Avowed pv magazine readers will have gotten used to our annual ranking of inverter suppliers come the end of the year. Based on the latest IHS Markit data, the world’s top ten inverter companies are typically ranked in terms of their global revenue share, but in the past few years it has grown increasingly apparent that such a metric overlooks the greater nuances of an industry continuously in flux.
Indeed, with certain companies earning more but shipping less than others, who is to say with any certainty how each should be ranked? And in 2016, the waters have been muddied further by a peculiar kink in the market – that being the 20 GW+ first half (H1) installation surge in China that undoubtedly skewed revenue and installation figures in favor of those suppliers with large market share there.
And with Q4 data unavailable until early 2017, it was felt that to rank suppliers based on three quarters’ worth of data – two-thirds of which exhibited a definite China-bias – would be an effort in futility.
So instead, IHS Markit solar research manager Cormac Gilligan discussed with pv magazine the most prominent inverter trends of the year, and looked ahead to what promises to be a fascinating 2017 for the industry.
A Chinese fable
With more than 20 GW of solar inverters shipped in China in the first six months of the year, it is difficult to underestimate the impact this anomaly has had on global revenue and shipment figures. “China had a massive first half, followed by a slowdown in H2, and with continued price pressure in an already very low-priced market – allied to further uncertainty regarding the long-term solar target – IHS expects further consolidation in the Chinese inverter market in the next 12-24 months,” said Gilligan.
Normally for China, the second half of the year is stronger than the first, and so for the five leading domestic suppliers – Sungrow, Huawei, TBEA, Chint and Sineng – their true state of affairs will not be apparent until the first quarter of 2017. For now, the key part of this Chinese enigma to consider is the long payment terms that are inherent in this market. “This stretches financials, and as markets slow down this exacerbates these long payment terms,” explained Gilligan. “If the outlook for the Chinese market is uncertain – and there is volatility in China’s five-year projections – allied to an incredibly competitive market, then we would expect some players to exit the market.”
Chinese firms are no strangers to bankruptcy, however, and many a module maker in the recent past has toppled over only to be resuscitated in a slightly different guise soon afterwards. “This could also happen with inverter companies,” mused Gilligan. “Some suppliers in China may have to curb their international expansion efforts, and as we have seen with some European suppliers like RefuSol and SolarMax, become regional players instead, building upon existing partnerships and utilizing local knowledge.”
Huawei and Sungrow
Given these conditions, China’s two largest inverter suppliers – Huawei and Sungrow –ramped up their internationalization efforts in 2016 to offset the imbalance at home. “Huawei is strong at utility scale, but the next step for the company will be an expansion into commercial and industrial (C&I), particularly ground-mounted C&I, as well as residential rooftops,” said Gilligan. “I expect that by Q2 next year we will see Huawei moving into these sectors.”
The big challenge, Gilligan added, will be for Huawei to continue to add distributors as a major route to market, rather than selling through large EPCs. “They will need to align their sales strategy, which can take a little longer than simply signing up the top ten EPCs in any particular country.” Generally, Huawei is poised to continue where it left off in 2016 – among the top three global suppliers in terms of both revenue and shipments, and on the front foot whenever and wherever new markets show promise.
“Sungrow has had a good year,” said Gilligan. “The company has continued to innovate and release products that will be desirable in the future.” The analyst pointed to Sungrow’s 125 kW, 1,500 volt (V) string inverter that forms the basis of the firm’s new ‘Virtual Central Inverters’, which comprise string inverters with more streamlined points of command and control, and are proving an attractive option for large-scale plant owners. “Sungrow has taken a similar approach to SMA in providing a suite of inverters for different segments,” Gilligan pointed out. “They are also strong on energy storage and are continuing their push across the U.S. and other markets.”
An American Tale
The specter of Donald Trump loomed large over the U.S. solar industry at the end of 2016, but initial distaste soon gave way to rational assessment. And while uncertainty is never good in PV, there is unlikely to be any real short- or medium-term impact in terms of the Investment Tax Credit (ITC) extension, which – it is worth remembering – was given bipartisan support last winter.
