PROJECT EASY GREEN

Read the full press release here.

As solar PV module prices continue to decline globally, balance-of-system (BOS) components will assume a majority share of a PV project’s total cost per watt within the next year, according to GTM Research. In 2010, BOS costs accounted for approximately 44.8% (US$1.43 per watt) of a typical, utility-scale crystalline silicon (c-Si) project, with that percentage forecasted to increase to 50.6% in 2012. This economic shift is driving industry attention beyond the module toward achieving economic gains for key BOS components and services, including mounting structures, foundations, labor, civil works, cables, engineering and combiner boxes.

“Mounting structures are an access point for both BOS cost reductions and business opportunity”

GTM Research’s latest report, Solar PV Balance of System (BOS): Technologies and Markets is a comprehensive analysis of the product innovations and economic positioning of these key BOS components. At 140 pages with more than 100 exhibits, the report provides coverage of all PV system components beyond the module and inverter, featuring BOS cost roadmaps, component market sizing and mounting structure demand globally and by country for the U.S., Germany, Italy, Rest of Europe, China and Japan.

“The PV market has new focus,” said Shayle Kann, Managing Director of GTM Research’s solar practice. “While the module will remain the most costly single part of a PV system for the foreseeable future, the large combined cost of BOS components will inevitably engender greater activity and innovation across the BOS value chain. We expect to see BOS consolidation, integrated business models and increased supplier competition in the coming years as more companies see the BOS as a major revenue opportunity in the PV market.”

In addition to mapping BOS costs through 2013, the report examines market shares globally and by country for mounting structures, which hold the largest share of BOS component costs at US$0.23 per watt for typical, utility-scale c-Si projects. Globally, rooftop mounting structures comprised 83% of the total market in 2010. As major demand centers mature beyond Europe, the report forecasts that number to decrease to 66% by 2015; utility markets in North America and Asia will provide demand for ground-mounted fixed and tracking structures, which will achieve global shares of 27% and 7% respectively by 2015.

“Mounting structures are an access point for both BOS cost reductions and business opportunity,” said Manhal Aboudi, the report’s author. “In the past we have seen highly localized mounting structure supply with fragmented share and product offerings. Larger companies such as SAPA, Gestamp Solar, Hilti and Cooper B-Line are now diversifying their product lines to better serve the global market and thereby reduce costs through scale as well as capture a larger piece of the mounting structure market.”

For more in-depth coverage on the Solar PV Balance of System (BOS): Technologies and Markets report, visit http://www.greentechmedia.com/research/report/solar-pv-bos-2011

Microinverters and their distributed optimization cousins are on the lips and mind of every person with any interest in the future of the solar industry. In our conversations with players in and observers of the market, no other topic elicits more opinions and controversy, except perhaps outsourced versus domestic manufacturing and Eric Wesoff’s tirades. Despite the attention and promise of growth, however, Enphase, SolarEdge, et al. netted a paltry 2% of the overall PV inverter industry value in 2010, as reported in GTM Research's most recent report on the global PV inverter landscape. Nevertheless, news within and focus on this tiny but promising market segment is never in short supply.

Enphase made a splash earlier this month with an S-1 filing in which the microinverter company is targeting $100 million in new capital in a potential IPO.  A week later, an additional SEC filing showed that Enphase is seeking $51 million in another round of fundraising, of which $17 million has already been raised. The S-1 filing shows that the company still has at least $30 million in reserves, and while the company has been unprofitable, gross margins have been improving.   

So what can we learn by diving deeper into Enphase’s S-1? For one, revenues, and presumably estimated shipments of Enphase microinverters, have been lumpy. Enphase saw a jump in Q3 2010 with a quarter-over-quarter increase of 74 percent. This would have corresponded to the U.S.’ natural seasonality cycle, as well as the peak in the global shortage of string inverters.  Furthermore, a handful of small commercial integrators began to warm up to using microinverters in projects during the latter half of 2010.

