Vivint Solar Inc. (VSLR) 2016年年度報告「NYSE」.pdf

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1、Letter to Stockholders 2016 Annual Report May 1,2017 Dear Stockholders,In hindsight,2016 was a year of tremendous transformation for Vivint Solar.After terminating the SunEdison acquisition early in the year,we refocused on the core business fundamentals of building a sustainable business,delighting

2、 our customers,and delivering a differentiated value proposition.The process has not been easy as we strengthened the management team,rebuilt our capital structure,introduced system sales,and exited less profitable markets.Our efforts are bearing fruit and we are now a stronger company than when we

3、entered the year.For the year,we reported revenue of over$135 million,up over 100%from 2015.We installed 222 megawatts for over 31,000 customers.On a cumulative basis,Vivint Solar has installed 681 megawatts for nearly 99,600 customers.Our estimated nominal contracted payments remaining at the end o

4、f the year was$2.6 billion,growing 37 percent from the prior year.Our estimated cumulative retained value was$1.3 billion,up 45%from the prior year.Our capital structure is strong.In 2017,we will continue to focus on our core business fundamentals,building on the strong foundation we built in 2016 t

5、o become the preferred residential solar business in the industry.On behalf of myself,our leadership team,and our dedicated employees,we thank you for the trust you place in us.Sincerely,David Bywater Chief Executive Officer THIS PAGE INTENTIONALLY LEFT BLANK UNITED STATES SECURITIES AND EXCHANGE CO

6、MMISSION Washington,D.C.20549 FORM 10-K (Mark One)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31,2016 OR?TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-36642

7、 VIVINT SOLAR,INC.(Exact name of Registrant as specified in its Charter)Delaware 45-5605880(State or other jurisdiction ofincorporation or organization)(I.R.S.EmployerIdentification No.)1800 West Ashton Blvd.Lehi,UT 84043(Address of principal executive offices)(Zip Code)(877)404-4129(Registrants tel

8、ephone number,including area code)Securities registered pursuant to Section 12(b)of the Act:Common Stock,Par Value$0.01 Per Share;Common stock traded on the New York Stock ExchangeSecurities registered pursuant to Section 12(g)of the Act:None Indicate by check mark if the Registrant is a well-known

9、seasoned issuer,as defined in Rule 405 of the Securities Act.YES?NO Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d)of the Act.YES?NO Indicate by check mark whether the Registrant:(1)has filed all reports required to be filed by Section 13 or 1

10、5(d)of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the Registrant was required to file such reports),and(2)has been subject to such filing requirements for the past 90 days.YES NO?Indicate by check mark whether the Registrant has submitted elect

11、ronically and posted on its corporate Web site,if any,every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the Registrant was required to submit and post such file

12、s).YES NO?Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K(229.405)is not contained herein,and will not be contained,to the best of Registrants knowledge,in definitive proxy or information statements incorporated by reference in Part III of this Form 1

13、0-K or any amendment to this Form 10-K.?Indicate by check mark whether the Registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,or a smaller reporting company.See the definition of“large accelerated filer”,“accelerated filer”,and“smaller reporting company”in Rule 12b-

14、2 of the Exchange Act.(Check one):Large accelerated filer?Accelerated filer Non-accelerated filer?(Do not check if a small reporting company)Small reporting company?Indicate by check mark whether the Registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).YES?NO As of June 30,201

15、6,the last business day of the registrants most recently completed second quarter,the aggregate market value of voting stock held by non-affiliates of the registrant based on the closing price of$3.07 for shares of the registrants common stock as reported by the New York Stock Exchange,was approxima

16、tely$78.4 million.As of March 1,2017,there were 110,262,711 shares of registrants common stock outstanding.Portions of the Registrants Definitive Proxy Statement relating to the Annual Meeting of Shareholders,scheduled to be held on June 20,2017,are incorporated by reference into Part III of this re

17、port.THIS PAGE INTENTIONALLY LEFT BLANK iTable of Contents PagePART I Item 1.Business.2Item 1A.Risk Factors.8Item 1B.Unresolved Staff Comments.36Item 2.Properties.37Item 3.Legal Proceedings.37Item 4.Mine Safety Disclosures.37 PART II Item 5.Market for Registrants Common Equity,Related Stockholder Ma

18、tters and Issuer Purchases of Equity Securities.38Item 6.Selected Financial Data.39Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations.40Item 7A.Quantitative and Qualitative Disclosures About Market Risk.63Item 8.Financial Statements and Supplementary Data.64I

19、tem 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.110Item 9A.Controls and Procedures.110Item 9B.Other Information.111 PART III Item 10.Directors,Executive Officers and Corporate Governance.112Item 11.Executive Compensation.112Item 12.Security Ownership of Cer

20、tain Beneficial Owners and Management and Related Stockholder Matters.112Item 13.Certain Relationships and Related Transactions,and Director Independence.112Item 14.Principal Accounting Fees and Services.112 PART IV Item 15.Exhibits,Financial Statement Schedules.113 THIS PAGE INTENTIONALLY LEFT BLAN

21、K 1PART IForward-looking StatementsThis report,including the sections entitled“Business,”“Risk Factors,”and“Managements Discussion and Analysis of Financial Condition and Results of Operations”and certain information incorporated by reference into this report contain forward-looking statements withi

22、n the meaning of Section 27A of the Securities Act of 1933,as amended,and Section 21E of the Securities Exchange Act of 1934,as amended.Forward-looking statements are identified by words such as“believe,”“anticipate,”“expect,”“intend,”“plan,”“will,”“may,”“seek”and other similar expressions.You shoul

23、d read these statements carefully because they discuss future expectations,contain projections of future results of operations or financial condition or state other“forward-looking”information.These statements relate to our future plans,objectives,expectations,intentions and financial performance an

24、d the assumptions that underlie these statements.These forward-looking statements include,but are not limited to:federal,state and local regulations and policies governing the electric utility industry;the regulatory regime for our offerings and for third-party owned solar energy systems;technical l

25、imitations imposed by operators of the power grid;the continuation of tax rebates,credits and incentives,including changes to the rates of the investment tax credit,or ITC,beginning in 2020;the price of utility-generated electricity and electricity from other sources;our ability to finance the insta

26、llation of solar energy systems;our ability to efficiently install and interconnect solar energy systems to the power grid;our ability to manage growth,product offering mix and costs;our ability to further penetrate existing markets and expand into new markets;our ability to develop new product offe

27、rings and distribution channels;our ability to increase solar energy system sales;our relationships with our sister company APX Group,Inc.,or Vivint,and The Blackstone Group L.P.,our Sponsor;our ability to manage our supply chain;the cost of solar panels and the residual value of solar panels after

28、the expiration of our long-term customer contracts;the course and outcome of litigation and other disputes;and our ability to maintain our brand and protect our intellectual property.In combination with the risk factors we have identified,we cannot assure you that the forward-looking statements in t

29、his report will prove to be accurate.Further,if our forward-looking statements prove to be inaccurate,the inaccuracy may be material.In light of the significant uncertainties in these forward-looking statements,you should not regard these statements as a representation or warranty by us or any other

30、 person that we will achieve our objectives and plans in any specified time frame,or at all,or as predictions of future events.Moreover,neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements.We undertake no obligation to publicly up

31、date any forward-looking statements,whether as a result of new information,future events or otherwise,except as required by law.2Item 1.Business.BUSINESSOverviewWe offer distributed solar energy electricity generated by a solar energy system installed at or near customers locations to residential cu

32、stomers through a customer-focused and neighborhood-driven direct-to-home sales model.Through investment funds,we own a substantial majority of the solar energy systems we install and provide solar electricity pursuant to long-term contracts with our customers.Additionally,we wholly own a smaller nu

33、mber of solar energy systems outside of investment funds.Increasingly,we also sell solar energy systems outright to customers.Customers that enter long-term contracts pay little to no money upfront,typically receive material savings on solar-generated electricity rates relative to utility-generated

34、electricity rates following system interconnection to the power grid,and continue to benefit from locked-in energy prices over the term of their contracts,insulating them against unpredictable increases in utility rates.The majority of these customers sign 20-year contracts for solar electricity gen

35、erated by our systems and pay us directly over the term of their contracts.Our 20-year customer contracts generate predictable,recurring cash flows and establish a long-term relationship with homeowners.As of December 31,2016,the average estimated nominal contracted payment for our long-term custome

36、r contracts was approximately$28,000,and there is the potential for additional payments if customers choose to renew their contracts at the end of the term.The ownership of the solar energy systems we install under long-term customer contracts allows us and the other fund investors to benefit from v

37、arious local,state and federal incentives.We obtain financing based on cash flows from customers and these incentives.When customers decide to move or sell the home prior to the end of their contract term,the customer contracts allow our customers to transfer their obligations to the new home buyer,

38、subject to a creditworthiness determination.If the home buyer is not creditworthy or does not wish to assume the customers obligations,the contract allows us to require the customer to purchase the system.Our sources of financing are used to offset our direct installation costs and most,if not all,o

39、f our allocated overhead expenses.As of February 28,2017,we had raised 20 investment funds to which investors such as banks have committed to invest approximately$1.3 billion,which will enable us to install solar energy systems of total fair market value approximating$3.3 billion.As of February 28,2