“There could potentially be some import tax on Chinese power electronics into the U.S.,” said Gilligan. “If this were to come into play is could impact Chinese inverter suppliers. This is the biggest threat, and SMA on its most recent earnings call did mention the possibility of a 45% add-on sales tax for electronic consumer products from China.”
Huawei’s rumored entry in the U.S. residential solar landscape could well be fueled in Q2 2017 by an unveiling of a module level power electronics (MLPE) product to support this expansion (“I would expect Huawei to unveil a power optimizer,” suggested Gilligan), which will prove an unwelcome market entrant for those companies currently dominant in the sector, namely SolarEdge, SMA, Enphase, ABB and Fronius. “Another takeaway is that there is relatively high inventory in distribution right now for U.S. residential applications and that will maintain price pressure.” By adding another major market player, two things could happen, Gilligan explained: “One or several suppliers exit the market, or we see big price declines that may help the market grow.”
Taking a wider view, there have been mixed results for leading solar installers in the U.S., with SolarCity facing challenges but Sunrun looking positive. However, one trend evident among both has been notable growth in loans and direct system sales eating into the previous dominance of the leasing model.
For solar inverter companies – particularly those in the MLPE space – this shift represents an opportunity. “Companies such as SolarEdge and Enphase can adapt well to this changing landscape,” Gilligan said. “The key to using MLPE is to generate more energy, so while upfront costs are higher, lifetime output is also higher, and that is more attractive to a homeowner than it is to an installer.” Both SolarEdge and Enphase have operated sales programs in Europe and so can draw upon these experiences to appeal to U.S. installers and homeowners.
The shape of MLPE
Module level power electronics have long been touted as the technology sector that will shake up the inverter landscape, and while that is still true, their impact in 2016 was perhaps more subdued than had been expected. “It would be a misconception to say that the MLPE sector is stagnating,” said Gilligan. “It is certainly growing in the U.S. and some European market, but there have been some constraints on microinverters in meeting certain requirements in Italy and Germany, although the technology is doing well in Australia.”
The key challenge for MLPE suppliers in 2017 will be handling increased price pressures. Despite their obvious benefits, MLPE technologies represent an additional upfront expense, and the impact of these pressures has already been seen over the past year, with Enphase lowering the price of its microinverters by 19%, and SolarEdge on a similar cost reduction path.
“The commercial landscape has been more challenging for microinverters,” explained Gilligan. “In some cases suppliers have used selective deployment of MLPE within one installation – this entails installing power optimizers on only some of the modules, thus using them as an add-on feature when required. This benefits power optimizers more so than microinverters, which are still seen as a more premium solution.”
Provided suppliers of both technologies can continue to drive down costs, then 2017 can be another fruitful year for MLPE. The challenge for the incumbents will be the expected arrival of new market entrants, particularly Huawei in Q2.
Another trend identified by IHS that will accelerate next year is the growth of AC and smart modules, which are solar modules that are integrated in the factory with either DC optimizers or microinverters.
“Tigo and Enphase have been vocal about this route to market,” said Gilligan. “We are confident that 2017 will see a quicker shift towards the integration of smart and AC modules.” Module suppliers themselves have been roadblocks to wider adoption, but Gilligan believes that, as cost competition increases, being able to offer such modules will be a key differentiator that many suppliers pursue.
“Another key point is that optimizers and microinverters have themselves driven price reductions, which is helping this transition.” For Tigo, the company now has a bankable investor in the form of Germany’s SMA, and so being paired with SMA inverters will smooth global deployment channels. “The entire ecosystem between MLPE, inverter and module suppliers is now fully up to speed, particularly compared to a year ago, and big name players such as SunPower are beginning to ramp up their AC module production,” Gilligan said.
SolarEdge and Enphase
For Israel’s SolarEdge, the primary objective in 2016 has been to defend and build upon the exceptional market penetration made in 2015 – an objective the firm achieved with aplomb, posting strong financial results towards the end of the year that saw a return to revenue growth following a blip in the previous quarter. SolarEdge CEO and founder Guy Sella remarked that “the solar market is facing challenging times”, but added that the company is “focused on maintaining and growing our market share by adjusting our plans in this changing environment”.
