The World's #1 Renewable Energy Network for News, Information, and Companies.

Solar Inverter Shakeout: 3 Survivors, 2 Buyers, a Loser and a Wildcard

The major publicly traded solar inverter companies are Power-One (NASD:PWER), Satcon (NASD:SATC), SMA Solar (OTC:SMTGF), Siemens (NYSE:SI), Advanced Energy Industries (NASD:AEIS), Schneider Electric (OTC:SBGSF) and upstart Enphase Energy (NASD:ENPH). Over the last year the industry has faced eroding margins and an increasingly competitive environment. This parallels the problems of solar manufacturers: the industry has too much capacity for a market that is not growing as fast as many expected.

Power-One and SMA currently look quite cheap in terms of price to earnings ratios (5.9 and 4.9, respectively), so I asked my panel of green money managers for their thoughts on the industry.  Is the industry near bottom?

I received responses from Rafael Coven, Managing Director at the Cleantech Group, and manager of the Cleantech index (^CTIUS) which underlies the Powershares Cleantech ETF (NYSE:PZD), and from Garvin Jabush, the Cofounder and CIO of Green Alpha Advisors and manager of the Sierra Club Green Alpha Portfolio.   Here are their thoughts:

Coven on the Competitive Landscape

Solar Inverter industry economics have deteriorated with the decline in overall solar market and diminishing  government budgets for solar incentives.   Given the difficult demand picture and insufficient product differentiation the market is becoming commoditized and increasingly price-driven.

Jabusch on How it Will Be Resolved

[T]he problem, as with panels and wafers, is narrowing margins.  The solution, as with panels and wafers, will be to make up for that with increasing scale….  [We] believe the scale of renewables will continue to expand, although timing their turnaround is proving challenging.

Which Companies Will Survive

Both agree that diversification and a strong balance sheet will be key to company survival.

Coven:

Just as in Solar PV, the shakeout will weed out the weaker (undercapitalized) players (thankfully there  are far fewer players than in solar PV).   There are better emerging inverter technologies, but I’m don’t know their time to commercial launch, nor how good the product pipelines of the current solar inverter players are vis-à-vis coming entrants.   I doubt that the undercapitalized inverter players will have the resources either survive new low-cost entrants from Asia nor be able to buy or license some of the better emerging technologies.  Companies such as Siemens or Schneider can afford to buy whatever looks like the winning technology.   In this business, having diversification is critical.

Jabush:

[T]he respective sector leaders with the strongest financial and market positions will weather the downturn the best, and we feel like Power-One is one of these.

Two Buyers and Three Probable Survivors

As Coven says, Siemens and Schneider are diversified giants, and so will not feel pressure as much as more focused industry players. Power-One and SMA are also well capitalized with negligible debt and current profits.  Power-One is more diversified than SMA, with a large electronics business selling power supply products to computer and storage industries.  I expect all four will survive the shake-out.  Solar is only a sideline for Advanced Energy Industries, so it, too should be able to weather the decreasing margins in the industry.

Probable Loser

Satcon looks unlikely to survive the shake-out.  The company is losing money, has shrinking sales, and a horrible operating margin of -46 percent.  Even rapid growth would not help the company’s economics, unless it were accompanied by increased pricing, which seems unlikely.  I expect Satcon to declare bankruptcy, with its rivals buying any valuable pieces from Satcon’s creditors after.

Wildcard

Like Satcon, Enphase has a weak balance sheet and is losing money rapidly.  Unlike Satcon, Enphase has one of the “emerging technologies” Coven spoke about, selling microinverters which are integrated with the individual panels.  Microinverters have the advantage that they simplify installation by removing the need to work with direct current, and they are also better at optimizing system output.  Because of this, Enphase is growing rapidly, while Satcon is shrinking.

Given Enphase’s weak balance sheet, the stock is likely to continue to decline despite the strong revenue growth.  Either Enphase will be acquired by a stronger player, or existing shareholders will suffer significant dilution as the company is forced to return to the markets for additional operating capital.