Gross margins, however, have been slow to rise despite the increased scale, peaking at 17 percent in Q1 2011. Gross margins turned a corner in Q3 2009, beginning with the transition to the second-generation product, but have flattened since the transition was complete in 2010. Declining margins despite a sharp uptick in estimated shipments in Q3 and Q4 2010 are a cause for concern, but Enphase explains that procurement and raw material expediting costs were the root cause, as it was for the overall PV inverter industry during this time of raw material shortage. With Enphase’s third-generation product now being introduced, the question is whether Enphase can cause a similar jump in margins to what it saw in Q3 2009 after the introduction of its second-generation product.

Source: Enphase Energy; GTM Research

Interestingly for the Bay Area startup, only approximately 20 percent of its shipments go to California Solar Initiative (CSI) funded projects — which is surprising, considering that California’s residential market represented nearly 50 percent of the overall U.S. residential market. According to the S-1, 13 percent of shipments land in Ontario’s FIT market, meaning that Enphase is quietly penetrating other state markets. Enphase only entered the residential-focused European market late Q1 of this year.  As reported in SEIA/GTM Research’s Solar Market Insight™, the U.S. has become far less dependent on the Californian market than in previous years.  Certainly California’s share of the market jumped from 38 percent in Q1 2010 to 45 percent in Q1 2011, but most of this growth came from the now-suspended CSI non-residential market riding the cash grant wave. Residential installations in California, where Enphase plays the strongest, have been relatively stagnant for the past five quarters and there is a natural cap to expanding market share in California when considering that third-party financed residential systems, such as the solar lease/PPA programs offered by SunRun, SolarCity and Sungevity, have yet to — and may not — adopt Enphase en masse.

Source: California Solar Initiative, GTM Research

Moving forward, we see two major concerns for the growth of Enphase:

• The hesitancy of commercial solar developers and the slow adoption of Enphase in commercial projects
• The increasing competitiveness of the distributed optimization market

Low Adoption in Commercial Solar Projects

Unsurprisingly, the value proposition of distributed optimization is clear in residential systems where space is limited, design and engineering costs are disproportionately large, and shading concerns are much more common. But as the CSI — the traditional stalwart of residential systems in the U.S. — winds down, growth prospects in the commercial market are far more promising. Enphase and other distributed optimization companies have long held that the elimination of module and other system mismatches are a large piece of the benefits of utilizing the technology. However, commercial developers have been slow to respond. 

Adoption within the California market has been scant, and in faster-growing commercial markets like New Jersey, it’s practically non-existent. Enphase and Main Street Power’s Morgan Stanley-backed fleet of commercial inverters (the cause of the Q2 2010 spike in Enphase’s commercial reservations) may be a sign that this attitude is shifting, but most commercial integrators have been taking a wait-and-see approach.

Source: Global PV Inverter Landscape: Technology and Market Trends 2011-2015

The Growing Bubble of Distributed Optimization Companies

Every week, we hear of a new company that believes they’re going to crack the distributed optimization nut, but the field at this point is pretty much set. Keep in mind, any product going into beta testing or even volume production in the second half of 2011 is already two to three years behind the market leaders. The development of a reliable microinverter product is not a simple process, either.  SMA bought OKE's platform in Q3 2009 but has yet to release a microinverter. Power-One began openly speaking of distributed optimization over a year ago and only released a commercial product in Q2 of this year. Venture capital has been flooding into the market for years and venture-backed startups have a combined war chest of over $490 million from fundraising rounds and government grants. Furthermore, new entrants from outside the startup world include Power-One, SMA (someday) and other unannounced developments within global industrial automation/power electronics conglomerates. These companies will be certain to throw around their strong balance sheets and existing distribution channels to quickly ramp up in the space. Given this environment, the prospects for new companies still searching for funding and bankable partners look bleak at best. 

Source: Global PV Inverter Landscape: Technology and Market Trends 2011-2015

Still, the prospective bursting of the distributed optimization bubble doesn’t mean that Enphase is necessarily in the clear. Major competitors like SolarEdge (which may also be considering an IPO), Tigo, and SolarBridge all completed new funding rounds this year. Total venture funding of more than $470 million has poured into the space with significantly more on deck. Whereas Enphase seemed like a giant amongst anemic competitors in early 2010, the 2011 landscape looks far more competitive. Again, add in the fact that traditional inverter companies that are rushing to understand and utilize the technology — many are looking at DC optimization in particular — and the future of stellar growth in Enphase’s market share no longer seems assured.