40、017,we had remaining tax equity commitments to fund approximately 80 megawatts of future deployments,which we estimate to be sufficient to fund solar energy systems with a total fair market value of approximately$310 million.In 2015,we began offering our customers the option to purchase solar energy

41、 systems for cash or through third-party loan financing,which we anticipate becoming an increasingly significant portion of our business.Selling solar energy systems allows us to address customers who prefer to own the solar energy system and assume the long-term benefits and risks of system ownersh

42、ip.Customers who choose this option are generally eligible for various local,state and federal incentives,which may help to offset the cost of their solar energy system.We have developed an integrated approach to providing residential distributed solar energy where we fully control the lifecycle of

43、our customers experience including the initial professional consultation,design and engineering process,installation,and ongoing monitoring and service.We deploy our sales force on a neighborhood-by-neighborhood basis,which allows us to cultivate a geographically concentrated customer base that redu

44、ces our costs and increases our operating efficiency.We couple this model with repeatable and scalable processes to establish warehouse facilities,assemble and train sales and installation teams and open new offices.We believe that our processes enable us to expand within existing markets and into n

45、ew markets.We also believe that our direct sales model and integrated approach represent a differentiated platform,unique in the industry,that aids our growth by maximizing sales effectiveness,delivering high levels of customer satisfaction and driving cost efficiency.From our inception in May 2011

46、through December 31,2016,we have installed solar energy systems with an aggregate of 681.1 megawatts of capacity at approximately 99,600 homes in 14 states for an average solar energy system capacity of approximately 6.8 kilowatts.Of our 222.2 megawatts installed in 2016,approximately 94%were instal

47、led under long-term contracts and 6%were sold outright to customers.3Our Approach The key elements of our integrated approach to providing distributed solar energy include:Professional consultation.We deploy our direct-to-home sales force to provide in-person professional consultations to prospectiv

48、e customers to evaluate the feasibility of installing a solar energy system at their residence.Our sales closing and referral rates are enhanced by homeowners responsiveness to our direct-to-home,neighborhood-by-neighborhood outreach strategy.Design and engineering.We have developed a process that e

49、nables us to design and install a custom solar energy system that delivers customer savings.This process,which incorporates proprietary software,standardized templates and data derived from on-site surveys,allows us to design each system to comply with complex and varied state and local regulations

50、and optimize system performance on a per panel basis.We continue to pursue technology innovation to integrate accurate system design into the initial in-person sales consultation as a competitive tool to enhance the customer experience and increase sales close rates.Installation.We are a licensed co

51、ntractor in the markets we serve and are responsible for each customer installation.Once we complete the system design,we obtain the necessary building permits and begin installation.Upon completion,we schedule the required inspections and arrange for interconnection to the power grid.By directly ha

52、ndling these logistics,we control quality and streamline the system installation process for our customers.Throughout this process,we apprise our customers of the project status with regular updates from our account representatives.Monitoring and service.We monitor the performance of our solar energ

53、y systems,leveraging a combination of internally developed solutions as well as capabilities provided by our suppliers.Our systems use communication gateways and monitoring services to collect performance data and we use this data to ensure that we deliver quality operations and maintenance services

54、 for our solar energy systems.If services are required,our strong local presence enables rapid response times.Referrals.We believe our commitment to delivering customer satisfaction and our concentrated geographic deployment strategy have generated sales through customer referrals,which increase our

55、 neighborhood penetration rates and drive our growth.Our financial returns also benefit from the cost savings derived from increasing the density of installations in a neighborhood.Our StrategyOur goal is to become the premier provider of distributed solar energy.Key elements of our strategy include

56、:Building the most sustainable business in the residential solar industry.We are working to enhance the sustainability of our business by striving to reduce our cost per watt over time,by pricing appropriately in each market and by growing in the right markets.We seek to balance our growth against t

57、he operating cash flows and project funding required to offset our operating expenses.We are focused on achieving attractive unit economics on our installations across our targeted markets.Delighting our customers.We strive to provide a best-in-class customer experience.We offer customized solar ene

58、rgy solutions to each of our customers based on their individual needs,and we are streamlining the time from when a customer signs a contract to when their system is operational.We are also continuously working to improve our processes and customer communication in an effort to provide superior cust

59、omer service.For example,we employ a detailed quality assessment process to our installations to validate that we maintain a high installation standard.We believe our direct-to-home sales model is a powerful distribution channel given the consultative nature of the solar sales process for most custo

60、mers,and provides our sales professionals with the opportunity to have meaningful,face-to-face interactions with our customers.Developing a differentiated solution.We aim to provide unique products in an increasingly commoditized industry,and we believe the market needs smart energy solutions that c

61、ombine how energy is produced,made available and intelligently consumed.We believe we are uniquely positioned to offer customers a differentiated home solution by developing a partnership with Vivint to provide solar energy systems that will integrate with Vivints smart home systems to better delive

62、r on the full smart home equation.We also continue to explore other partnerships to develop and provide distinctive solutions to our customers.4Accessing capital on favorable terms.We partner with various investors to form investment funds that monetize the recurring customer payments under our long

63、-term customer contracts,as well as the ITCs,accelerated tax depreciation and other incentives associated with residential solar energy systems.We have also entered into financing facilities to further monetize recurring cash flows and to fund solar energy system development.We plan to pursue additi

64、onal debt,equity and other financing strategies in order to access capital on favorable terms to enable our continued growth.Growing strategically.We operate in states whose utility prices,sun exposure,climate conditions and regulatory policies provide the most compelling market for distributed sola

65、r energy.We plan to enlarge our addressable market by expanding our presence to new states on a measured basis.In late 2015,we complemented our traditional long-term customer contracts by providing customers the option to purchase solar energy systems outright,which allows us to enter markets where

66、customers prefer to own their solar energy systems or where our traditional long-term customer contracts are not permitted by local regulations or are not economically feasible.Additionally,in 2016,we became more selective in our policies to increase the incremental value of each installation by lim

67、iting the installation of smaller system sizes,limiting installations on certain roof types and raising prices in certain markets.Customer Contracts Our current product offering includes the following:Power Purchase Agreements.Under power purchase agreements,or PPAs,we charge customers a fee per kil

68、owatt hour based on the amount of electricity the solar energy system actually produces,which is billed monthly.PPAs typically have a term of 20 years and are subject to an annual price escalator of 2.9%.Over the term of the PPA,we operate the system and agree to maintain it in good condition.Custom

69、ers who buy energy from us under PPAs are covered by our workmanship warranty equal to the length of the term of these agreements.Legal-form Leases.Under legal-form leases,or Solar Leases,we charge customers a fixed monthly payment to lease the solar energy system,which is based on a calculation tha

70、t takes into account expected solar energy generation.Solar Leases typically have a term of 20 years and contain an annual price escalator of 2.9%.We provide our Solar Lease customers a performance guarantee,under which we agree to refund payments to the customer if the solar energy system does not

71、meet the guaranteed production level in the prior 12-month period.Liabilities for Solar Lease performance guarantees were de minimis as of December 31,2016 and 2015.Over the term of the Solar Lease,we operate the system and agree to maintain it in good condition.Customers who buy energy from us unde

72、r Solar Leases are covered by our workmanship warranty equal to the length of the term of these agreements.Solar Energy System Sales.Under solar energy system sales,or System Sales,we offer our customers the option to purchase solar energy systems for cash or through third-party financing.The price

73、for these contracts is determined as a function of the respective market rate and the size of the solar energy system to be installed.We agree to warranty and maintain the solar energy systems we sell to customers for a period of 10 years.Under certain loan products,customers can additionally contra

74、ct with us for certain structural upgrades in connection with the installation of a solar energy system.System Sales are becoming an increasingly significant portion of our business and we believe they are advantageous to us as they provide immediate access to cash.Of our 222.2 megawatts installed i

75、n 2016,approximately 84%were installed under PPAs,10%were installed under Solar Leases and 6%were installed under System Sales.As of December 31,2016,the average FICO score of our customers was approximately 760.Sales and MarketingWe place our integrated residential solar energy systems through a sc

76、alable sales organization that primarily uses a direct-to-home sales model.We believe that a high-touch,customer-focused selling process is important before,during and after the sale of our products to maximize our sales success.The members of our sales force typically reside and work within the mar

77、ket they serve.We also generate a significant amount of sales through customer referrals.We have found that customer referrals increase in relation to our penetration in a market.Shortly after entering a new market,referrals become an increasingly effective way to market our solar energy systems.In

78、addition to direct sales,we sell to customers through our inside sales team.We also continue to explore opportunities to sell solar energy systems to customers through a number of other distribution channels,including relationships with real estate management companies,home builders,home improvement

79、 stores,large construction,electrical and roofing companies and other third parties that have access to large numbers of potential customers.5 OperationsAs of December 31,2016,we operated in Arizona,California,Connecticut,Florida,Hawaii,Maryland,Massachusetts,New Jersey,New Mexico,New York,Pennsylva

80、nia,South Carolina,Texas and Utah.Our corporate headquarters are located in Utah.We manage inventory through our local warehouses and maintain a fleet of approximately 780 trucks and other vehicles to support our installers and operations.In 2016,our field teams completed on average approximately 2,

