Smart moves

In many ways, the solar inverter market lags behind the demand market. Only after module prices crashed and incentives were cut did manufacturers feel similar pressure to reduce their own prices. Just as the module industry went through (and continues to go through) a period of high consolidation, the inverter industry is following. But the recovering demand market, plus the nature of inverter/power electronics technology as something with wide applicability, certainly wider than solar modules, is helping it along. There is a lot of money changing hands, for a few different types of products.

Microinverters

Lux recently forecasted a rate of cost decline for microinverter-equipped residential systems roughly equivalent to that of string inverter-equipped residential systems. Though microinverters have a significantly higher per watt price than their string inverter counterparts, Lux Research’s model finds that incremental benefits in labor costs from the use of microinverters outweigh that price premium. Indeed, microinverter-equipped systems will reduce overall BOS costs to $0.02/Wp lower than string-inverter equipped systems by 2020. Coupled with microinverters’ incremental increase in energy harvest, the LCOE from those systems will decrease to $0.16/kWh in 2020 (modeled in California), compared to $0.19/kWh for non-microinverter equipped systems. There are, however, a few major caveats to this conclusion: first, the gap in LCOE is narrowed for systems in lower-irradiance markets, like Germany; and second, the labor (time-to-install) reductions that microinverter suppliers claim are only realized when installers are trained to optimally install the systems. Untrained installers might actually cite increased installation time due to the cost of mounting a microinverter on each module.
Investors are taking note. A smaller microinverter supplier, mPowerSolar, which boasts a platform that can support multiple module power levels and voltage inputs, recently formed a joint venture with developer SunEdison, to be followed by an acquisition. The deal is likely to be closed in the second half of 2014. mPowerSolar’s product utilizes silicon carbide (SiC) diodes, which leads directly to more than 4% more production than with more conventional silicon diode-based microinverters. Overall, the developer/installer channel will be a fruitful one for microinverter suppliers. In becoming integrated with a developer/installer, both parties reduce the potential for added cost due to lack of familiarity or training.
Another microinverter supplier, the better-known SolarBridge – which deploys its products via AC module partnerships – recently announced a $42 million fund-raise, led by Constellation Technology Ventures, which is part of Exelon. Also part of that round were existing investors Shea Ventures, Rho Ventures, and Prelude Ventures. Partnerships with utilities are critical for any company pursuing distributed solar applications; and $42 million for any hardware/equipment company in the solar industry is quite impressive in 2014.

String inverters

According to Lux Research’s recent forecast, commercial system overall BOS costs will drop to $1.16/Wp (again, all numbers modeled in California), led by reductions in racking and mounting hardware. Indeed, the same labor cost bottleneck that plagues the residential space does too in the commercial segment. However, the residential segment’s cost reductions over time are less likely in the commercial space; rather, this segment relies on reductions in racking and mounting hardware. Many suppliers, like Sollega, now offer systems composed of engineering plastics that require fewer roof penetrations and connections than competitors; others use this same strategy without a change from conventional steel and aluminum materials. Overall, the 42% cost reduction in racking and mounting costs from $0.21/Wp in 2013to $0.12/Wp in 2020 helps commercial systems utilizing multicrystalline silicon modules reduce LCOE from $0.22/kWh in 2013 to $0.16/kWh. Microinverters make a muted effect on the commercial segment relative to the aforementioned residential segment benefits. Rather, high-voltage configuration (at 1,000 V and 1,500 V) poses the biggest cost benefit in commercial systems. Inverter suppliers will need to meet those specifications before long if they wish to remain competitive.
Last year, the run on three-phase string inverters was well-established and present within everyone’s mind. Advanced Energy acquired Refusol for $77 million in April, just before ABB agreed to purchase Power-One for $1 billion.
In another significant move, Danfoss has transferred its solar inverter business to SMA. Danfoss has also agreed to buy a 20% stake in SMA, for roughly €300 million. Danfoss’ line featured several three-phase string inverters, but SMA already has some of those within its product portfolio. Danfoss, like some other larger conglomerates with a stake in the solar industry, may have simply sought to unload its solar business – or transfer it to a company willing to deal with the volatility in the market that all players experienced throughout 2012 and 2013; SMA says the two companies will cooperate in R&D and purchasing, but that Danfoss will exit the inverter business.
SMA, on the other hand, was once an obvious leader in the inverter space. However, it suffered from declining sales in 2013 and severe competitive price pressure. Further, the company lacked the foresight to diversify itself geographically as Germany and Italy began to decline, remaining focused on struggling European markets. To its credit, the company acquired Chinese inverter manufacturer Zeversolar in late 2012, to have a stake in the growing Chinese demand market – a smart move. And many are placing their bets on a European market recovery led by the U.K. and France; but for a publicly traded SMA, wading through turmoil for that prosperity can take its toll.
It’s unclear how that transaction works out – thus far, it looks like SMA gets Danfoss’ inverter business, and Danfoss also buys a handful of SMA stock at a nice price premium, without SMA paying much – but set that aside for a moment. Assume that Danfoss simply wanted to shed the inverter business and get out of a market that it wasn’t comfortable operating within. Coincidentally, the market is just now becoming much more rational – price pressure is lessening with each day.

Outlook

Over time, expect more technology to trickle up – towards larger, diversified conglomerates – than down – towards singularly-focused suppliers. Companies like Eaton and ABB will only grow stronger as solar-specific suppliers struggle to adjust to changing market conditions, and new requirements for both global footprints and technological innovation.
That said, a tiered competitive landscape is most likely to unfold – including ABB, Eaton, and others at the top; followed by solar-specific suppliers like SMA, Enphase, and SolarEdge; and lastly, start-ups pushing the envelope on the aforementioned innovation front with both upstream developments – like the increased usage of wide bandgap semiconductors, like silicon carbide (SiC) and gallium nitride (GaN) – and others that reduce the size of inverters, improve thermal management, or others. The solar market’s growth and recovery is one major factor helping the inverter industry; but the fact that the technology has multiple other applications makes it uniquely appealing.
Expect a bit more upward consolidation in 2014, as smarter conglomerates make big splashes while valuations remain low; but those that wait will be forced to pay more later down the line.

Microinverters remain niche, but suppliers have grown steadily.