For Gilligan, this could see SolarEdge go bigger than its recent 33 kW three-phase inverter and begin examining opportunities in the higher power and larger-scale segments, including utility. “Right now the cost benefits of growing into this space would be an inhibitor for MLPE providers, but given SolarEdge’s level of innovation and cost roadmap, along with their expertise in energy storage, this may give them an opportunity in other segments as a specialized provider.” The growing desire among leading U.S. retail giants such as Walmart and Whole Foods to install solar could also be an opportunity for the firm.
Such diversification is already embedded into Enphase’s psyche. The microinverter leader endured a tough end to 2015 and has seen profits hit in 2016, but its cost reduction roadmap – allied to its product diversification (into storage and home energy management systems) – has served the U.S. firm well, Gilligan believes. “Enphase’s is a three-pronged strategy: to continue to sell standalone microinverters in Europe, the U.S. and Australia and New Zealand; to continue to partner with AC module providers, and to grow into energy storage and the smart home solution space, building premium partners in housebuilding and the electric vehicle industry.”
SMA and multinationals
Some of the biggest names in the inverter industry originate from Europe, and few are bigger than SMA and ABB. Germany’s SMA has long held the position as leading supplier in terms of revenue and – until recently – megawatts shipped, and remains the go-to brand for any installer seeking a premium, reliable product (bar China).
“North America is still a key market for SMA,” said Gilligan. “Particularly in the utility and commercial segments. At residential they are being challenged by companies like SolarEdge, even in core residential markets such as Germany. But their product portfolio is widening, and the company is profitable, forward-looking and decisive: the recent closure of non-performing parts of their manufacturing capacity [in Denver, U.S., and South Africa] being a case in point,” said Gilligan. “As market leader, SMA has had to react forcefully and aggressively to cut costs and remain lean, and they continue to innovate and move quickly into new markets. They have both scale, and flexibility.”
Gilligan expects SMA to build upon its portfolio with the introduction of larger central inverters at 1,500 V, and to also build upon its 60 kW string inverter by introducing a larger string that will enable the company to meet demand for using string inverters at scale – an area of growth that has also turned the head of Swiss power electronics firm ABB.
As a multinational industrial company, ABB’s financial might and bankability has allowed it to take risks and enter emerging markets perhaps sooner than many pure-play inverter companies – which explains the firm’s dominant share of the now-solid Indian market, for example.
Like Schneider Electric and GE, ABB’s sure-footedness may be increasingly in demand as solar prices are driven downwards by record-low bids in markets such as the UAE, Jordan and India. “In this low-cost environment, it will be increasingly important to ensure that your supply chain and partners are bankable,” explained Gilligan. “We may well see a small number of global module and inverter suppliers becoming international players to enable fast deployment in new markets.”
However, maintaining a position as an international player in an industry as volatile as solar is challenging for these larger companies. “First mover advantage is incredibly important in solar,” said Gilligan. “Solar PV is still a tech-driven, fast-paced industry, and innovation happens at quite a clip.” In such an environment, it can sometimes pay dividends to be a pure-play provider where the sole focus is on pushing the boundaries of the technology.
Into 2017
The most visible trends shaping the inverter landscape as we move into 2017 remain the growing acceptance of using string inverters at large scale, and the widespread use of 1,500 V inverters. “2017 will be the year in which we see a lot more string inverters being used in utility scale, and that means not just above 5 MW but up to 20 MW projects, even in the U.S.,” said Gilligan.
This shift is being facilitated by advances in inverter technology, namely the use of silicon carbide in the converter component. “Silicon carbide enables the production of 1,500 V string inverters that have increased power ratings while minimizing weight increases.” In the past the industry has had 100 kW central inverters weighing several hundred kilograms, but today companies such as Sungrow can produce 125 kW string inverters that weigh 70-80kg, which lowers installation and maintenance costs. This is why 1,500 V will become the norm (at least in the U.S.) at utility scale in 2017, Gilligan said. “The next target markets for 1,500 V will be India and China, where I expect to see the shift occur in the early part of 2018.” Ian Clover
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