The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes thereto included elsewhere in this Annual Report on
Form 10-K. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
discussed below. Factors that could cause or contribute to such differences
include those identified below and those discussed in the section titled "Risk
Factors" included elsewhere in this Annual Report on Form 10-K.
We provide clean, solar energy to customers at a significant savings compared to
traditional utility energy. We have been selling solar energy to residential
customers through a variety of offerings since we were founded in 2007. We,
either directly or through one of our solar partners, install a solar energy
system on a customer's home and either sell the system to the customer or, as is
more often the case, sell the energy generated by the system to the customer
pursuant to a lease or power purchase agreement ("PPA") with no or low upfront
costs. We refer to these leases and PPAs as "Customer Agreements." Following
installation, a system is interconnected to the local utility grid. The home's
energy usage is provided by the solar energy system, with any additional energy
needs provided by the local utility. Any excess solar energy, including amounts
in excess of battery storage, that is not immediately used by the customers is
exported to the utility grid using a bi-directional utility net meter, and the
customer generally receives a credit for the excess energy from their utility to
offset future usage of utility-generated energy.
We offer our solar service offerings both directly to the customer and through
our solar partners, which include sales and installation partners, and strategic
partners, which include retail partners. In addition, we sell solar energy
systems directly to customers for cash. We also sell solar energy panels and
other products (such as racking) to resellers. As of December 31, 2019, we
provided our solar services to customers and sold solar energy panels and other
products to resellers throughout the United States. More than 40% of our
cumulative systems deployed are in California.
We compete mainly with traditional utilities. In the markets we serve, our
strategy is to price the energy we sell below prevailing local retail
electricity rates. As a result, the price our customers pay under our solar
service offerings varies depending on the state where the customer lives, the
local traditional utility that otherwise provides electricity to the customer,
as well as the prices other solar energy companies charge in that region. Even
within the same neighborhood, site-specific characteristics drive meaningful
variability in the revenue and cost profiles of each home. Using our proprietary
technology, we target homes with advantageous revenue and cost characteristics,
which means we are often able to offer pricing that allows customers to save
more on their energy bill while maintaining our ability to meet our targeted
returns. For example, with the insights provided by our technology, we can offer
competitive pricing to customers with homes that have favorable characteristics,
such as roofs that allow for easy installation, high electricity consumption, or
low shading, effectively passing through the cost savings we are able to achieve
on these installations to the customer.
Our ability to offer Customer Agreements depends in part on our ability to
finance the purchase and installation of the solar energy systems by monetizing
the resulting customer cash flows and related commercial investment tax credits
("Commercial ITCs"), accelerated tax depreciation and other incentives from
governments and local utilities. We monetize these incentives under tax equity
investment funds, which are generally structured as non-recourse project
financings. From inception to February 24, 2020, we have established 43
investment funds, which represent financing for an estimated $9.7 billion in
value of solar energy systems on a cumulative basis. From time to time, we may
repurchase investors' interests in our tax equity investment funds after the
recapture period of the relevant tax incentives. We intend to establish
additional investment funds and may also use debt, equity and other financing
strategies to fund our growth.
In addition, completing the sale and installation of a solar energy system
requires many different steps including a site audit, completion of designs,
permitting, installation, electrical sign-off and interconnection. Customers may
cancel their Customer Agreements with us, subject to certain conditions, during
this process until commencement of installation. Customer cancellation rates can
change over time and vary between markets.

Investment Funds
Our Customer Agreements provide for recurring customer payments, typically over
20 or 25 years, and the related solar energy systems are generally eligible for
Commercial ITCs, accelerated tax depreciation and other

                                       46
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government or utility incentives. Our financing strategy is to monetize these
benefits at a low weighted average cost of capital. This low cost of capital
enables us to offer attractive pricing to our customers for the energy generated
by the solar energy system on their homes. Historically, we have monetized a
portion of the value created by our Customer Agreements and the related solar
energy systems through investment funds. These assets are attractive to fund
investors due to the long-term, recurring nature of the cash flows generated by
our Customer Agreements, the high credit scores of our customers, the fact that
energy is a non-discretionary good and our low loss rates. In addition, fund
investors can receive attractive after-tax returns from our investment funds due
to their ability to utilize Commercial ITCs, accelerated depreciation and
certain government or utility incentives associated with the funds' ownership of
solar energy systems.
As of December 31, 2019, we had 36 active investment funds, which are described
below. We have established different types of investment funds to implement our
asset monetization strategy. Depending on the nature of the investment fund,
cash may be contributed to the investment fund by the investor upfront or in
stages based on milestones associated with the design, construction or
interconnection status of the solar energy systems. The cash contributed by the
fund investor is used by the investment fund to purchase solar energy systems.
The investment funds either own or enter into a master lease with a Sunrun
subsidiary for the solar energy systems, Customer Agreements and associated
incentives. We receive on-going cash distributions from the investment funds
representing a portion of the monthly customer payments received. We use the
upfront cash, as well as on-going distributions to cover our costs associated
with designing, purchasing and installing the solar energy systems. In addition,
we also use debt, equity and other financing strategies to fund our operations.
The allocation of the economic benefits between us and the fund investor and the
corresponding accounting treatment varies depending on the structure of the
investment fund.
We currently utilize three legal structures in our investment funds, which we
refer to as: (i) pass-through financing obligations, (ii) partnership flips and
(iii) joint venture ("JV") inverted leases. We reflect pass-through financing
obligations on our consolidated balance sheet as a pass-through financing
obligation. We record the investor's interest in partnership flips or JV
inverted leases (which we define collectively as "consolidated joint ventures")
as noncontrolling interests or redeemable noncontrolling interests. These
consolidated joint ventures are usually redeemable at our option and, in certain
cases, at the investor's option. If redemption is at our option or the
consolidated joint ventures are not redeemable, we record the investor's
interest as a noncontrolling interest and account for the interest using the
hypothetical liquidation at book value ("HLBV") method. If the investor has the
option to put their interest to us, we record the investor's interest as
redeemable noncontrolling interest at the greater of the HLBV and the redemption
value.
The table below provides an overview of our current investment funds (dollars in
millions):
                                                                   

