Agreement with Tesla to supply power for AI sends solar company Sunrun higher

Sunrun, a mid-cap provider of solar and energy storage systems, has surged around 5% in premarket trading on Thursday, extending the previous day's rally after announcing a partnership with Tesla and virtual power plant operator Renew Home to supply electricity to data centers and utilities across the U.S.

Sunrun shares have risen around 5% in premarket trading on Thursday, as of this writing, after jumping 13% on Wednesday. Markets were reacting to news of a partnership between Sunrun, Tesla, and Renew Home. Together, the companies plan to create a distributed power plant by aggregating hundreds of thousands of home battery systems operated by Sunrun and Tesla and 8 million smart thermostats managed by Renew Home. The combined capacity will total 16 gigawatts – enough to power roughly 12 million U.S. homes, notes Bloomberg.

The growth of AI technologies has led to a sharp increase in electricity demand, higher power costs, and longer interconnection queues, the companies said in a press release. The U.S. power system is designed to meet peak demand, but such periods occur only a small fraction of the time, leaving infrastructure underutilized for much of the year. A study by consulting firm Brattle Group found that better utilization of the grid could reduce electricity bills by $110-170 billion.

At the same time, no single infrastructure solution can respond quickly enough to the mounting pressure that data centers are placing on the country's power system, said Tesla Senior Director of Residential Energy Colby Hastings. The partners believe that “a huge piece of the answer is already in place – in the batteries, thermostats, and electric vehicles inside millions of American homes, waiting to be put to work.”

During peak demand hours, distributed power plants can be activated to provide capacity to data centers while simultaneously helping lower household energy costs, Powell added.

The solution requires no additional hardware, software, interconnection, water, or land usage, according to Sunrun's press release. It can be deployed in months rather than years and creates additional headroom on the existing grid, including by easing congestion on distribution infrastructure.

The companies plan to offer capacity to data centers on a first-come, first-served basis. They have also proposed supplying capacity to PJM Interconnection, the largest power grid in the U.S., though PJM has not yet accepted the offer, according to the announcement.

Sunrun shares have doubled over the last 12 months, though they remain down around 22% year to date. Wall Street is broadly upbeat on the stock. It has 13 "buy" calls from coverage analysts, versus 10 "hold" ratings and one "sell." The average target price is $19 per share, implying 32% upside from the Wednesday closing price.