81、600 residential installations per month.We manage thousands of projects as they move through the stages of engineering,permitting,installation,maintenance and monitoring.We offer a range of warranties to our investment funds on our solar energy systems under long-term customer contracts.Under our wo

82、rkmanship warranty,we are obligated,at our cost and expense,to correct defects in our installation work,which depending on the particular investment fund,is for periods of five to twenty years.Generally,our maintenance obligations to our investment funds do not include the cost of panels,inverters o

83、r racking,should such major components require replacement.The cost of such components is borne instead by the applicable investment fund,although we are obligated to install such equipment as part of our services covered by the agreed maintenance services fee.We provide a pass-through of the invert

84、er and panel manufacturers warranty coverage to our customers,which generally range from 10 to 25 years.We also provide ongoing service and repair during the entire term of the customer relationship,regardless of whether or not such repairs are covered by our or a manufacturers warranty.We expect th

85、e costs we incur in providing these services will continue to grow as the number of systems in our portfolio increases and as installed solar energy systems age.Suppliers We purchase solar panels directly from multiple manufacturers,which has helped to strengthen our diversification and purchasing l

86、everage.Our inverter suppliers are more limited,and we have been working to establish relationships with additional suppliers.Substantially all of our solar panels and inverters are produced outside the United States.We generally source the other products related to our solar energy systems through

87、a variety of suppliers and distributors.If we fail to develop,maintain and expand our relationships with these or other suppliers,our ability to meet anticipated demand for our solar energy systems may be adversely affected,or we may only be able to offer our systems at higher costs or after delays.

88、To reduce risk,we have added suppliers in the module,inverter and racking product groups.If one or more of the suppliers that we rely upon to meet anticipated demand ceases or reduces production due to its financial condition,acquisition by a competitor or otherwise,it may be difficult to quickly id

89、entify alternative suppliers or to qualify alternative products on commercially reasonable terms,and our ability to satisfy this demand may be adversely affected.We screen all suppliers and components based on expected cost,reliability,warranty coverage,ease of installation and other ancillary costs

90、.We typically enter into master contract arrangements with our major suppliers that define the general terms and conditions of our purchases,including warranties,product specifications,indemnities,licenses,delivery and other customary terms.We typically purchase solar panels,inverters and racking fr

91、om our suppliers at then prevailing prices pursuant to purchase orders issued under our master contract arrangements.The declining cost of solar panels and the raw materials necessary to manufacture them has been a key driver in the price we charge for electricity and customer adoption of solar ener

92、gy.Although solar panel and raw material prices may continue to decline,it is possible they will not decline at the same rate as they have over the past several years or that they may increase.Although the solar panel market has seen an increase in supply,upward pressure on prices may occur due to g

93、rowth in the solar industry,regulatory policy changes and the resulting increase in demand for solar panels and the raw materials necessary to manufacture them.In the past we have purchased virtually all of the solar panels used in our solar energy systems from manufacturers based in China.However,a

94、ll of the solar panel manufacturers with which we do business have recently begun manufacturing solar panels outside of China in countries such as Vietnam,Malaysia,Korea and Thailand in order to avoid the current tariffs.We currently anticipate this trend will continue as solar panel manufacturers s

95、eek lower tariff countries.CompetitionWe believe that our primary competitors are the traditional utilities that supply electricity to our potential customers.We compete with these traditional utilities primarily based on price(cents per kilowatt hour),predictability of future prices(by providing pr

96、e-determined annual price escalations)and the ease by which customers can switch to electricity generated by our solar energy systems.We believe that we compete favorably with traditional utilities based on these factors in the states where we operate.We also compete with companies that are not regu

97、lated like traditional utilities but that have access to the traditional utility electricity transmission and distribution infrastructure pursuant to state and local pro-competitive and consumer choice policies as well as with national and local solar companies such as Teslas SolarCity subsidiary an

98、d Sunrun Inc.These companies may offer products that are similar to our PPAs,Solar Leases and System Sales.We believe that we compete favorably with these companies.6In addition,we compete with solar companies in the downstream value chain of solar energy.For example,we face competition from purely

99、finance driven organizations that acquire customers and then subcontract out the installation of solar energy systems,from installation businesses that seek financing from external parties,from large construction companies and utilities and increasingly from sophisticated electrical and roofing comp

100、anies.These distributed energy competitors typically work in contractual arrangements with third parties,leaving the customer in the position of having to deal with different companies for different aspects of their solar energy systems.We believe that we compete favorably with these companies becau

101、se we offer an integrated approach to residential solar energy systems,which includes in-house sales,financing,engineering,installation,maintenance and monitoring.Many of our competitors offer only a subset of the services we provide.Aside from simple cost efficiency,we offer distinct practical bene

102、fits as an all-in-one provider such as providing a single point of contact and accountability for our offerings during the relationship with our customers.Further,we are not dependent on installation subcontractors,enabling us to better scale our business while maintaining quality control.Technology

103、 and Intellectual PropertyAs of December 31,2016,we,directly or through our wholly owned subsidiary Solmetric Corporation,also known as Vivint Solar Labs,had five patents and seven pending applications with the U.S.Patent and Trademark Office.These patents and applications relate primarily to shade

104、and site analysis.Our issued patents start expiring in 2026.We intend to file additional patent applications as we innovate through our research and development efforts.Vivint Solar Labs is our research and development team focused on technologies that we believe will benefit our business,as they ha

105、ve significant experience with photovoltaic hardware,installation instruments and software.As part of our strategy,we may expand our technological capabilities through targeted acquisitions,licensing technology and intellectual property from third parties,joint development relationships with partner

106、s and suppliers and other strategic initiatives as we strive to offer the industrys best operational efficiency,performance prediction,operations and management.Government Regulation,Policies and IncentivesGovernment RegulationWe are not regulated as a public utility in the United States under curre

107、nt applicable national,state or other local regulatory regimes where we conduct business.We obtain interconnection permission from the applicable local primary electric utility to operate solar energy systems.Depending on the size of the solar energy system and local law requirements,interconnection

108、 permission is provided by the local utility and us and/or our customer.In most cases,interconnection permissions are issued on the basis of a standard process that has been pre-approved by the local public utility commission or other regulatory body with jurisdiction over net metering procedures.We

109、 maintain a utility administration function,with primary responsibility for engaging with utilities and ensuring our compliance with interconnection rules.Our operations are subject to stringent and complex federal,state and local laws,including regulations governing the occupational health and safe

110、ty of our employees and wage regulations.For example,we are subject to the requirements of the federal Occupational Safety and Health Act,as amended,or OSHA,the U.S.Department of Transportation,or DOT,and comparable state laws that protect and regulate employee health and safety.We strive to maintai

111、n compliance with applicable OSHA,DOT and similar government regulations;however,as discussed in the section captioned“Risk FactorsCompliance with occupational safety and health requirements and best practices can be costly,and noncompliance with such requirements may result in potentially significa

112、nt monetary penalties,operational delays and adverse publicity,”there have been instances in which we experienced workplace accidents and received citations from regulators,resulting in fines.Such instances have not materially impacted our business or relations with our employees.Government Policies

113、Net metering is one of several key policies that have enabled the growth of distributed solar in the United States.Net metering allows a homeowner to pay his or her local electric utility only for their power usage net of production from the solar energy system,transforming the conventional relation

114、ship between customers and traditional utilities.Homeowners receive credit for the energy that the solar energy system generates in excess of that consumed onsite to offset energy usage at times when the solar installation is not generating energy.In states that provide for net metering,the customer

115、 typically pays for the net energy used and receives a credit against future bills,typically within a 12-month period,at the retail rate if more energy is produced by the solar energy system than consumed onsite.In some states and utility territories,customers are also reimbursed by the electric uti

116、lity for net excess generation,at the cost avoided rate,on a periodic basis.Forty-one states,Puerto Rico,the District of Columbia,American Samoa and the U.S.Virgin Islands have adopted some form of net metering.Each of the states where we currently serve customers has adopted some form of a net mete

117、ring policy.7In recent years,net metering programs have been subject to regulatory scrutiny or legislative proposals in some states,such as Arizona,California,Colorado,Hawaii,Nevada,New Hampshire,New York and Utah.Regulators in these states have considered imposing limits on the aggregate capacity o

118、f net metering generation,fees on net metering customers,reducing the rate that net metering customers are paid for the power that they deliver back to the grid and allegations that homeowners with net metered solar energy systems shift the costs of maintaining the electric grid onto non-solar ratep

119、ayers.In California,for example,after the earlier of July 1,2017 or the date the applicable investor owned utility reaches its net metering cap under the previous statute,customers will take service on a new net metering successor tariff.For this new tariff,which will apply to new customers after th

120、e applicable investor owned utility reaches its statutory net metering cap,the California Public Utilities Commission largely upheld net metering in its current form with full retail compensation for exports and rejected utility requests to impose extremely high fixed and capacity charges.The Califo

121、rnia Public Utilities Commission did allow the utilities to impose reasonable interconnection fees and some additional charges on customers,and will require such customers to take service on time-of-use rates.There will be no net metering caps under the new tariff.As reflected in reports for Decembe