Consolidated Joint Ventures


                                       Pass-Through
                                        Financing
                                       Obligations          Partnership Flip        JV Inverted Lease
Consolidation                       Owner entity         Single entity,           Owner and tenant
                                    consolidated,        consolidated             entities consolidated
                                    tenant entity not
                                    consolidated

Balance sheet classification Pass-through Redeemable


      Redeemable
                                    financing            noncontrolling           noncontrolling
                                    obligation           interests and            interests and
                                                         noncontrolling           noncontrolling
                                                         interests                interests
Revenue from Commercial ITCs        Recognized on the    None               

None


                                    PTO date

Method of calculating investor Effective interest Greater of HLBV or


      Greater of HLBV or
interest                            rate method          redemption value         redemption value; or
                                                                                  pro rata
Liability balance as of December    $          339.0                      N/A                     N/A
31, 2019
Noncontrolling interest balance                  N/A     $              638.2     $              35.0
(redeemable or otherwise) as of
December 31, 2019



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For further information regarding our investment funds, including the associated
risks, see Item 1A. Risk Factors-"Our ability to provide our solar service
offerings to customers on an economically viable basis depends in part on our
ability to finance these systems with fund investors who seek particular tax and
other benefits.", Note 11, Project Equity Financing, Note 14, Pass-Through
Financing Obligations, Note 15, VIE Arrangements and Note 16, Redeemable
Noncontrolling Interests to our consolidated financial statements appearing
elsewhere in this Annual Report on Form 10-K.

Pass-through Financing Obligations
Pass-Through Financing Obligations. In this investment fund structure, we and
the fund investor each utilize separate entities to facilitate the pass-through
of the Commercial ITC or U.S. Treasury grants to the fund investors. We
contribute solar energy systems to an "owner" entity in exchange for interests
in the owner entity, and the fund investors contribute cash to a "tenant" entity
in exchange for interests in the tenant entity.
Under our pass-through financing obligation structure, in accordance with the
provisions of FASB, Accounting Standards Codification Topic 810 ("ASC 810")
Consolidation, we have determined that we are the primary beneficiary of the
owner entity, and accordingly, we consolidate that entity. We have also
determined that we are not the primary beneficiary of the tenant entity, and
accordingly, we do not consolidate that entity.
In this investment fund structure, the investors make a series of large up-front
payments as well as, in some instances, subsequent smaller quarterly lease
payments through their respective tenant entity to the corresponding owner
entity in exchange for the assignment of cash flows from Customer Agreements and
certain other benefits associated with the Customer Agreements and related solar
energy systems. We account for the payments from investors as borrowings by
recording the proceeds received as financing obligations. The financing
obligation is reduced over a period of approximately 22 years by customer
payments under the Customer Agreements, U.S. Treasury grants (where applicable);
and proceeds from the contracted resale of SRECs as they are received by the
investor. In addition, funds paid for the Commercial ITC value upfront are
initially recorded as a refund liability and recognized as revenue as the
associated solar system reaches permission to operate ("PTO").
We account for these investment funds in our consolidated financial statements
as if we have not assigned the Customer Agreement to the investor, and we record
on our consolidated financial statements activities arising from the Customer
Agreements and any related U.S. Treasury grants, Commercial ITCs monetized as
part of the upfront payments received from the investor and SREC sales. The
interest charge on our pass-through financing obligations is imputed at the
inception of the fund based on the effective interest rate in the arrangement
giving rise to the obligation and is updated prospectively as appropriate.
In certain arrangements, we agree to defer a portion of the up-front payments by
arranging a loan between one of our indirectly wholly owned subsidiaries to a
subsidiary of the investor's tenant entity.
Consolidated Joint Ventures
Partnership Flips. Under partnership flip structures, we and our fund investors
contribute cash into a partnership entity. The partnership uses the cash to
acquire solar energy systems developed by us with signed Customer Agreements.
Each fund investor receives a rate of return, typically on an after-tax basis,
which varies by investment fund. Prior to the fund investor receiving its
contractual rate of return or for a time period specified in the contractual
arrangements, the fund investor receives a significant portion of the value
attributable to customer payments, a majority of the accelerated tax
depreciation and substantially all of the Commercial ITCs. After the fund
investor receives its contractual rate of return or after the specified time
period, we receive substantially all of the value attributable to the remaining
customer payments and SREC sales.
Included within the Partnership Flips is the project equity financing we entered
into in December 2016. We pooled and transferred our interests in certain
financing funds into a special purpose entity ("SPE") with a new investor. We
did not recognize a gain or loss on the transfer of its interests in the
financing funds and continue to consolidate the financing funds. The SPE's
assets and cash flows are not available to our other creditors, and the investor
has no recourse to our other assets.