Source: GTM Research

Gazing into our crystal ball, we see strong potential for the distributed optimization market segment to the tune of a 95 percent CAGR in the next five years. However, while market adoption of microinverters versus DC optimization has been relatively even thus far, it continues to be unclear whether that trend will hold up. While the market leadership and wealth of in-field track record from Enphase cannot be ignored, many commercial developers and inverter manufacturers have expressed a clear preference for DC/DC optimization as the superior path towards more granular system performance enhancement. Couple this with planned announcements of true embedded AC modules that may be coming as soon as the Intersolar North America conference in a few weeks and the prospects of Enphase only get tighter. 

Source: Global PV Inverter Landscape: Technology and Market Trends 2011-2015

As the front-runner in the hot distributed optimization space, the natural thought is acquisition. Considering the long research and development lead time to produce a reliable microinverter, why shouldn't a company flush with cash and looking for a quick entrance simply buy Enphase?  If Enphase does close the $51 million round (an outcome to which they're well on their way), it would result in $158 million in VC funding. With a 3x to 5x multiple, Enphase's asking price quickly jumps to $450 million to $750 million — an expensive price tag for a company with a limited addressable market and a field of new competition. We're not ruling it out, but consider it highly unlikely.  While we’re not saying the companies are similar in any other way, Solyndra managed to survive “adverse market conditions” through private fundraising when it pulled its IPO. Given the potential adverse market conditions for Enphase on the horizon, filing an S-1 while continuing to fundraise from the private investment community is the best strategy forward for the company.

NOTE: MJ Shiao is the author of the new GTM Research Report   The PV Inverter Landscape: Technology and Market Trends, 2011-2015  .

Trepidation over global 2011-2012 PV demand is being voiced by every component supplier in the industry, with the first half of the year marred by soft demand in Germany and the ongoing regulatory fiasco in Italy. Even with expected strong first half results in North America, there is still a multi-GW-sized hole compared to the booming first half of 2010.  Reports are pouring through of developers who are still waiting for better module pricing to surface, causing the inverter industry to be held hostage by the resulting depressed demand. Couple this environment with inventory levels as high as 3.7 GW, according to GTM Research’s The PV Inverter Landscape: Technology and Market Trends, 2011-2015, and it’s no surprise that many inverter manufacturers reported sobering first quarter 2011 results.

Last year, the single greatest challenge for inverter manufacturers was securing component supply. Germany’s and Italy’s booming demand, paired with one-year spurts in the Czech Republic, France, and other European markets, strained inverter manufacturers to the point where once-common power semiconductor and electronics components were grossly undersupplied. Inverter lead times ballooned, and many major manufacturers were sold out by the third quarter.  However, by the end of 2010, component suppliers had ramped up production to meet demand and a huge inventory build of inverters in European markets meant that supply concerns all but evaporated.

For most inverter manufacturers, especially newer players who were able to seize market share in the midst of the supply turmoil, the future is uncertain. Global demand for inverters is flattening from an estimated $6.7 billion in 2010 to $6.9 billion in 2011 and diffusing to new markets like North America and Asia. The product mix in these emerging regions favors large commercial and utility inverters, rather than the string and small commercial inverters that many manufacturers have produced and shipped in record volumes to Europe. Furthermore, with incentive levels tightening, attention on inverter reliability and efficiency is more stringent than ever before.