122、r 31,2016,San Diego Gas and Electric Company,or SDG&E,and Pacific Gas and Electric Company,or PG&E,which are two large investor-owned utilities,have reached their net metering caps under the previous statute,and are currently allowing net metering systems to interconnect under the new successor tari

123、ff.A third large investor-owned utility,Southern California Edison Company,has approximately 24%capacity remaining under its net metering cap of 2,240 megawatts and is not expected to reach its net metering cap until July 1,2017.In October 2015,the Hawaii Public Utilities Commission issued an order

124、closing the Hawaiian Electric Companys net metering program to new participants and replaced this program with two new options for customers to interconnect to the utilities power grids,neither of which provides for compensation for exports at retail electricity rates.In late 2015,the Nevada Public

125、Utilities Commission voted in favor of a plan which limited export compensation to net metering customers and imposed high monthly fees on such customers.Also,in December 2016,Arizona Corporation Commission decided to end traditional net metering and transition to a new distributed solar energy net

126、metering compensation regime in which customers are paid for energy generated from solar energy systems located on their roofs pursuant to a resource comparison proxy methodology or avoided cost methodology.Each of these methodologies will yield a compensation rate that is less advantageous than was

127、 previously available to customers under the historical net metering regime,limited to a 10%step down in each utilitys rate annually.The Arizona Corporation Commission is also considering a settlement agreement between the Arizona Public Service Company and industry stakeholders under which demand c

128、harges based on a customers maximum average rate of energy consumed during a specified interval would be imposed on residential customers under certain rate schedules.Several other states also plan to revisit their net metering policies in the coming years,including New York,which is currently consi

129、dering the compensation of customer-sited generation,and is expected to issue an order in early 2017.As discussed in the section captioned“Risk FactorsWe rely on net metering and related policies to offer competitive pricing to our customers in all of our current markets,and changes to net metering

130、policies may significantly reduce demand for electricity from our solar energy systems,”the absence of favorable net metering policies or of net metering entirely,or the imposition of new charges that only or disproportionately impact customers that use net metering,would significantly limit custome

131、r demand for our solar energy systems and the electricity they generate and could adversely impact our business,results of operations and future growth.Government IncentivesFederal,state and local government bodies and utilities provide for tariff structures and incentives to various parties,includi

132、ng owners,end users,distributors,system integrators and manufacturers of solar energy systems to promote solar energy.These incentives come in various forms,including rebates,tax credits and other financial incentives such as system performance payments,renewable energy credits associated with renew

133、able energy generation,exclusion of solar energy systems from property tax assessments and net metering.We rely on these governmental and regulatory programs to finance solar energy system installations,which enables us to lower the price we charge our customers for energy from,and to lease or purch

134、ase,our solar energy systems,helping to catalyze customer acceptance of solar energy with those customers as an alternative to utility-provided power.The Federal government currently offers a 30%ITC under Section 48(a)of the Internal Revenue Code for the installation of certain solar power facilitie

135、s;legislation was passed in December 2015 which extended this 30%rate until December 31,2019.By statute,the ITC is scheduled to decrease to 26%for 2020,22%for 2021 and 10%of the fair market value of a solar energy system on January 1,2022.The economics of purchasing a solar energy system are also im

136、proved by eligibility for accelerated depreciation,also known as the modified accelerated cost recovery system,or MACRS,which allows for the depreciation of equipment according to an accelerated schedule established by the Internal Revenue Service.The acceleration of depreciation creates a valuable

137、tax benefit that reduces the overall cost of the solar energy system and increases the return on investment.8Many of the states in which we operate offer a personal and/or corporate investment or production tax credit for solar energy that is additive to the ITC.Further,most of the states and local

138、jurisdictions have established property tax incentives for renewable energy systems that include exemptions,exclusions,abatements and credits.Many state governments,traditional utilities,municipal utilities and co-operative utilities offer a rebate or other cash incentive for the installation and op

139、eration of a solar energy system or energy efficiency measures.Capital costs or“up-front”rebates provide funds to solar customers or developers or system owners based on the cost,size or expected production of a customers solar energy system.Performance-based incentives provide cash payments to sola

140、r customers or a system owner based on the energy generated by the solar energy system during a pre-determined period.Many states also have adopted procurement requirements for renewable energy production.Twenty-nine states,the District of Columbia and three U.S.territories have adopted a renewable

141、portfolio standard that requires regulated utilities to procure a specified percentage of total electricity delivered to customers in the state from eligible renewable energy sources,such as solar energy systems,by a specified date.To prove compliance with such mandates,utilities usually must surren

142、der solar renewable energy certificates,or SRECs to the applicable authority.Solar energy system owners such as our investment funds often are able to sell SRECs to utilities directly or in SREC markets.WorkforceAs of December 31,2016,we had a total workforce of 3,001,including 1,140 employees in in

143、stallation,879 employees in operations,255 employees in general and administrative,86 employees in sales support and marketing and 25 employees in research and development.As of December 31,2016,we also had 616 active direct sellers.We consider a direct sales person to be active if they completed at

144、 least four customer pre-surveys in the prior four weeks.Our operations personnel work primarily in installation,design and account management.Our general and administrative personnel work primarily in information technology,finance,human resources,legal and general management.None of our service pr

145、oviders are represented by a labor union and we consider relations with our workers to be good.Item 1A.Risk FactorsYou should carefully consider the following risk factors,together with all of the other information included in this report,including the section of this report captioned“Managements Di

146、scussion and Analysis of Financial Condition and Results of Operations”and our financial statements and related notes.If any of the following risks occurred,it could materially adversely affect our business,financial condition or operating results.This report also contains forward-looking statements

147、 that involve risks and uncertainties.Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this report.Risk Related to our BusinessWe need to enter into substantial additional financing ar

148、rangements to facilitate new customers access to our solar energy systems,and if financing is not available to us on acceptable terms when needed,our ability to continue to grow our business would be materially adversely impacted.Our future success depends primarily on our ability to raise capital f

149、rom third-party investors and commercial sources,such as banks and other lenders,on competitive terms to help finance the deployment of our solar energy systems.We seek to minimize our cost of capital in order to maintain the price competitiveness of the electricity produced by,the lease payments fo

150、r and the cost of our solar energy systems.We rely on investment funds in order to provide solar energy systems with little to no upfront costs to our customers under our PPAs and Solar Leases.We also rely on access to capital to cover the costs of our solar energy systems that are sold outright unt

151、il the systems are installed by us and then paid for by our customers,whether by cash or through third-party financing arrangements.If we are unable to establish new financing when needed,or upon desirable terms,to enable our customers access to our solar energy systems,we may be unable to finance i

152、nstallation of our customers systems,our cost of capital could increase or our liquidity could be constrained,any of which would have a material adverse effect on our business,financial condition,results of operations and prospects.As of February 28,2017,we had raised 20 investment funds to which in

153、vestors such as banks and other large financial investors have committed to invest approximately$1.3 billion,which will enable us to install solar energy systems of total fair market value approximating$3.3 billion.As of February 28,2017,we had remaining residential tax equity commitments to fund ap

154、proximately 80 megawatts of future deployments,which we estimate to be sufficient to fund solar energy systems with a total fair market value of approximately$310 million.9The contract terms in certain of our investment fund documents impose conditions on our ability to draw on financing commitments

155、 from the fund investors,including if an event occurs that could reasonably be expected to have a material adverse effect on the fund or on us.If we do not satisfy such conditions due to events related to our business or a specific investment fund or developments in our industry or otherwise,and as

156、a result we are unable to draw on existing commitments,our inability to draw on such commitments could have a material adverse effect on our business,liquidity,financial condition and prospects.In addition to our inability to draw on the investors commitments,we may incur financial penalties for non

157、-performance,including delays in the installation process and interconnection to the power grid of solar energy systems and other factors.Based on the terms of the investment fund agreements,we will either reimburse a portion of the fund investors capital or pay the fund investor a non-performance f

158、ee.For example,during the year ended December 31,2016,we paid contractually agreed upon capital distributions of$2.7 million to reimburse fund investors a portion of their capital contributions primarily due to a delay in solar energy systems being interconnected to the power grid and other factors.