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Under our partnership flip structures, we have determined that we control the
partnership entity which is a variable interest entity ("VIE"), and accordingly
we consolidate the entity and record the investor's interest as either
noncontrolling interests or redeemable noncontrolling interests in our
consolidated balance sheets.
Inverted Leases. Under our inverted lease structure, we and the fund investor
set up a multi-tiered investment vehicle that is comprised of two partnership
entities which facilitate the pass through of the tax benefits to the fund
investors. In this structure we contribute solar energy systems to an "owner"
partnership entity in exchange for interests in the owner partnership and the
fund investors contribute cash to a "tenant" partnership in exchange for
interests in the tenant partnership, which in turn makes an investment in the
owner partnership entity in exchange for interests in the owner partnership. The
owner partnership uses the cash contributions received from the tenant
partnership to purchase systems from us and/or fund installation of such
systems. Under our existing JV inverted lease structure, a substantial portion
of the value generated by the solar energy systems is provided to the fund
investor for a specified period of time, which is generally based upon the
period of time corresponding to the expiry of the recapture period associated
with the Commercial ITCs. After that point in time, we receive substantially all
of the value attributable to the long-term recurring customer payments and the
other incentives. Generally, under the terms of each agreement, the investors'
contributions include the value of Commercial ITCs earned or grants to be
received by the fund investor. Any other proceeds are allocated on a pro rata
basis to the fund investor and us in accordance with their ownership
percentages. Since Sunrun has the power to control both the owner and tenant
entities, both entities are included in our consolidated financial statements.
We also have one JV inverted lease fund whereby we have a pro rata interest in
the entity and we account for the noncontrolling interest's share of income on a
pro rata basis. Accordingly, the noncontrolling interest of this fund is carried
on our balance sheet at the cumulative amount of capital contributions, reduced
by cumulative distributions paid to the investor, as well as the pro rata share
of their income. Under our JV inverted lease structure, we have determined that
we control each VIE, and accordingly we consolidate the entity and record
investor's interest as a noncontrolling interest or redeemable noncontrolling
interest.
For all of our partnership flips and JV inverted leases, the redeemable
noncontrolling interest is carried on our balance sheet at the greater of the
redemption value or the amount calculated under the HLBV method. The HLBV method
estimates the amount that, if the fund's assets were hypothetically sold at
their book value, the investor would be entitled to receive according to the
liquidation waterfall in the partnership agreement.
Key Operating Metrics
We regularly review a number of metrics, including the following key operating
metrics, to evaluate our business, measure our performance, identify trends
affecting our business, formulate financial projections and make strategic
decisions. Some of our key operating metrics are estimates that are based on our
management's beliefs and assumptions and on information currently available to
management. Although we believe that we have a reasonable basis for each of
these estimates, we caution you that these estimates are based on a combination
of assumptions that may prove to be inaccurate over time. Any inaccuracies could
be material to our actual results when compared to our calculations. Please see
the section titled "Risk Factors" in this Annual Report on Form 10-K for more
information. Furthermore, other companies may calculate these metrics
differently than we do now or in the future, which would reduce their usefulness
as a comparative measure.

•           Megawatts Deployed represents the aggregate megawatt production
            capacity of our solar energy systems, whether sold directly to
            customers or subject to executed Customer Agreements (i) for which we
            have confirmation that the systems are installed on the roof, subject
            to final inspection; (ii) in the case of certain system

installations


            by our partners, for which we have accrued at least 80% of the
            expected project cost, or (iii) for multi-family and any other
            systems that have reached NTP, measured on the percentage of the
            project that has been completed based on expected project cost.



•           Gross Earning Assets represents the net cash flows

(discounted at 6%)


            we expect to receive during the initial term of our Customer
            Agreements (typically 20 or 25 years) for systems that have been
            deployed as of the measurement date, plus a discounted estimate of
            the value of the Customer Agreement renewal term or solar energy
            system purchase at the end of the initial term. Consistent with
            industry standards, we use a discount rate of 6%. We consider a
            discount rate of 6% to be appropriate and consistent with recent
            market transactions that demonstrate that a portfolio of



                                       49

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residential solar customer contracts is an asset class that can be securitized
successfully on a long-term basis, with a coupon of less than 5%. We calculate
the Gross Earning Assets value of the purchase or renewal amount at the
expiration of the initial contract term assuming either a system purchase or a
five year renewal (for our 25-year Customer Agreements) or a 10-year renewal
(for our 20-year Customer Agreements), in each case forecasting only a 30-year
customer relationship (although the customer may renew for additional years, or
thereafter purchase the system), at a contract rate equal to 90% of the
customer's contractual rate in effect at the end of the initial contract term.
After the initial (generally 20- or 25-year) contract term, our Customer
Agreements typically automatically renew on an annual basis and the rate is
initially set at up to a 10% discount to then-prevailing power prices.
Gross Earning Assets is calculated net of estimated cash distributions to
investors in consolidated joint ventures and estimated operating, maintenance
and administrative expenses for systems deployed as of the measurement date. In
calculating Gross Earning Assets, we deduct estimated cash distributions to our
project equity financing providers. In calculating Gross Earning Assets, we do
not deduct customer payments we are obligated to pass through to investors in
pass-through financing obligations as these amounts are reflected on our balance
sheet as long-term and short-term pass-through financing obligations, similar to
the way that debt obligations are presented. In determining our finance
strategy, we use pass-through financing obligations and long-term debt in an
equivalent fashion as the schedule of payments of distributions to pass-through
financing obligation investors is more similar to the payment of interest to
lenders than the internal rates of return (IRRs) paid to investors in other tax
equity structures.
•                     Gross Earning Assets Under Energy Contract represents the
                      net cash flows during the initial term of our Customer
                      Agreements (less substantially all value from SRECs prior
                      to July 1, 2015), for systems deployed as of the
                      measurement date.


•                     Gross Earning Assets Value of Purchase or Renewal is the
                      forecasted net present value we would receive upon or
                      following the expiration of the initial Customer Agreement
                      term (either in the form of cash payments during any
                      applicable renewal period or a system purchase at the end
                      of the initial term), for systems deployed as of the
                      measurement date.


