can get adopted. They're going to buy more batteries, load management, EVs, all that and our cash flow is going to follow it up as we've laid out over the next 2 years.

And so again, we feel very, very confident in the Triple-Double Triple, and we're well on our way to making that plan actually a realization..

The next question comes from Pavel Molchanov at Raymond James..

The decision by the Biden administration to extend the Section 201 Tariff Act.

I imagine no one in the solar installation world is terribly happy about it, but the policy as it stands with the upsized import quota, does that create a reasonable basis for at least stabilizing and maybe moderating the level of module prices in the United States?.

Well, you're right, I don't like it. And we certainly felt like the market needs to be free and open. And we're a supporter of domestic manufacturing. We continue to see more interest in manufacturing, whatever it is, modules or different parts of the supply chain there. And then batteries, et cetera, here in the United States.

We are supporters of the domestic manufacturing subsidy or credit both in the -- obviously, in the semiconductor world, but our world is the cousin, if you will, semiconductor. So we're supportive of that and have been.

And probably given the geopolitical situation, which value you know quite well, that probably has just increased in terms of probability of happening, in my opinion, just the political calculus here. I would say that you look at panel availability and so forth, it's not been a problem for us. It's been a real problem for the utility scale industry.

So some of these tariffs hit them very, very hard. And we've been right there with them even though, frankly, we compete with them in many cases to say that we're -- the tariffs are not something that is conducive to anything to deal with climate change and then now anything to deal with the global energy crisis that we find ourselves in.

So I think we'll be fine. I think it's probably moderating to your point on the panel pricing thing. The only thing I will say is that the higher the alternative, i.e., utility rates go, your willingness to pay, as I've laid out, in increasing our margin and so forth goes up too.

So the demand for those panels and equipment and so forth is going to go up accordingly. So that's the -- that's the only mitigant to that comment about modulating panel price is..

Okay. Let me follow up on the interest rate environment. And again, setting aside the geopolitics and how it relates to the yield curve, we have seen an uptick to 2% on the 10-year treasury. And there is a perception in the market that 2% is the end of the world for rooftop solar.

If we zoom out historically, can you maybe debunk that perception by explaining a little bit about the history of the industry at higher interest rates?.

Yes. I'll say and then turn it over to Rob to answer it. We have securitizations that are locked in that are producing very nice cash flow for us at an all-in fully burdened cost structure of cost of capital is north of 5%. And we're -- we've got those on schedule. We've refinanced one last year.

We probably refinanced one this year, and we'll refinance some more in the future. But we had lower utility rates way lower than when we did those deals way back when as well. And we're going to have the exact opposites. We've been talking about repeatedly on this call.

So our ability to move our rates up, the unlevered returns to match any movement up in the interest rate and the risk free rate is absolutely there and then some as we move forward in time. Again, think is more an energy company. So no, you're right, Pavel, it's not the end of the world. We've been there before.

And quite frankly, we've been at a higher rate in this probably just what, 2 years ago, if that. So it's a ridiculous notion and we will continue to execute and prove that notion completely wrong.

Rob, do you have any more comments?.

I think John really hit the head. We are still not at where interest rates were when we were in the pre-COVID period. And the spreads, which has tightened dramatically and become a little looser are still inside where they were back in as well.

So as far as what we're seeing right now, is that we're still in a very strong environment, and we still think that -- and we even said this before that interest rates went up 100 points, we'd still be -- 100 bps would still be fine.

And we think that they could go up further, and we would still be in a very strong environment with regard to our ability to price into those markets and our ability to create a significant value to what John said of implied spread of 600 bps within those markets.

So really at the end of the day, it's about some of our unlevered returns came down to reflect the lowering of the interest rates, they're going to go up to reflect the rising of the interest rates.

At the end of the day, are we making a spread, are we making money of our cash flows? And so the rising interest rate is just something we'll continue to watch, but not something that we think is, to your point, it's not the end of the world for resi solar, it's just part of the market..

Pavel, one thing I will add on there, as Rob laid out in an earlier question. The value of the contract is roughly about 2x that of what we pay for. That's just been a 10-year historical average. We still see that. And when you see the capital loss rate, which if it's value is about 2x of what you deploy.

So if we have a 20 basis points in fall in capital, annual capital loss rate, which is where we are. That's about a 40 basis point loss of value, right? As that dropped because rates are moving up, and you can see it in real time, the delinquency and default rates plummet as the utility rates move up.

So they're already small, but they're getting much smaller. Even a small move in that value loss rate is dwarfs that of any sort of bigger move to the order of 2 to 3x because your debt balance is about roughly 1/3 of that of your value, and that's included all debt corporate. And so you have about a 3:1 ratio there.

So hopefully, that helps is that your much -- as energy prices rise, the value is going to increase because your default rate, your loss of value is going to drop considerably and that dwarfs anything that you would have as far as an interest rate increase on a forward basis, of course, of the existing base, we've locked those rates in..

The next question comes from Ameet Thakkar at BMO Capital Markets..

I know we're in over time. So I'm just going to ask one quick one.

I know -- I think Rob mentioned that you guys did some tax equity financing in -- you guys have plenty of questions on kind of on the ABS side, but I was just wondering in terms of kind of the cost of capital on that tax equity financing, was it fairly consistent with what you guys had kind of seen late last year?.

Yes. I mean I would say that the downside of tax equity really didn't follow the interest rates down. The upside is really hasn't followed the interest rates up. So generally speaking, tax equity is still about the same rate that it had been. And again, sort of pre-COVID tax equity rates.

And tax equity providers are still making a lot of money off of that tax equity. We're very happy for their participation, and it really hasn't affected our economics.

I think that it is potentially one of the catalyst when you have rising interest rates, that the fact that the tax equity has not moved that much, that in combination with sort of ITC fears could start to have more leases and PPAs relative to loans. But we're really prepared for any and all environments.

And it's probably a good time to say, yes, we've got plenty of tax equity and are very happy with the partners that we're working with right now..

We have no further questions, so I'll hand the call back to John Berger for any closing remarks..

Thank you. We expected that tough times were coming as we had our last quarterly call, including war in Europe, exacerbating a full-blown global energy crisis. And we have been diligently preparing the company to be that shelter in the storm.

We are quite confident in our liquidity, our forward growth guidance, our earnings power and generation of more earnings and more cash flow and we'll look to take advantage of any situation to continue to focus on generating long-term, very positive, shareholder returns.

Focus on the cash, focus on execution, and we will get through whatever storm come our way. Thank you for your time and looking forward to our next quarterly call..

This concludes today's call. Thank you for joining. You may now disconnect your lines..