159、To meet the capital needs of our growing business,we will need to obtain additional financing from new investors and investors with whom we currently have arrangements.If any of the financial institutions that currently provide financing decide not to invest in the future due to general market condi

160、tions,concerns about our business or prospects or any other reason,or decide to invest at levels that are inadequate to support our anticipated needs or materially change the terms under which they are willing to provide future financing,we will need to identify new financial institutions and compan

161、ies to provide financing and negotiate new financing terms.If we are unable to raise additional capital in a timely manner,our ability to meet our capital needs and fund future growth may be limited.In the past,we have sometimes been unable to timely establish investment funds in accordance with our

162、 plans,due in part to the relatively limited number of investors attracted to such types of funds,competition for such capital and the complexity associated with negotiating the agreements with respect to such funds.Delays in raising financing could cause us to delay expanding in existing markets or

163、 entering into new markets and hiring additional personnel in support of our planned growth.Any future delays in capital raising could similarly cause us to delay deployment of a substantial number of solar energy systems for which we have signed PPAs or Solar Leases with customers.Our future abilit

164、y to obtain additional financing depends on banks and other financing sources continued confidence in our business model and the renewable energy industry as a whole.It could also be impacted by the liquidity needs of such financing sources themselves.We face intense competition from a variety of ot

165、her companies,technologies and financing structures for such limited investment capital.If we are unable to continue to offer a competitive investment profile,we may lose access to these funds or they may only be available to us on terms that are less favorable than those received by our competitors

166、.For example,if we experience higher customer default rates than we currently experience in our existing investment funds,this could make it more difficult or costly to attract future financing.In our experience,there are a relatively small number of investors that generate sufficient profits and po

167、ssess the requisite financial sophistication that can benefit from and have significant demand for the tax benefits that our investment funds can provide.Historically,in the distributed solar energy industry,investors have typically been large financial institutions and a few large,profitable corpor

168、ations.Our ability to raise investment funds is limited by the relatively small number of such investors.Any inability to secure financing could lead us to cancel planned installations,could impair our ability to accept new customers and could increase our borrowing costs,any of which would have a m

169、aterial adverse effect on our business,financial condition,results of operations and prospects.A material reduction in the retail price of traditional utility-generated electricity or electricity from other sources or other reduction in the cost of such electricity would harm our business,financial

170、condition,results of operations and prospects.We believe that a significant number of our customers decide to buy solar energy because they want to pay less for electricity than what is offered by the traditional utilities.However,distributed residential solar energy has yet to achieve broad market

171、adoption.The customers decision to choose solar energy may also be affected by the cost of other renewable energy sources.Decreases in the retail prices of electricity from the traditional utilities or from other renewable energy sources would harm our ability to offer competitive pricing and could

172、harm our business.The cost of electricity from traditional utilities could decrease as a result of:construction of new power generation plants,including plants utilizing natural gas,nuclear,coal,renewable energy or other generation technologies;the construction of additional electric transmission an

173、d distribution lines;relief of transmission constraints that enable local centers to generate energy less expensively;reductions in the price of natural gas or other fuel sources;utility rate adjustment and customer class cost reallocation;energy conservation technologies and public initiatives to r

174、educe electricity consumption;10 widespread deployment of existing or development of new or lower-cost energy storage technologies that have the ability to reduce a customers average cost of electricity by shifting load to off-peak times;reduced regulations by federal or state regulatory bodies that

175、 lower the cost of generating and transmitting electricity or otherwise reduce regulatory compliance costs;and development of new energy generation technologies that provide less expensive energy.A reduction in utility electricity costs would make PPAs or Solar Leases less economically attractive.If

176、 the cost of energy available from traditional utilities were to decrease due to any of these reasons,or other reasons,we would be at a competitive disadvantage,we may be unable to attract new customers and our growth would be limited.In addition,in the third quarter of 2016,we increased pricing in

177、certain markets which may negatively impact our competitiveness.Electric utility industry policies and regulations may present technical,regulatory and economic barriers to the purchase and use of solar energy systems that may significantly reduce demand for electricity from our solar energy systems

178、.Federal,state and local government regulations and policies concerning the electric utility industry,utility rate structures,interconnection procedures,and internal policies of electric utilities,heavily influence the market for electricity generation products and services.These regulations and pol

179、icies often relate to electricity pricing and the interconnection of distributed electricity generation systems to the power grid.Policies and regulations that promote renewable energy and customer-sited energy generation have been challenged by traditional utilities and questioned by those in gover

180、nment and others arguing for less governmental spending and involvement in the energy market.In addition,it is unclear what,if any,actions the new presidential administration in the United States may take regarding existing regulations and policies that place limitations on coal and gas electric gen

181、erations,mining and exploration.Changes in such policies and regulations could increase the cost or decrease the benefits of solar energy systems,or reduce costs and other limitations on competing forms of generation,and adversely affect our results of operations,cost of capital and growth prospects

182、.In the United States,governments and the state public service commissions that determine utility rates continuously modify these regulations and policies.These regulations and policies could result in a significant reduction in the potential demand for electricity from our solar energy systems and

183、could deter customers from entering into contracts with us.In addition,depending on the region,electricity generated by solar energy systems competes most effectively with the most expensive retail rates for electricity from the power grid,rather than the less expensive average price of electricity.

184、Modifications to the utilities peak hour pricing policies or rate design,such as to a flat rate,would make our current products less competitive with the price of electricity from the power grid.For example,the California Public Utilities Commission recently issued a decision that will transition re

185、sidential rates over the next four years from a four-tiered structure to a two-tiered structure,with only a 25%differential between the two rates and a surcharge for very high energy users.It is possible that this change could have the effect of lowering the incentive for residential customers of Ca

186、lifornias large investor-owned utilities to reduce their purchases of electricity from their utility by supplying more of their own electricity from solar,and thereby reduce demand for our products.In addition,California is in the process of shifting to a time-of-use rate structure in the coming yea

187、r.A shift in the timing of peak rates for utility-generated electricity to a time of day when solar energy generation is less efficient or nonexistent could make our solar energy system offerings less competitive and reduce demand for our offerings.The California Public Utilities Commission determin

188、ed in January of 2016 that net metering customers taking service on the net energy metering(NEM)successor tariff will be required to take service on time-of-use rates.This transition occurred in 2016 for some of our potential customers and will be occurring for all investor-owned utilities by July 1

189、,2017.Numerous other states also use time-of-use rates.In addition,since we are required to obtain interconnection permission for each solar energy system from the local utility,changes in a local utilitys regulations,policies or interconnection process have in the past delayed and in the future cou

190、ld delay or prevent the completion of our solar energy systems.This in turn has delayed and in the future could delay or prevent us from generating revenues from such solar energy systems or cause us to redeploy solar energy systems,adversely impacting our results of operations.11In addition,any cha

191、nges to government or internal utility regulations and policies that favor electric utilities could reduce our competitiveness and cause a significant reduction in demand for our offerings or increase our costs or the prices we charge our customers.Certain jurisdictions have proposed allowing tradit

192、ional utilities to assess fees on customers purchasing energy from solar energy systems or have imposed or proposed new charges or rate structures that would disproportionately impact solar energy system customers who utilize net metering,either of which would increase the cost of energy to those cu

193、stomers and could reduce demand for our solar energy systems.For example,the California Public Utilities Commission issued a decision in July 2015 that allowed utilities to impose a minimum$10 monthly bill for residential customers,approved the concept of fixed charges and will permit the utilities

194、to propose such fixed charges again in 2018.A decision issued in January 2016 will allow new interconnection fees and additional non-by-passable charges to be assessed on customers taking service on Californias net metering successor tariff.This will result in monthly charges being imposed on our cu

195、stomers in California.Additionally,certain utilities in Arizona have approved increased rates and charges for net metering customers,and others have proposed doing away with the states renewable electricity standard carve-outs for distributed generation as well as the states net metering program.The

196、 Arizona Corporation Commission is also considering a settlement agreement between the Arizona Public Service Company and industry stakeholders under which demand charges based on a customers maximum average rate of energy consumed during a specified interval would be imposed on residential customer

197、s under certain rate schedules.These policy changes may negatively impact our customers and affect demand for our solar energy systems,and similar changes to net metering policies may occur in other states.It is also possible that these or other changes could be imposed on our current customers,as w

198、ell as future customers.Due to the current and expected continued concentration of our solar energy systems in California,any such changes in this market would be particularly harmful to our reputation,customer relations,business,results of operations and future growth in these areas.We may be simil

199、arly adversely affected if our business becomes concentrated in other jurisdictions.Our business currently depends on the availability of rebates,tax credits and other financial incentives.The expiration,elimination or reduction of these rebates,credits or incentives could adversely impact our busin

200、ess.Federal,state and local government and regulatory bodies provide for tariff structures and incentives to various parties including owners,end users,distributors,system integrators and manufacturers of solar energy systems to promote solar energy in various forms,including rebates,tax credits and

201、 other financial incentives such as system performance payments,renewable energy credits associated with renewable energy generation,exclusion of solar energy systems from property tax assessments and net metering.We rely on these governmental and regulatory programs to finance solar energy system i

202、nstallations,which enables us to lower the price we charge customers for energy from,and to lease or purchase,our solar energy systems,helping to catalyze customer acceptance of solar energy with those customers as an alternative to utility-provided power.However,these programs may expire on a parti

203、cular date,end when the allocated funding or capacity allocations are exhausted or be reduced or terminated.These reductions or terminations often occur without warning.For example,the Arizona Department of Revenue has attempted to assess and collect property taxes in the past on rooftop solar energ

204、y systems such as ours and counties in Arizona may attempt to assess and collect property taxes in the future.In addition,the financial value of certain incentives decreases over time.For example,the value of solar renewable energy certificates,or SRECs,in a market tends to decrease over time as the

205、 supply of SREC-producing solar energy systems installed in that market increases.If we overestimate the future value of these incentives,it could adversely impact our financial results.The federal government currently offers a 30%ITC under Section 48(a)of the Internal Revenue Code for the installat

206、ion of certain solar power facilities;the 30%rate continues until December 31,2019.By statute,the ITC is scheduled to decrease to 26%for 2020,22%for 2021 and 10%of the fair market value of a solar energy system on January 1,2022,and the amounts that fund investors are willing to invest could decreas