Gross Earning Assets is forecasted as of a specific date. It is forward-looking,
and we use judgment in developing the assumptions used to calculate it. Factors
that could impact Gross Earning Assets include, but are not limited to, customer
payment defaults, or declines in utility rates or early termination of a
contract in certain circumstances, including prior to installation.

                                                  As of December 31,
                                                  2019         2018

Cumulative Megawatts Deployed (end of period) 1,987 1,575





                                                        As of December 31,
                                                        2019           2018
                                                          (in thousands)
Gross Earning Assets Under Energy Contract          $ 2,536,612    $ 2,099,532
Gross Earning Assets Value of Purchase or Renewal     1,147,450        962,948
Gross Earning Assets                                $ 3,684,062    $ 3,062,480



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The tables below provide a range of Gross Earning Asset amounts if different default, discount and purchase and renewal assumptions were used. Gross Earning Assets Under Energy Contract:


                                       As of December 31, 2019
                                            Discount rate
Default rate        4%             5%             6%             7%             8%
                                            (in thousands)
5%             $ 2,898,185    $ 2,671,315    $ 2,471,500    $ 2,294,895    $ 2,138,269
0%             $ 2,978,733    $ 2,743,480    $ 2,536,612    $ 2,353,424    $ 2,191,244

Gross Earning Assets Value of Purchase or Renewal:


                                                  As of December 31, 2019
                                                       Discount rate
Purchase or Renewal rate        4%             5%             6%             7%            8%
                                                       (in thousands)
80%                        $ 1,501,655    $ 1,223,473    $ 1,000,418    $   820,941    $ 676,032
90%                        $ 1,722,461    $ 1,403,285    $ 1,147,450    $   941,415    $ 775,140
100%                       $ 1,943,267    $ 1,583,096    $ 1,294,286    $ 1,061,890    $ 874,248


Total Gross Earning Assets:
                                                   As of December 31, 2019
                                                        Discount rate
Purchase or Renewal rate        4%             5%             6%             7%             8%
                                                        (in thousands)
80%                        $ 4,480,388    $ 3,966,954    $ 3,537,030    $ 3,174,365    $ 2,867,276
90%                        $ 4,701,194    $ 4,146,765    $ 3,684,062    $ 3,294,839    $ 2,966,384
100%                       $ 4,922,000    $ 4,326,576    $ 3,830,898    $ 3,415,314    $ 3,065,492


Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with generally accepted accounting principles in the United States ("GAAP").
GAAP requires us to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue, expenses and related disclosures. We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. In many instances, we
could have reasonably used different accounting estimates, and in other
instances, changes in the accounting estimates are reasonably likely to occur
from period-to-period. Actual results could differ significantly from our
estimates. Our future financial statements will be affected to the extent that
our actual results materially differ from these estimates. For further
information on all of our significant accounting policies, see Note 2, Summary
of Significant Accounting Policies, to our consolidated financial statements
included elsewhere in this Annual Report on Form 10-K.
We believe that policies associated with our principles of consolidation,
revenue recognition, impairment of long-lived assets, provision for income taxes
and calculation of noncontrolling interests and redeemable noncontrolling
interests have the greatest impact on our consolidated financial statements.
Therefore, we consider these to be our critical accounting policies.

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Principles of Consolidation
Our consolidated financial statements include our accounts and those of our
subsidiaries in which we have a controlling financial interest. The typical
condition for a controlling financial interest is holding a majority of the
voting interests of an entity. However, a controlling financial interest may
also exist in entities, such as VIEs, through arrangements that do not involve
controlling financial interests. We consolidate any VIE of which we are the
primary beneficiary, which is defined as the party that has (1) the power to
direct the activities of a VIE that most significantly impact the VIE's economic
performance and (2) the obligation to absorb losses or receive benefits of the
VIE that could potentially be significant to the VIE. We evaluate our
relationships with our VIEs on an ongoing basis to determine whether we continue
to be the primary beneficiary. Our financial statements reflect the assets and
liabilities of VIEs that we consolidate. All intercompany transactions and
balances have been eliminated in consolidation. For further information
regarding consolidation of our investment funds, see "-Investment Funds" above.
Revenue Recognition
We recognize revenue when control of goods or services is transferred to
customers, in an amount that reflects the consideration we expect to be entitled
to in exchange for those goods or services.
Customer Agreements and Incentives Revenue. Customer agreements and incentives
revenue is primarily comprised of revenue from our Customer Agreements and sales
of Commercial ITCs and SRECs to third parties.
We recognize revenue from a Customer Agreement when PTO for the applicable solar
energy system is given by the local utility company or on the date daily
operation commences if utility approval is not required. We recognize revenue
evenly over the time that we satisfy our performance obligations over the
initial term of the Customer Agreements. Customer Agreements typically have an
initial term of 20 or 25 years. After the initial contract term, our Customer
Agreements typically automatically renew on an annual basis and the rate is
initially set at up to a 10% discount to then-prevailing power prices.
We also apply for and receive SRECs associated with the energy generated by our
solar energy systems and sell them to third parties in certain jurisdictions.
SREC revenue is estimated net of any variable consideration related to possible
liquidated damages if we were to deliver fewer SRECs than contractually
committed, and is generally recognized upon delivery of the SRECs to the
counterparty.
Certain upfront payments related to Customer Agreements and SRECs are deemed to
have a financing component, and therefore increase both revenue and interest
expense by the same amount over the term of the related agreement. The
additional revenue is included in the total transaction price to be recorded
over the term of the agreement and is recognized based on the timing of the
delivery. The interest expense is recognized based upon an amortization schedule
which typically decreases throughout the term of the related agreement.
For pass-through financing obligation Funds, the value attributable to the
Commercial ITCs is recognized in the period a solar system is granted PTO, at
which point we have met our obligation to the investor. The Commercial ITCs are
subject to recapture under the Internal Revenue Code ("Code") if the underlying
solar energy system either ceases to be a qualifying property or undergoes a
change in ownership within five years of its placed-in-service date. The
recapture amount decreases on the anniversary of the PTO date. We have not
historically incurred a material recapture of Commercial ITCs, and do not expect
to experience a material recapture of Commercial ITCs in the future.
Consideration from customers is considered variable due to the performance
guarantee under Customer Agreements and liquidated damage provisions under SREC
contracts in the event minimum deliveries are not achieved. Performance
guarantees provide a credit to the customer if the system's cumulative
production, as measured on various PTO anniversary dates, is below our guarantee
of a specified minimum. Revenue is recognized to the extent it is probable that
a significant reversal of such revenue will not occur.
Solar Energy Systems and Product Sales. Solar energy systems sales are comprised
of revenue from the sale of solar energy systems directly to customers. We
recognize revenue from solar energy systems sold to customers when the solar
energy system passes inspection by the authority having jurisdiction, which
inspection generally occurs after installation but prior to PTO, at which time
we have met the performance obligation in the contract.