China Takeover

An acquirer might not just be one of the stronger industry players Coven pointed to.  Jabusch speculates that one of the stronger diversified Chinese solar companies might look to acquire a newly cheap power conversion player.  He thinks it “makes sense for a larger solar firm to want to add power control devices such as inverters, storage and distribution to their verticals,” while emphasizing that this is only speculation.  ”But,” he says, “the pieces fit, so it can’t be ruled out.”

Conclusion

Given the consensus that the shake-out is far from over, it is too early to buy into the solar inverter industry.  Even likely industry survivors will continue to see deteriorating margins until the weaker players exit.  Possible buy-out targets may receive a price bump on buy-out news, but any acquirer (even one from China) will probably wait for weakening industry economics to allow them to pick up their target our of bankruptcy, or at least a better price than is available today.

Disclosure: No positions.

This article was first published on the author's Forbes.com blog, Green Stocks and AltEnergy Stocks and was republished with permission.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

Image: Joker in hand via Shutterstock

RELATED ARTICLES

First Anniversary of The Balkan Floods Highlights Renewable Energy Market Opportunities

Ilias Tsagas, Contributor One year ago this month, severe flooding in Serbia, Bosnia-Herzegovina and Croatia killed 79 people, displaced about half a million and caused economic paralysis of the region. In the wake of these the catastrophic events, ...
Canadian Climate Goals

Canada Announces Weak Climate Target

Danielle Droitsch, NRDC Last week, Canada has announced its contribution to the global effort to reduce greenhouse gases by announcing its post-2020 target. The target announced today is off-track to the 80 percent cut by 2050 they committed to in...
Renewable Energy Stocks

What Drives Alternative Energy Stocks?

Harris Roen, The Roen Financial Report Alternative energy became a serious market player after the turn of the millennium. Since that time, solar, wind, smart grid and other alternative energy stocks have experienced both strong up and down trends. The forces at...
Rooftop Solar Panels

Hypocrisy? While Buffett Champions Renewables, His Company Fights Rooftop Solar

Mark Chediak, Noah Buhayar and Margaret Newkirk, Bloomberg Warren Buffett highlights how his Berkshire Hathaway Inc. utilities make massive investments in renewable energy. Meanwhile, in Nevada, the company is fighting a plan that would encourage more residents to use green power.
Tom Konrad is a private money manager and freelance writer focused on Peak Oil and Climate Change as investment themes. He manages portfolios for individual clients and is Head of Research for the JPS Green Economy Fund (http://jpsgreeneconomyfund...

CURRENT MAGAZINE ISSUE

03/01/2015
Volume 18, Issue 3
file

STAY CONNECTED

To register for our free
e-Newsletters, subscribe today:

SOCIAL ACTIVITY

Tweet the Editors! @megcichon @jennrunyon

FEATURED PARTNERS



EVENTS

EU PVSEC 2015 (European PV Solar Energy Conference and Exhibition)

The EU PVSEC is the largest international Conference for Photovoltaic re...

Sponsor/Exhibitor: MIREC Week 2015

Solectria, Pillar, and Variadores together are co-Silver Sponsors! Come ...

More Power, More Profit Tour - San Diego

Register for the SMA More Power, More Profit Tour for free, in-person sa...

COMPANY BLOGS

EU PVSEC 2014 extends its Scope

Added focus on application and policy topicsAbstracts for conference con...

EU PVSEC 2014: Call for Papers Receives Great Response

More than 1,500 contributions apply for presentation in AmsterdamScienti...

How GreenLancer Streamlines the Solar Design Process

Post originally appeared on the GreenLancer Blog by Ardelia Lee Cr...

NEWSLETTERS

Renewable Energy: Subscribe Now

Solar Energy: Subscribe Now

Wind Energy: Subscribe Now

Geothermal Energy: Subscribe Now

Bioenergy: Subscribe Now  

 

FEATURED PARTNERS