207、e or we may be required to provide a larger allocation of customer payments to the fund investors as a result of this scheduled decrease.To the extent we have a reduced ability to raise investment funds as a result of this reduction,the rate of growth of installations of our residential solar energy

208、 systems could be negatively impacted.In addition,future changes to taxation of business entities and the deductibility of interest expense could affect the amount that fund investors are willing to invest,which could reduce our access to capital.The ITC has been a significant driver of the financin

209、g supporting the adoption of residential solar energy systems in the United States and its scheduled reduction beginning in 2020,unless modified by an intervening change in law,will significantly impact the attractiveness of solar energy to these investors and could potentially harm our business.App

210、licable authorities may adjust or decrease incentives from time to time or include provisions for minimum domestic content requirements or other requirements to qualify for these incentives.Reductions in,eliminations or expirations of or additional application requirements for,governmental incentive

211、s could adversely impact our results of operations and ability to compete in our industry by increasing our cost of capital,causing us to increase the prices of our energy and solar energy systems and reducing the size of our addressable market.In addition,this would adversely impact our ability to

212、attract investment partners and to form new investment funds and our ability to offer attractive financing to prospective customers.12We rely on net metering and related policies to offer competitive pricing to our customers in all of our current markets,and changes to net metering policies may sign

213、ificantly reduce demand for electricity from our solar energy systems.Our business benefits significantly from favorable net metering policies in states in which we operate.Net metering allows a homeowner to pay his or her local electric utility only for their power usage net of production from the

214、solar energy system,transforming the conventional relationship between customers and traditional utilities.Homeowners receive credit for the energy that the solar installation generates in excess of that needed by the home to offset energy usage at times when the solar installation is not generating

215、 energy.In states that provide for net metering,the customer typically pays for the net energy used or receives a credit against future bills at the retail rate if more energy is produced by the solar installation than consumed.In some states and utility territories,customers are also reimbursed by

216、the electric utility for net excess generation on a periodic basis.Forty-one states,Puerto Rico,the District of Columbia,American Samoa and the U.S.Virgin Islands have adopted some form of net metering.Each of the states where we currently serve customers has adopted some form of a net metering poli

217、cy.In recent years,net metering programs have been subject to regulatory scrutiny and legislative proposals in some states,such as Arizona,California,Colorado,Hawaii,Nevada,New Hampshire,New York and Utah.In California,for example,after the earlier of July 1,2017 or the date the applicable investor

218、owned utility reaches its statutory net metering cap,customers will take service on a new net metering successor tariff.For this new tariff,which will apply to new customers after the applicable investor owned utility reaches its statutory net metering cap,the California Public Utilities Commission

219、largely upheld net metering in its current form with full retail compensation for exports and rejected utility requests to impose extremely high fixed and capacity charges.The California Public Utilities Commission did allow the utilities to impose reasonable interconnection fees and some additional

220、 charges on customers,and will require such customers to take service on time-of-use rates.There are no caps under the new NEM successor tariff.As reflected in reports for December 31,2016,San Diego Gas and Electric Company,or SDG&E,and Pacific Gas and Electric Company,or PG&E,which are two large in

221、vestor-owned utilities,have reached their net metering caps,and are currently allowing net metering systems to interconnect under the NEM successor tariff.A third large investor-owned utility,Southern California Edison Company,has approximately 24%capacity remaining under its net metering cap of 2,2

222、40 megawatts and is not expected to reach its net metering cap until July 1,2017.Further,municipal utilities are generally not subject to the same state laws and public commission oversight as compared to investor owned utilities and may make drastic and abrupt changes.As we continue to expand into

223、areas with municipal utilities,we may be subject to greater risk of regulatory uncertainty.On October 12,2015,the Hawaii Public Utilities Commission issued an order closing the Hawaiian Electric Companys net metering program to new participants and replaced this program with two new options for cust

224、omers to interconnect to the utilities power grids,neither of which provides for compensation for exports at retail electricity rates.In addition,in late 2015,the Nevada Public Utilities Commission voted in favor of a plan that limited export compensation to net metering customers and imposed high m

225、onthly fees on such customers.Additionally,in December 2016,the Arizona Corporation Commission decided to end traditional net metering and transition to a new distributed solar energy net metering compensation regime in which customers are paid for energy generated from solar energy systems located

226、on their roofs pursuant to a resource comparison proxy methodology or avoided cost methodology.Each of these methodologies will yield a compensation rate that is less advantageous than was previously available to customers under the historical net metering regime,limited to a 10%step down in each ut

227、ilitys rate annually.The Arizona Corporation Commission is also considering a settlement agreement between the Arizona Public Service Company and industry stakeholders under which demand charges based on a customers maximum average rate of energy consumed during a specified interval would be imposed

228、 on residential customers under certain rate schedules.These changes reduce the value proposition for residential solar in Arizona as compared to residential solar under the traditional net metering regime.Several other states plan to revisit their net metering policies in the coming years,including

229、 New York,which is currently considering the compensation of customer-sited generation,and is expected to issue an order in early 2017.If and when net metering caps in certain jurisdictions are reached while they are still in effect,the value of the credit that customers receive for net metering is

230、significantly reduced,utility rate structures are altered,or fees are imposed on net metering customers,future customers may be unable to recognize the same level of cost savings associated with net metering that current customers enjoy.The absence of favorable net metering policies or of net meteri

231、ng entirely,or the imposition of new charges that only or disproportionately impact customers that use net metering would significantly limit customer demand for our solar energy systems and the electricity they generate and could adversely impact our business,results of operations and future growth

232、.For example,shortly after expanding our operations into Nevada,the states primary electric utility reached its net metering cap.As a result of the net metering cap being reached,we suspended operations in Nevada pending revisions to the net metering available in the state.This change is not expecte

233、d to have any future impact on our business due to the short duration that we were active in Nevada.13Failure of anticipated growth in System Sales to materialize as planned could negatively impact our operating results and cash flows.Beginning in late 2015,we began offering to customers in select m

234、arkets the option to purchase solar energy systems as System Sales.We have historically offered our solar energy systems through our PPAs or Solar Leases.System Sales allow us to enter markets,such as those that prohibit third-party ownership of distributed solar energy systems or that lack a favora

235、ble net metering policy.While System Sales have represented a relatively small portion of our business,we expect it to continue to grow.Industry analysts have indicated that the number of customer-owned solar energy systems has increased significantly relative to third-party ownership in certain mar

236、kets and that solar energy system sales are expected to account for a larger percentage of total residential solar installations in the future.Continued increases in the variety and availability of third-party loan financing products and outright solar energy system purchases could further facilitat

237、e this growth.It is not certain that we will successfully execute our strategy to increase sales of solar energy systems.If customer preferences or the residential solar energy market continue to shift toward solar energy system sales,and we are not successful in our efforts,we may lose market share

238、 which could have an adverse effect on our business,operating results and growth prospects.Additionally,sales of solar energy systems through third-party loans or cash sales require less financing from financial institutions and participants in the tax equity market.To the extent we are unsuccessful

239、 in our efforts to sell solar energy systems,or to work with third parties to finance those systems for our customers,our operating cash flows would be negatively affected and our business and growth prospects would be adversely affected.Technical and regulatory limitations may significantly reduce

240、our ability to sell electricity from our solar energy systems and retain employees in certain markets.Technical and regulatory limits may curb our growth in certain key markets,which may also reduce our ability to retain employees in those markets.For example,the Federal Energy Regulatory Commission

241、,in promulgating the first form small generator interconnection procedures,recommended limiting customer-sited intermittent generation resources,such as our solar energy systems,to a certain percentage of peak load on a given electrical feeder circuit.Similar limits have been adopted by many states

242、as a de facto standard and could constrain our ability to market to customers in certain geographic areas where the concentration of solar installations exceeds this limit.For example,Hawaiian electric utilities have adopted certain policies that limit distributed electricity generation in parts of

243、their service territories.In the first half of 2014,Hawaii was the second largest market in which we operated as measured by total installations.However,despite legislative and regulatory actions to allow further distributed electricity penetration,these limitations constrained growth of distributed

244、 residential solar energy in Hawaii in the second half of 2014 and beyond,and Hawaii has become a less important market to us as a result.While a recent Hawaii Public Utilities Commission order seeks to streamline the interconnection process,and while our growth in other markets has more than offset

245、 the impact of these limitations in Hawaii,if we experienced similar or other limitations on the deployment of solar energy systems,our business,operating results and growth prospects could be materially adversely affected.Furthermore,in certain areas,we benefit from policies that allow for expedite

246、d or simplified procedures related to connecting solar energy systems to the power grid.If such procedures are changed or cease to be available,our ability to sell the electricity generated by solar energy systems we install may be adversely impacted.As adoption of solar distributed generation rises

247、 along with the commercial operation of utility scale solar generation in key markets such as California,the amount of solar energy being fed into the power grid will surpass the amount planned for relative to the amount of aggregate demand.Some traditional utilities claim that in less than five yea

248、rs,solar generation resources may reach a level capable of producing an over-generation situation,which may require some solar generation resources to be curtailed to maintain operation of the power grid.While the prospect of such curtailment is somewhat speculative,particularly in the residential s