                                       52
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Product sales revenue consists of revenue from the sale of solar panels,
inverters, racking systems and other solar energy products sold to resellers, as
well as the sale of customer leads to third parties, including our partners and
other solar providers. Product sales revenue is recognized when control is
transferred, generally upon shipment. Customer lead revenue is recognized at the
time the lead is delivered.
Impairment of Long-Lived Assets
The carrying amounts of our long-lived assets, including solar energy systems
and definite-lived intangible assets, are periodically reviewed for impairment
whenever events or changes in circumstances indicate that the carrying value of
these assets may not be recoverable or that the useful life is shorter than
originally estimated. Factors that we consider in deciding when to perform an
impairment review would include significant negative industry or economic
trends, and significant changes or planned changes in our use of the assets.
Recoverability of these assets is measured by comparison of the carrying amount
of each asset group to the future undiscounted cash flows the asset is expected
to generate over its remaining life. If the asset is considered to be impaired,
the amount of any impairment is measured as the difference between the carrying
value and the fair value of the impaired asset. If the useful life is shorter
than originally estimated, we amortize the remaining carrying value over the new
shorter useful life.
Provision for Income Taxes
We account for income taxes under an asset and liability approach. Deferred
income taxes reflect the impact of temporary differences between assets and
liabilities recognized for financial reporting purposes and the amounts
recognized for income tax reporting purposes, net operating loss carryforwards
and other tax credits measured by applying currently enacted tax laws. A
valuation allowance is provided when necessary to reduce deferred tax assets to
an amount that is more likely than not to be realized. We consider all available
evidence, both positive and negative, including historical levels of income,
estimates of future taxable income, reversing taxable temporary differences, and
ongoing tax planning strategies in assessing the need for a valuation allowance.
As of December 31, 2019, we have recorded a valuation allowance of $12.1 million
for certain federal tax credits, state tax credits and state deferred tax assets
that we believe is more likely than not that the deferred tax assets will not be
realized.
We sell solar energy systems to the investment funds. As the investment funds
are consolidated by us, the gain on the sale of the solar energy systems is not
recognized in the consolidated financial statements. However, this gain is
recognized for tax reporting purposes. Since these transactions are intercompany
sales for book purposes, before January 1, 2017, any tax expense incurred
related to these intercompany sales was deferred and recorded as a prepaid tax
asset and there was no recognition of a deferred tax asset related to our
increased tax basis in the partnership as a result of such sales. The prepaid
tax asset was amortized over the estimated useful life of the underlying solar
energy systems which has been estimated to be 35 years. With the adoption of ASU
2016-16 on January 1, 2017 we reversed net prepaid tax assets of $378.5 million
and recorded the gross deferred tax assets associated with the historical
intercompany sales of solar energy systems, which in turn reduced the deferred
tax liabilities on investment in partnerships by $378.2 million with the
remaining $0.3 million being recorded as a cumulative effect of adoption in our
Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders'
Equity. The adoption did not have an impact on our Consolidated Statement of
Operations.
We determine whether a tax position is more likely than not to be sustained upon
examination, including resolution of any related appeals or litigation
processes, based on the technical merits of the position. We use a two-step
approach to recognizing and measuring uncertain tax positions. The first step is
to evaluate the tax position for recognition by determining if the weight of
available evidence indicates that it is more likely than not that the position
will be sustained upon tax authority examination, including resolution of
related appeals or litigation processes, if any. The second step is to measure
the tax benefit as the largest amount that is more than 50% likely of being
realized upon ultimate settlement.
Our policy is to include interest and penalties related to unrecognized tax
benefits, if any, within the provision for taxes in the consolidated statements
of operations.