Market Segment Breakdown of Global PV Demand

Source: The PV Inverter Landscape: Technology and Market Trends, 2011-2015

Market leader SMA diversified early last year with the set-up of a North American production center in Denver, CO and has a new plant online in Ontario with contract manufacturer Celestica. Nevertheless, SMA saw its global market share of inverter shipments fall from 42% in 2009 to 37% last year, as component supplies constrained its ability to keep up with demand. Prognoses from the company for 2011 continue to indicate a tough year ahead for demand. In response, SMA announced on Tuesday that it will purchase Polish electromagnetic supplier dtw Sp.z o.o., a key supplier of inductors, coils, and toroidal transformers. No financial details surrounding the purchase have been released, but dtw earned nearly $110 million in revenue in 2010.

At first, the move towards upstream integration is perplexing; after all, component industries continue to ramp up production, raw material inventories are up, and inverter demand is flattish. Our sources in the industry indicate that supply chain management is far more robust this year and the task of sourcing components has not been an issue.  Looking long-term, however, it is clear that securing component supply is about more than availability; it’s a cost issue, as well. With raw materials accounting for over 75% of inverter costs, securing low cost supply will be a driver towards remaining competitive in the shifting inverter market. Magnetic components, such as those produced by dtw, can account for up to 27% of inverter costs in larger, transformer-based systems. Even so-called “transformerless” products require inductors and electromagnetic components and represent a significant portion of inverter cost.

Cost Structure of Utility-Scale PV Inverter

Source: The PV Inverter Landscape: Technology and Market Trends, 2011-2015

Consider the current scenario: inverter inventories are at record highs at a time when demand is two-ply soft; and component industries continue to ramp up as non-solar markets continue to strengthen. The result is that purchasing power within the inverter industry is slowly eroding. For example, power semiconductors in solar inverters account for less than 10% of the total power semiconductor industry.

Power Semiconductor Addressable Market, 2011

Source: The PV Inverter Landscape: Technology and Market Trends, 2011-2015

Now add to the mix the perennial bogeyman of Chinese products entering the market. Last year, leading Chinese inverter manufacturer SunGrow Power Supply produced 500 MW of PV inverters, with most destined for European markets.  This year, SunGrow expanded with a 200 MW facility in North America through a JV with Ontario solar company HiFi Solar Energy, Ltd.  Furthermore, SunGrow intends to IPO in China sometime this summer.  Our sources indicate that prices from “reputable” Chinese inverter companies are 10% to 20% below European and North American suppliers. Combine that pricing with a balance sheet — and incumbents have something to fear.

Will upstream integration be a successful strategy to combat new entrants? Perhaps for some. Mitsubishi Electric acquired key power modules supplier Vincotech in January for an undisclosed price.  However, Vincotech’s 2010 revenues were close to $80 million, and Mitsubishi hopes the acquisition will unlock sales of $480 million by 2016.  GE Energy also seems perfectly willing to acquire complementing technologies with its $3.2 billion purchase of Converteam announced in March, although solar had only a small influence. However, purchasing price will be a strong limiting factor.  Very few inverter suppliers are lucky enough to command a market cap even close to the $2.2 billion that SMA does or to be owned by a large corporate conglomerate.  Instead, consolidation, when it comes, will likely be in the form of mergers and buyouts from conglomerates that feel like they’re missing out on the solar party.

See the full press release here.

The time is now for new solar PV inverter technologies. With inverter losses accounting for 59% of total PV project failure costs, developers, owners and financiers are beginning to focus on reliable and augmented power delivery as a key factor in improving the economics of their solar projects. This focus comes as global incentive programs begin to tighten and a new suite of next-gen inverters is offering improved power quality, unprecedented operability with the grid, and module-based products that are shifting the industry’s competitive trajectory.

At over 180 pages with more than 100 data-driven exhibits, GTM Research’s latest report, The Global PV Inverter Landscape: Technology and Market Trends, 2011-2015, covers the industry from end to end, exploring inverter technology developments for PV power delivery and profiling all the major suppliers. The report also dissects global shipments, which reached 21 GW in 2010, and presents the competitive dynamics that manufacturers will encounter as global PV demand decentralizes and regional supply influences inverter market shares.

“Advances in PV inverter technology promise to improve the commercial viability of solar power,” said GTM Research Analyst and report author MJ Shiao. “In larger systems, grid support features such as fault ride-through and reactive voltage support will make it more desirable for utilities and grid operators to integrate PV into the electric grid. With smaller-scale installations, micro-inverters and distributed power optimizers show potential to reduce installation costs and increase system performance.”