249、ector,the adverse effects of such curtailment without compensation could adversely impact our business,results of operations and future growth.We have incurred operating losses and may be unable to achieve or sustain profitability in the future.We have incurred operating losses since our inception.W

250、e incurred net losses of$242.5 million and$253.3 million for the years ended December 31,2016 and 2015.We expect to continue to incur net losses from operations as we finance our operations,expand our installation,engineering,administrative,sales and marketing staffs,and implement internal systems a

251、nd infrastructure to support our growth.Failure to grow at a sufficient rate to support these investments in personnel,systems and infrastructure,have adversely impacted and in the future could adversely impact our business and results of operations.Our ability to achieve profitability depends on a

252、number of factors,including:growing our customer base;finding investors willing to invest in our investment funds;maintaining and further lowering our cost of capital;reducing the time between system installation and interconnection to the power grid,which allows us to begin generating revenue;14red

253、ucing the cost of components for our solar energy systems;and reducing our operating costs by optimizing our sales,design and installation processes and supply chain logistics.Even if we do achieve profitability,we may be unable to sustain or increase our profitability in the future.The vast majorit

254、y of our business is conducted primarily using one channel,direct-selling.Historically,our primary sales channel has been a direct sales model.We also sell to customers through our inside sales team but continue to find greatest success using our direct sales channel.We compete against companies wit

255、h experience selling solar energy systems to customers through a number of distribution channels,including homebuilders,home improvement stores,large construction,electrical and roofing companies and other third parties and companies that access customers through relationships with third parties in

256、addition to other direct-selling companies.Our less diversified distribution channels may place us at a disadvantage with consumers who prefer to purchase products through these other distribution channels.We are also vulnerable to changes in laws related to direct sales and marketing that could imp

257、ose additional limitations on unsolicited residential sales calls and may impose additional restrictions.If additional laws affecting direct sales and marketing are passed in the markets in which we operate,it would take time to train our sales force to comply with such laws,and we may be exposed to

258、 fines or other penalties for violations of such laws.If we fail to compete effectively through our direct-selling efforts or are not successful in developing other sales channels,our financial condition,results of operations and growth prospects could be adversely affected.We are highly dependent o

259、n our ability to attract,train and retain an effective sales force.The success of our direct-selling channel efforts depends upon the recruitment,retention and motivation of a large number of sales personnel to compensate for a high turnover rate among sales personnel,which is a common characteristi

260、c of a direct-selling business.In order to grow our business,we need to recruit,train and retain sales personnel on a continuing basis.Sales personnel are attracted to direct-selling by competitive earnings opportunities and direct-sellers typically compete for sales personnel by providing a more co

261、mpetitive earnings opportunity than that offered by the competition.Competitors devote substantial effort to determining the effectiveness of such incentives so that they can invest in incentives that are the most cost effective or produce the best return on incentive.For example,we have historicall

262、y compensated our sales personnel on a commission basis,based on the size of the solar energy systems they sell.Some sales personnel may prefer a compensation structure that also includes a salary and equity incentive component.There is significant competition for sales talent in our industry,and fr

263、om time to time we may need to adjust our compensation model to include such components.These adjustments could adversely impact our operating results and financial performance.In addition to our sales compensation model,our ability to recruit,train and retain effective sales personnel could be harm

264、ed by additional factors,including:any adverse publicity regarding us,our solar energy systems,our distribution channel or our industry;lack of interest in,or the technical failure of,our solar energy systems;lack of a compelling product or income opportunity that generates interest for potential ne

265、w sales personnel,or perception that other product or income opportunities are more attractive;any negative public perception of our sales personnel and direct-selling businesses in general;any regulatory actions or charges against us or others in our industry;general economic and business condition

266、s;and potential saturation or maturity levels in a given market which could negatively impact our ability to attract and retain sales personnel in such market.We are subject to significant competition for the recruitment of sales personnel from other direct-selling companies and from other companies

267、 that sell solar energy systems in particular.Regional and district managers of our sales personnel are instrumental in recruiting,retaining and motivating our sales personnel.When managers have elected to leave us and join other companies,the sales personnel they supervise have often left with them

268、.We may experience increased attrition in our sales personnel in the future which may impact our results of operations and growth.The impact of such attrition could be particularly acute in those jurisdictions,such as California,where contractual non-competition agreements for service providers are

269、not enforceable or subject to significant limitations.It is therefore continually necessary to innovate and enhance our direct-selling and service model as well as to recruit and retain new sales personnel.If we are unable to do so,our business will be adversely affected.15We are not currently regul

270、ated as an electric utility under applicable law,but we may be subject to regulation as an electric utility in the future.We are not regulated as a public utility in any of the markets in which we currently operate.As a result,we are not subject to the various federal,state and local standards,restr

271、ictions and regulatory requirements applicable to traditional utilities that operate transmission and distribution systems and that have an obligation to serve electric customers within a specified jurisdiction.Any federal,state,or local regulations that cause us to be treated as an electric utility

272、,or to otherwise be subject to a similar regulatory regime of commission-approved operating tariffs,rate limitations,and related mandatory provisions,could place significant restrictions on our ability to operate our business and execute our business plan by prohibiting,restricting or otherwise regu

273、lating our sale of electricity.If we were subject to the same state or federal regulatory authorities as electric utilities in the United States or if new regulatory bodies were established to oversee our business in the United States,then our operating costs would materially increase.Our business d

274、epends in part on the regulatory treatment of third-party owned solar energy systems.Retail sales of electricity by non-utilities such as us face regulatory hurdles in some states and jurisdictions,including states and jurisdictions that we intend to enter where the laws and regulatory policies have

275、 not historically embraced competition to the service provided by the incumbent,vertically integrated electric utility.Some of the principal challenges pertain to whether non-customer owned systems qualify for the same levels of rebates or other non-tax incentives available for customer-owned solar

276、energy systems,whether third-party owned systems are eligible at all for these incentives and whether third-party owned systems are eligible for net metering and the associated significant cost savings.Furthermore,in some states and utility territories third parties are limited in the way that they

277、may deliver solar to their customers.In jurisdictions such as Arizona,South Carolina,Utah and Los Angeles,California,laws have been interpreted to either prohibit the sale of electricity pursuant to our standard PPA or regulate entities making such sales,in some cases,such laws have led residential

278、solar energy system providers to use leases in lieu of power purchase agreements.In other states,neither leases nor power purchase agreements are permissible or commercially feasible.Changes in law,reductions in,eliminations of or additional application requirements for,these benefits could reduce d

279、emand for our systems,adversely impact our access to capital and could cause us to increase the price we charge our customers for energy.If the Internal Revenue Service or the U.S.Treasury Department makes a determination that the fair market value of our solar energy systems is materially lower tha

280、n what we have reported in our fund tax returns,we may have to pay significant amounts to our investment funds,to our fund investors and/or the U.S.government.Such determinations could have a material adverse effect on our business,financial condition and prospects.We report in our fund tax returns

281、and we and our fund investors claim the ITC based on the fair market value of our solar energy systems.Scrutiny by the Internal Revenue Service,or IRS,with respect to fair market value determinations has increased industry-wide in recent years.The IRS recently commenced an audit of one of our invest

282、ment funds.We are not aware of any other audits or results of audits related to our appraisals or fair market value determinations of any of our investment funds.If as part of an examination the IRS were to review the fair market value that we used to establish our basis for claiming ITCs and determ

283、ine that the ITCs previously claimed should be reduced,we would owe certain of our investment funds or our fund investors an amount equal to 30%of the investors share of the difference between the fair market value used to establish our basis for claiming ITCs and the adjusted fair market value dete

284、rmined by the IRS,plus any costs and expenses associated with a challenge to that fair market value,plus a gross up to pay for additional taxes.We could also be subject to tax liabilities,including interest and penalties,based on our share of claimed ITCs.To date,we have not been required to make su

285、ch payments under any of our investment funds.Our ability to provide solar energy systems to customers on an economically viable basis depends on our ability to finance these systems with fund investors who require particular tax and other benefits.Substantially all of our solar energy systems insta

286、lled to date have been eligible for ITCs as well as accelerated depreciation benefits.We have relied on,and will continue to rely on,financing structures that monetize a substantial portion of those benefits and provide financing for our solar energy systems.If,for any reason,we were unable to conti

287、nue to monetize those benefits through these arrangements,we may be unable to provide solar energy systems for new customers and maintain solar energy systems for new and existing customers on an economically viable basis.The availability of this tax-advantaged financing depends upon many factors,in

288、cluding:our ability to compete with other renewable energy companies for the limited number of potential investment fund investors,each of which has limited funds and limited appetite for the tax benefits associated with these financings;the state of financial and credit markets;changes in the legal

289、 or tax risks associated with these financings;and non-renewal of these incentives or decreases in the associated benefits.16Solar energy system owners are currently allowed to claim the ITC that is equal to 30%of the systems eligible tax basis,which is generally the fair market value of the system.