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Noncontrolling Interests and Redeemable Noncontrolling Interests
Our noncontrolling interests and redeemable noncontrolling interests represent
fund investors' interests in the net assets of certain investment funds, which
we consolidate, that we have entered into in order to finance the costs of solar
energy facilities under Customer Agreements. We have determined that the
provisions in the contractual arrangements of the investment funds represent
substantive profit-sharing arrangements, which gives rise to the noncontrolling
interests and redeemable noncontrolling interests. We have further determined
that for all but one of these arrangements, the appropriate methodology for
attributing income and loss to the noncontrolling interests and redeemable
noncontrolling interests each period is a balance sheet approach using the HLBV
method.
Attributing income and loss to the noncontrolling interests and redeemable
noncontrolling interests under the HLBV method requires the use of significant
assumptions to calculate the amounts that fund investors would receive upon a
hypothetical liquidation. Changes in these assumptions, including change in tax
rates, can have a significant impact on the amount that fund investors would
receive upon a hypothetical liquidation.
We classify certain noncontrolling interests with redemption features that are
not solely within our control outside of permanent equity on our consolidated
balance sheets. Redeemable noncontrolling interests are reported using the
greater of their carrying value at each reporting date as determined by the HLBV
method or their estimated redemption value in each reporting period. Estimating
the redemption value of the redeemable noncontrolling interests requires the use
of significant assumptions and estimates such as projected future cash flows at
the time the redemption feature can be exercised.
We determine the net income (loss) attributable to common stockholders by
deducting from net loss, the net loss attributable to noncontrolling interests
and redeemable noncontrolling interests in these funds. The net loss
attributable to noncontrolling interests and redeemable noncontrolling interests
represents the fund investors' allocable share in the results of operations of
these investment funds. For these funds, we have determined that the provisions
in the contractual arrangements represent substantive profit sharing
arrangements, where the allocations to the partners sometimes differ from the
stated ownership percentages. We have further determined that, for these
arrangements, the appropriate methodology for attributing income and loss to the
noncontrolling interests and redeemable noncontrolling interests each period is
a balance sheet approach using the HLBV method. Under the HLBV method, the
amounts of income and loss attributed to the noncontrolling interests and
redeemable noncontrolling interests in the consolidated statements of operations
reflect changes in the amounts the fund investors would hypothetically receive
at each balance sheet date under the liquidation provisions of the contractual
provisions of these funds, assuming the net assets of the respective investment
funds were liquidated at the carrying value determined in accordance with GAAP.
The fund investors' interest in the results of operations of these investment
funds is initially determined by calculating the difference in the
noncontrolling interests and redeemable noncontrolling interests' claim under
the HLBV method at the start and end of each reporting period, after taking into
account any contributions and distributions between the fund and the fund
investors and subject to the redemption provisions in certain funds.
Results of Operations
The results of operations presented below should be reviewed in conjunction with
the consolidated financial statements and notes thereto included elsewhere in
this Annual Report on Form 10-K. Our Annual Report on Form 10-K for the year
ended December 31, 2018 includes a discussion and analysis of our financial
condition and results of operations for the year ended December 31, 2017 in Item
7 of Part II, "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

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                                                                Year Ended December 31,
                                                               2019                      2018
                                                        (in thousands, except per share amounts)
Revenue:
Customer agreements and incentives                  $             387,835         $        404,466
Solar energy systems and product sales                            470,743                  355,515
Total revenue                                                     858,578                  759,981
Operating expenses:
Cost of customer agreements and incentives                        280,344                  240,857
Cost of solar energy systems and product sales                    365,485                  294,066
Sales and marketing                                               275,148                  207,232
Research and development                                           23,563                   18,844
General and administrative                                        125,023                  116,659
Amortization of intangible assets                                   4,755                    4,204
Total operating expenses                                        1,074,318                  881,862
Loss from operations                                             (215,740 )               (121,881 )
Interest expense, net                                             174,246                  131,771
Other expenses (income), net                                        9,254                   (2,788 )
Loss before income taxes                                         (399,240 )               (250,864 )
Income tax (benefit) expense                                       (8,218 )                  9,322
Net loss                                                         (391,022 )               (260,186 )
Net loss attributable to noncontrolling interests
and redeemable noncontrolling interests                          (417,357 )               (286,843 )
Net income attributable to common stockholders      $              26,335         $         26,657
Net income per share attributable to common
stockholders
Basic                                               $                0.23         $           0.24
Diluted                                             $                0.21         $           0.23
Weighted average shares used to compute net
income per share attributable to common
stockholders
Basic                                                             116,397                  110,089
Diluted                                                           123,876                  117,112


Comparison of the Years Ended December 31, 2019 and 2018
Revenue
                                               Year Ended
                                              December 31,               Change
                                            2019         2018          $          %
                                                    (in thousands)
Customer agreements                      $ 345,486    $ 272,672    $ 72,814      27  %
Incentives                                  42,349      131,794     (89,445 )   (68 )%
Customer agreements and incentives         387,835      404,466     (16,631 )    (4 )%
Solar energy systems                       283,429      186,512      96,917      52  %
Products                                   187,314      169,003      18,311      11  %
Solar energy systems and product sales     470,743      355,515     115,228      32  %
Total revenue                            $ 858,578    $ 759,981    $ 98,597      13  %


Customer Agreements and Incentives. The $72.8 million increase in revenue from
Customer Agreements was due to both an increase in solar energy systems under
Customer Agreements being placed in service in 2019

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and a full year of revenue recognized in 2019 for systems placed in service in
2018 versus only a partial amount of such revenue related to the period in which
the assets were in service in 2018. The $89.4 million decrease in revenue from
incentives was primarily due to the sale of Commercial ITCs under a financing
obligation fund opened in 2018, with PTO activity in that fund primarily
concluding in the second quarter of 2019. There was no such comparable fund
opened in 2019.
Solar Energy Systems and Product Sales. Revenue from solar energy systems sales
increased by $96.9 million compared to the prior year due to increased demand
through retail partners. Product sales increased by $18.3 million compared to
the prior year primarily due to an increase in the volume of wholesale products
sold.
Operating Expenses
                                                        Year Ended
                                                       December 31,               Change
                                                     2019          2018          $         %
                                                             (in thousands)

