San Francisco-based Sunrun, the largest residential solar power company in the US, has reportedly signed a definitive agreement to acquire one of its main rivals, Vivint Solar, in an all-stock deal worth $3.2 billion. The deal will get Vivint Solar shareholders 0.55 shares of Sunrun for each Vivint Solar share.

The merger of two of these top three residential solar companies in the US is aimed at creating economies of scale to lower customer acquisition costs and is said to be one of the biggest consolidation in the solar industry’s history, posing a threat to Tesla, the number-two competitor for rooftop panels. The merged entity will have a share of more than 15 per cent while Tesla, which acquired onetime leader SolarCity in 2014, has 6 per cent.

“This is a transformational opportunity to generate consumer and shareholder value, realize annual cost synergies and bring cleaner, affordable energy to more homes,” Sunrun stated in a news release. Both Sunrun and Vivint Solar have struggled with rising costs, so they likely need to raise prices to generate better returns. The company expects the deal will deliver estimated cost synergies of $90 million per annum.

“Joining forces with Sunrun will allow us to reach a broader set of customers and accelerate the pace of clean energy adoption and grid modernization,” Vivint CEO David Bywater said. The combined company will have a customer base of nearly 500,000, with more than 3 GW of solar assets on the balance sheet.

REGlobal’s Views: The deal will certainly create synergies given that Sunrun has largely been focused on financing and installing solar panels and batteries while Vivint designs and installs solar energy systems for homeowners. But it will also shift Sunrun’s business almost completely to a self-installation focus. That’s a big change for a company that once considered itself more of a software solutions company than an installer of solar panels. It will be interesting to see how it will retain its third-party installation partners as they may now consider moving to other software companies rather than sign on with their competition.