According to GTM Research, inverter manufacturers seeking to differentiate in a tightening global PV environment will drive new technology development. This group includes regional suppliers attempting to expand from their domestic base to establish a global footprint and large electrical equipment conglomerates prioritizing solar as a global growth opportunity.

“As the PV inverter industry expands out of traditional European strongholds, we will see stiff competition from regional players in emerging markets like North America and China,” said Shiao. “Establishing a combination of technology differentiation and bankability becomes a key pursuit for inverter manufacturers, especially for newcomers such as distributed optimization and micro-inverter companies, which saw shipments jump more than threefold in 2010, with the potential to reach 4.6 GW by 2015.”

FIGURE: Global PV Inverter Manufacturer Taxonomy

(Source: GTM Research)

While leading inverter incumbents SMA, Power-One, KACO New Energy, and Fronius currently account for over 61% of global PV inverter shipments, GTM Research sees an expansion of global demand engendering a new guard of U.S.- and Asia-based manufacturers. Accordingly, EU-based inverter manufacturers will have to strategically diversify and obtain new supply opportunities in new markets in order to avoid stagnant growth rates.

For more in-depth coverage of The Global PV Inverter Landscape: Technology and Market Trends, 2011-2015, visit www.gtmresearch.com/report/the-global-pv-inverter-landscape.

See the full press release here.

The time is now for new solar PV inverter technologies. With inverter losses accounting for 59% of total PV project failure costs, developers, owners and financiers are beginning to focus on reliable and augmented power delivery as a key factor in improving the economics of their solar projects. This focus comes as global incentive programs begin to tighten and a new suite of next-gen inverters is offering improved power quality, unprecedented operability with the grid, and module-based products that are shifting the industry’s competitive trajectory.

At over 180 pages with more than 100 data-driven exhibits, GTM Research’s latest report, The Global PV Inverter Landscape: Technology and Market Trends, 2011-2015, covers the industry from end to end, exploring inverter technology developments for PV power delivery and profiling all the major suppliers. The report also dissects global shipments, which reached 21 GW in 2010, and presents the competitive dynamics that manufacturers will encounter as global PV demand decentralizes and regional supply influences inverter market shares.

“Advances in PV inverter technology promise to improve the commercial viability of solar power,” said GTM Research Analyst and report author MJ Shiao. “In larger systems, grid support features such as fault ride-through and reactive voltage support will make it more desirable for utilities and grid operators to integrate PV into the electric grid. With smaller-scale installations, micro-inverters and distributed power optimizers show potential to reduce installation costs and increase system performance.”

According to GTM Research, inverter manufacturers seeking to differentiate in a tightening global PV environment will drive new technology development. This group includes regional suppliers attempting to expand from their domestic base to establish a global footprint and large electrical equipment conglomerates prioritizing solar as a global growth opportunity.

“As the PV inverter industry expands out of traditional European strongholds, we will see stiff competition from regional players in emerging markets like North America and China,” said Shiao. “Establishing a combination of technology differentiation and bankability becomes a key pursuit for inverter manufacturers, especially for newcomers such as distributed optimization and micro-inverter companies, which saw shipments jump more than threefold in 2010, with the potential to reach 4.6 GW by 2015.”

FIGURE: Global PV Inverter Manufacturer Taxonomy

(Source: GTM Research)

While leading inverter incumbents SMA, Power-One, KACO New Energy, and Fronius currently account for over 61% of global PV inverter shipments, GTM Research sees an expansion of global demand engendering a new guard of U.S.- and Asia-based manufacturers. Accordingly, EU-based inverter manufacturers will have to strategically diversify and obtain new supply opportunities in new markets in order to avoid stagnant growth rates.

For more in-depth coverage of The Global PV Inverter Landscape: Technology and Market Trends, 2011-2015, visit www.gtmresearch.com/report/the-global-pv-inverter-landscape.