Cost of customer agreements and incentives $ 280,344 $ 240,857

  $  39,487    16 %
Cost of solar energy systems and product sales       365,485      294,066       71,419    24 %
Sales and marketing                                  275,148      207,232       67,916    33 %
Research and development                              23,563       18,844        4,719    25 %
General and administrative expense                   125,023      116,659        8,364     7 %
Amortization of intangible assets                      4,755        4,204          551    13 %
Total operating expenses                         $ 1,074,318    $ 881,862    $ 192,456    22 %


Cost of Customer Agreements and Incentives. The $39.5 million increase in Cost
of customer agreements and incentives was due to the increase in solar energy
systems placed in service in 2019, plus a full year of costs recognized in 2019
for systems placed in service in 2018 versus only a partial amount of such
expenses related to the period in which the assets were in service in 2018.
The Cost of customer agreements and incentives increased to 72% of customer
agreements and incentives revenue during 2019, from 60% during 2018 due to the
$89.4 million decrease in revenue from incentives, as discussed above. The cost
of sales related to incentives was minimal.
Cost of Solar Energy Systems and Product Sales. The $71.4 million increase in
Cost of solar energy systems and product sales was due to the corresponding net
increase in solar energy systems and product sales discussed above.
Sales and Marketing Expense. The $67.9 million increase in Sales and marketing
expense was primarily attributable to an increase in headcount driving higher
employee compensation, as well as an increase in costs to acquire customers
through our retail channels and sales lead generating partners. Included in
sales and marketing expense is $11.8 million and $8.6 million of amortization of
costs to obtain Customer Agreements for 2019 and 2018, respectively.
Research and Development Expense. The $4.7 million increase in Research and
development was primarily attributable to hiring of personnel to support the
recent and future growth of our business.
General and Administrative Expense. The $8.4 million increase in General and
administrative expenses is primarily attributable to increased employee
compensation, as well as a temporary duplication of rent expense of $2.1 million
during the transition of corporate office spaces in San Francisco and Denver in
2019.

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Non-Operating Expenses
                                                Year Ended
                                               December 31,               Change
                                            2019         2018           $          %
                                                    (in thousands)
Interest expense, net                    $ 174,246    $ 131,771     $ 42,475      32  %
Other expenses (income), net                 9,254       (2,788 )    

12,042 (432 )% Total interest and other expenses, net $ 183,500 $ 128,983 $ 54,517 42 %




Interest expense, net. The increase in Interest expense, net of $42.5 million
was related to additional non-recourse and pass-through financing obligation
debt entered into in 2019. Included in net interest expense is $28.6 million and
$22.9 million of non-cash interest imputed under prepaid Customer Agreements for
2019 and 2018, respectively.
Other expenses (income), net. The increase in Other expenses (income), net of
$12.0 million relates primarily to losses on extinguishment of debt related to
an early repayment of a pass-through financing obligation and certain
non-recourse debt in 2019.
Income Tax (Benefit) Expense
                                    Year Ended
                                   December 31,               Change
                                  2019        2018          $           %
                                         (in thousands)
Income tax (benefit) expense   $ (8,218 )   $ 9,322    $ (17,540 )   (188 )%


The decrease in Income tax (benefit) expense of $17.5 million was related to a
decrease in state income taxes, an increase in benefits from share based
compensation, and less of an increase in valuation allowance compared to the
prior year.
Given our net operating loss carryforwards as of December 31, 2019, we do not
expect to pay income tax, including in connection with our 2019 income tax
provision, until our net operating losses are fully utilized. As of December 31,
2019, the Company had net operating loss carryforwards for federal and state
income tax purposes of approximately $718.1 million and $1.3 billion,
respectively, which will begin to expire in 2028 for federal purposes and in
2024 for state purposes. In addition, federal and certain state net operating
loss carryforwards generated in tax years beginning after December 31, 2017
total $535.1 million and $102.4 million, respectively, and have indefinite
carryover periods and do not expire.
Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling
Interests
                                                   Year Ended
                                                  December 31,                    Change
                                               2019           2018            $             %
                                                         (in thousands)
Net loss attributable to noncontrolling
interests and redeemable noncontrolling
interests                                  $ (417,357 )   $ (286,843 )   $ 

(130,514 ) 46 %




The increase in Net loss attributable to noncontrolling interests and redeemable
noncontrolling interests was primarily a result of entering into more new
partnership funds in 2019 compared with 2018. Generally, new partnership funds
generate larger losses attributable to noncontrolling interests and redeemable
noncontrolling interests under the HLBV method in the first years after
formation. In 2019, all new funds used the HLBV method.


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Liquidity and Capital Resources
As of December 31, 2019, we had cash of $269.6 million, which consisted of cash
held in checking and savings accounts with financial institutions. We finance
our operations mainly through a variety of financing fund arrangements that we
have formed with fund investors, borrowings, cash generated from our sources of
revenue and proceeds from secured credit facilities arrangements with a
syndicate of banks for up to $265.3 million and from secured, long-term
non-recourse loan arrangements for up to $199.0 million. Our principal uses of
cash are funding our business, including the costs of acquisition and
installation of solar energy systems, satisfaction of our obligations under our
debt instruments and other working capital requirements. As of December 31,
2019, we had outstanding borrowings of $239.5 million on our $250.0 million
corporate bank line of credit maturing in April 2022. Our business model
requires substantial outside financing arrangements to grow the business and
facilitate the deployment of additional solar energy systems. The solar energy
systems that are operational are expected to generate a positive return rate
over the term of the Customer Agreement, typically 20 or 25 years. However, in
order to grow, we will continue to be dependent on financing from outside
parties. If financing is not available to us on acceptable terms if and when
needed, we may be required to reduce planned spending, which could have a
material adverse effect on our operations. While there can be no assurances, we
anticipate raising additional required capital from new and existing investors.
We believe our cash, investment fund commitments and available borrowings as
further described below will be sufficient to meet our anticipated cash needs
for at least the next 12 months. The following table summarizes our cash flows
for the periods indicated:
                                               Year Ended December 31,
                                                 2019            2018
                                                   (in thousands)