290、By statute,the ITC is scheduled to decrease to 26%for 2020,22%for 2021 and 10%on January 1,2022.Moreover,potential fund investors must remain satisfied that the structures we offer qualify for the tax benefits associated with solar energy systems available to these investors,which depends both on th

291、e investors assessment of tax law and the absence of any unfavorable interpretations of that law.Changes in existing law and interpretations by the IRS and the courts could reduce the willingness of fund investors to invest in funds associated with these solar energy system investments.It is not cer

292、tain that this type of financing will continue to be available to us.Alternatively,new investment fund structures or other financing mechanisms may become available,and if we are unable to take advantage of these fund structures and financing mechanisms it may place us at a competitive disadvantage.

293、If,for any reason,we are unable to finance solar energy systems through tax-advantaged structures or if we are unable to realize or monetize depreciation benefits,or if we are otherwise unable to structure investment funds in ways that are both attractive to investors and allow us to provide desirab

294、le pricing to customers,we may no longer be able to provide solar energy systems to new customers on an economically viable basis.This would have a material adverse effect on our business,financial condition,results of operations and prospects.Rising interest rates could adversely impact our busines

295、s.Rising interest rates could have an adverse impact on our business by increasing our cost of capital.The majority of our cash flows to date have been from customer contracts that have been partially monetized under various investment fund structures.One of the components of this monetization is th

296、e present value of the payment streams from the customers who enter into these contracts.If the rate of return required by the fund investor rises as a result of a rise in interest rates,the present value of the customer payment stream and the total value that we are able to derive from monetizing t

297、he payment stream will each be reduced.Interest rates are at low levels.It is likely that interest rates will continue to rise in the future,which would cause our costs of capital to increase.Our investment funds contain arrangements which provide for priority distributions to fund investors until t

298、hey receive their targeted rates of return.In addition,under the terms of certain of our investment funds,we may be required to make payments to the fund investors if certain tax benefits that are allocated to such fund investors are not realized as expected.Our financial condition may be adversely

299、impacted if a fund is required to make these priority distributions for a longer period than anticipated to achieve the fund investors targeted rates of return or if we are required to make any tax-related payments.Our investment funds contain terms that contractually require the investment funds to

300、 make priority distributions to the fund investor,to the extent cash is available,until it achieves its targeted rate of return.The amounts of potential future distributions under these arrangements depends on the amounts and timing of receipt of cash flows into the investment fund,almost all of whi

301、ch is generated from customer payments related to solar energy systems that have been previously purchased(or leased,as applicable)by such fund.If such cash flows are lower than expected,the priority distributions to the investor may continue for longer than initially anticipated.Additionally,certai

302、n of our investment funds require that,under certain circumstances,we forego distributions from the fund that we are otherwise contractually entitled to,or make capital contributions to the fund,so that such distributions owed to us,or additional capital contributions made by us,can be redirected to

303、 the fund investor such that it achieves the targeted return.For example,during the year ended December 31,2016,we paid contractually agreed upon capital distributions of$2.7 million to reimburse fund investors a portion of their capital contributions primarily due to a delay in solar energy systems

304、 being interconnected to the power grid and other factors.Our fund investors also expect returns partially in the form of tax benefits and,to enable such returns,our investment funds contain terms that contractually require us to make payments to the funds that are then used to make payments to the

305、fund investor in certain circumstances so that the fund investor receives value equivalent to the tax benefits it expected to receive when entering into the transaction.The amounts of potential tax payments under these arrangements depend on the tax benefits that accrue to such investors from the fu

306、nds activities.Due to uncertainties associated with estimating the timing and amounts of these cash distributions and allocations of tax benefits to such investors,we cannot determine the potential maximum future impact on our cash flows or payments that we could have to make under these arrangement

307、s.We may agree to similar terms in the future if market conditions require it.Any significant payments that we may be required to make or distributions to us that are reduced or diverted as a result of these arrangements could adversely affect our financial condition.17We may incur substantially mor

308、e debt or take other actions that could restrict our ability to pursue our business strategies.Since September 2014,we have entered into five debt facilities through which we have incurred$771.9 million aggregate principal amount of outstanding borrowings and had up to$238.0 million of unused borrow

309、ing capacity remaining as of December 31,2016.These debt facilities restrict our ability to dispose of assets,incur indebtedness,incur liens,pay dividends or make other distributions to holders of our capital stock,repurchase our capital stock,make specified investments or engage in transactions wit

310、h our affiliates.In addition,we do not have full access to the cash and cash equivalents held in our investments funds until distributed per the terms of the arrangements.We and our subsidiaries may incur substantial additional debt in the future and any debt instrument we enter into in the future m

311、ay contain similar,or more onerous,restrictions.These restrictions could inhibit our ability to pursue our business strategies.Additionally,our ability to make scheduled payments depends on our operating performance,which is subject to economic,financial,competitive and other factors that may be bey

312、ond our control.Furthermore,if we default on one of our debt instruments,and such event of default is not cured or waived,the lenders could terminate commitments to lend and cause all amounts outstanding with respect to the debt to be due and payable immediately,which in turn could result in cross a

313、cceleration under other debt instruments.Our assets and cash flow may not be sufficient to fully repay borrowings under all of our outstanding debt instruments if some or all of these instruments are accelerated upon a default.Furthermore,there is no assurance that we will be able to enter into new

314、debt instruments on acceptable terms.If we are unable to satisfy financial covenants and other terms under existing or new instruments or obtain waivers or forbearance from our lenders or if we are unable to obtain refinancing or new financings for our working capital,equipment and other needs on ac

315、ceptable terms if and when needed,our business would be adversely affected.Our business is concentrated in certain markets,putting us at risk of region specific disruptions.As of December 31,2016,approximately 39%of our cumulative installations and 28%of our total sales offices were located in Calif

316、ornia.In addition,we expect future growth to occur in California,which could further concentrate our customer base and operational infrastructure.Accordingly,our business and results of operations are particularly susceptible to adverse economic,regulatory,political,weather and other conditions in C

317、alifornia and in other markets that may become similarly concentrated.Residential solar energy is an evolving market,which makes it difficult to evaluate our prospects.The residential solar energy industry is constantly evolving,which makes it difficult to evaluate our prospects.We cannot be certain

318、 if historical growth rates reflect future opportunities or whether growth anticipated by us or industry analysts will be realized.Any future growth of the residential solar energy market and the success of our solar energy systems depend on many factors beyond our control,including recognition and

319、acceptance of the residential solar energy market by consumers,the pricing of alternative sources of energy,a favorable regulatory environment,the continuation of expected tax benefits and other incentives and our ability to provide our solar energy systems cost-effectively.If the markets for reside

320、ntial solar energy do not develop at the rate we expect,our business may be adversely affected.Additionally,due to our limited operating history,we do not have empirical evidence of the effect of our systems on the resale value of our customers houses.Due to the length of our customer contracts,the

321、system deployed on a customers roof may be outdated prior to the expiration of the term of the customer contract reducing the likelihood of renewal of our contracts at the end of the 20-year term,and possibly increasing the occurrence of defaults.This could have an adverse effect on our business,fin

322、ancial condition,results of operations and cash flow.As a result,our limited operating history may impair our ability to accurately forecast our future performance and to invest accordingly.We have previously identified a material weakness in our internal control over financial reporting relating to

323、 inadequate review procedures in connection with the preparation of our consolidated financial statements that resulted in the restatement of certain of our financial statements,and we may identify material weaknesses in the future.We previously reported a material weakness in internal control over

324、financial reporting for the years ended December 31,2015 and 2014 associated with the HLBV method of attributing net income or loss to non-controlling interests and redeemable non-controlling interests and with our financial statement close process.A material weakness is a deficiency,or a combinatio

325、n of deficiencies,in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.18As discussed in“Item 9AControls and Procedures,”we took a number

326、 of measures to remediate the material weakness described above,and based on these measures,management has tested the internal control activities and found them to be effective and has concluded that the material weakness described above has been remediated as of December 31,2016.However,if in futur

327、e periods we identify other material weaknesses in internal control over financial reporting,we will be unable to assert that our internal control over financial reporting is effective,which could result in the loss of investor confidence.In addition,to date,the audit of our consolidated financial s

328、tatements by our independent registered public accounting firm has included a consideration of internal control over financial reporting as a basis of designing their audit procedures,but not for the purpose of expressing an opinion on the effectiveness of our internal controls over financial report

329、ing.When we cease to be an emerging growth company we will be required to have our independent registered accounting firm perform such an evaluation,and additional material weaknesses or other control deficiencies may be identified.If we are unable to avoid or remediate any future material weakness,

330、our stock price may be adversely affected and we may be unable to maintain compliance with applicable stock exchange listing requirements.We face competition from traditional regulated electric utilities,from less-regulated third party energy service providers,other solar companies and from new rene

331、wable energy companies.The solar energy and renewable energy industries are both highly competitive and continually evolving as participants strive to distinguish themselves within their markets and compete with large traditional utilities.We believe that our primary competitors are the traditional

332、utilities that supply electricity to our potential customers.Traditional utilities generally have substantially greater financial,technical,operational and other resources than we do.As a result,these competitors may be able to devote more resources to the research,development,promotion and sale of

333、their products or respond more quickly to evolving industry standards and changes in market conditions than we can.Traditional utilities could also offer other value-added products or services that could help them to compete with us even if the cost of electricity they offer is higher than ours.In addition,a majority of utilities sources of electricity is non-solar,which may allow utilities to sel