Consolidated cash flow data: Net cash used in operating activities $ (204,487 ) $ (62,461 ) Net cash used in investing activities

            (843,255 )    (811,316 )

Net cash provided by financing activities 1,106,572 936,386 Net increase in cash

$      58,830     $  62,609


Operating Activities
During 2019, we used $204.5 million in net cash in operating activities. The
driver of our operating cash inflow consists of payments received from customers
as well as incentives. The driver of our operating cash outflows primarily
relate to the costs of our revenue, as well as sales, marketing and general and
administrative costs. During 2019, our operating cash outflows were $174.7
million from our net loss excluding non-cash and non-operating items. Changes in
working capital resulted in a net cash outflow of $29.7 million.
During 2018, we used $62.5 million in net cash in operating activities. The
driver of our operating cash inflow consists of payments received from customers
as well as incentives. The driver of our operating cash outflows primarily
relate to the costs of our revenue, as well as sales, marketing and general and
administrative costs. During 2018, our operating cash outflows were $47.3
million from our net loss excluding non-cash and non-operating items. Changes in
working capital resulted in a net cash outflow of $15.2 million.
Investing Activities
During 2019, we used $843.3 million in cash in investing activities. The
majority was used to design, acquire and install solar energy systems and
components under our long-term Customer Agreements.
During 2018, we used $811.3 million in cash in investing activities. Of this
amount, we used $806.4 million to design, acquire and install solar energy
systems and components under our long-term Customer Agreements, and $4.9 million
for capitalized software projects and the acquisition of office equipment.

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Financing Activities
During 2019, we generated $1.1 billion from financing activities. This was
primarily driven by $632.2 million in net proceeds from fund investors, $474.8
million in net proceeds from debt, offset by $13.9 million in repayments under
finance lease obligations.
During 2018, we generated $936.4 million from financing activities. This was
primarily driven by $483.8 million in net proceeds from fund investors, $438.1
million in proceeds from debt, net of debt issuance costs and repayments, offset
by $9.0 million in repayments under finance lease obligations.
Debt, Equity, and Financing Fund Commitments
Debt Instruments
For a discussion of the terms and conditions of debt instruments and changes
thereof in the period, refer to Note 11, Project Equity Financing and Note 12,
Indebtedness, to our consolidated financial statements included elsewhere in
this Annual Report on Form 10-K.
Equity Instruments
Warrant. In August 2017, we entered into an agreement with an affiliate
("Contractor") of Comcast Corporation ("Comcast") whereby Contractor will
receive lead or sales fees for new customers it brings to us over a 40-month
term. We also issued Comcast a warrant to purchase up to 11,793,355 shares of
our common stock, at an exercise price of $0.01 per warrant share. The warrant
would initially vest 50.05% when both (i) Contractor had earned a lead or sales
fee with respect to 30,000 of installed solar energy systems, and (ii)
Contractor or its affiliates had spent at least $10.0 million in marketing and
sales in connection with the agreement. Thereafter, the warrant would vest in
five additional increments for each additional 6,000 installed solar energy
systems. On November 7, 2018 the warrant vesting schedule was modified so that
it would initially vest either (i) as to 10.0% if Contractor had earned a lead
or sales fee with respect to 6,000 of installed solar energy systems by
September 30, 2019 or (ii) as to 13.3% if Contractor had earned a lead or sales
fee with respect to 8,000 of installed solar energy systems by December 31,
2019, provided that, in either case, Contractor or its affiliates had spent at
least $25.0 million in marketing and sales in connection with the agreement.
Thereafter, the warrant would vest in additional 8.3% increments for each
additional 5,000 installed solar energy systems.  The initial vesting conditions
were not met by December 31, 2019, and as a result, the warrant expired
unvested.
Investment Fund Commitments
As of December 31, 2019, we had undrawn committed capital of approximately
$581.3 million which may only be used to purchase and install solar energy
systems. We intend to establish new investment funds in the future, and we may
also use debt, equity or other financing strategies to finance our business.
For a discussion of our project equity financing, refer to Note 11, Project
Equity Financing, to our consolidated financial statements included elsewhere in
this Annual Report on Form 10-K.


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Contractual Obligations and Other Commitments
The following table summarizes our contractual obligations as of December 31,
2019:
                                                              Payments Due by Period
                                      Less Than       1 to 3        3 to 5        More Than
                                        1 Year         Years         Years         5 Years          Total
                                                                  (in thousands)
Contractual Obligations:
Debt obligations (including future
interest)                            $  164,274     $ 646,203     $ 931,591     $ 1,361,203     $ 3,103,271
Purchase commitments                     52,370        26,100             -               -          78,470
Distributions payable to
noncontrolling interests and
redeemable noncontrolling
interests (1)                            16,062             -             -               -          16,062
Financing lease obligations
(including accrued interest)             10,741        12,316         1,160               4          24,221
Operating lease obligations, net
of sublease income                       11,247        20,168        13,042           7,999          52,456
Total contractual obligations        $  254,694     $ 704,787     $ 945,793

$ 1,369,206 $ 3,274,480

(1) The foregoing table does not include the amounts we could be required to

expend under our redemption obligations discussed above.




Off Balance Sheet Arrangements
We include in our consolidated financial statements all assets and liabilities
and results of operations of investment fund arrangements that we have entered
into. We do not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, to our consolidated
financial statement included elsewhere in this Annual Report on Form 10-K.

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