LONDON — As markets for solar PV inverters become more competitive, manufacturers are being forced to adapt in a bid to maintain revenues or hold market share. This is a trend that has been evident for some years now. As far back as 2012, Dexter Gauntlett, now a senior analyst with Navigant Research, noted: “Inverter companies must increase functionality, reduce cost, and differentiate themselves from the growing competition.” He explained that while industry incumbents have the advantage of size and market reach, disruptive technological innovation by well-funded start-ups and early-stage companies was rapidly changing the face of the industry.
A Market in Flux
Two years on, and this forecast has been largely borne out. True, manufacturers are rapidly increasing the functionality of their inverters, making the “brains” of solar PV far more sophisticated and allowing product differentiation. It’s also true that cost competition is keener than ever before, but the market is undergoing transformation in other, perhaps unforeseen, regards, too. According to IHS Technology, the number of Asian companies appearing among the world’s 10 largest photovoltaic (PV) inverter suppliers doubled in 2013, with four appearing from China and Japan, compared with just two in 2012 and none in 2011.
IHS argues this is a result of rising demand for PV inverters from Asian markets that accounts for a growing share of the global market. Collectively China and Japan represented 35 percent of global PV inverter revenue in 2013 and Asian suppliers have dominated their domestic markets. Factors such as brand loyalty, tough certification requirements in Japan and low pricing in China, have prevented international suppliers from gaining a significant foothold in these markets.
This is in contrast to the U.S., where IHS found domestic manufacturers are losing market share as overseas manufacturers break into North America, led by European players as they scramble for revenue in the face of a market shift away from their home turf.
“The rate at which the solar landscape has transformed has been incredible, and it has initiated a major shift in the competitive environment for PV inverter suppliers,” said Sam Wilkinson, solar research manager at IHS. He added: “As growth from China and Japan continues to outpace the global market in 2014, both Chinese and Japanese suppliers are likely to further improve their positions in 2014.” He further noted: “the world is likely to see many of these suppliers play a greater role in markets outside Asia over the next two to three years.”
On Europe, Wilkinson observed: “Annual PV inverter revenues from Europe have halved in the last two years, creating an extremely tough competitive environment, and many of the leading names from five years ago have vanished from today’s list of leading suppliers.”
Overall, inverter market revenue remained broadly flat in 2013. Together, the top three countries — China, Japan and the U.S. — generated $1.7 billion more in earnings in 2013 than in 2012 — $4.1 billion compared with $2.4 billion. However, the increasingly competitive environment has resulted in rapid price erosion — for example average U.S. prices declined nearly 20 percent in 2013 — and, despite the boost in earnings, there was a $60 million decline in 2013 global net revenue, IHS said.
“The growth of China, Japan and the United States was a stark contrast to the declines recorded elsewhere in the world, where reduced and cancelled subsidy schemes have significantly curtailed demand, particularly in Europe,” Wilkinson concluded, adding: “The combined markets of the U.S., Japan and China grew by an incredible 74 percent in 2013, but this was not quite sufficient to prevent the global market from declining overall.”
The global PV inverter revenue shrank by slightly less than 1 percent in 2013, IHS figures show.
Inverter giant, SMA Solar Technology AG, serves as perhaps the best example of the tough conditions faced by major solar systems manufacturers in the current economic climate.
SMA was forced to lower its fiscal 2014 outlook at the end of July, as well as announcing its intentions to layoff some 600 employees by the end of 2015 and down-size a further 400 from sales, administration and operations. SMA warned that it could no longer rule out the possibility of a loss this year and at best expects to break even.
Indeed, the company posted low-end forecast losses of approximately €45 million for this year, having previously anticipated annual operating earnings of €20 million. SMA also lowered its 2014 sales guidance to a range of €850-€950 million, from the prior estimate of €1.0-€1.3 billion.
Its management board believes that developments over the next few months will be “far more dynamic than in the first half of 2014.”
Explaining the nature of the crisis, SMA chief executive officer, Pierre-Pascal Urbon, said: “We expect to see a stagnation in the worldwide demand for PV systems for 2014 as a whole. Particularly in the core markets in Europe, demand has collapsed even further than expected due to further cuts in subsidies.
“In 2014, the most important foreign markets include North America, Japan and China. Together, these markets are expected to account for 60 percent of the global market. The cut-throat competition is keeping pricing pressure high in the industry,” added Urbon.#rewpage#
Demand for solar power systems worldwide increased by approximately 25 percent to over 40 GW in 2013, but with a 50 percent drop in the European market, SMA said. More recent figures for the first half of 2014 reveal that in Germany alone, demand fell 40 percent year-on-year while consolidated earnings for the period amounted to a loss of close to €45 million.
The Industry Reacts
There is evidence of market consolidation as companies attempt to cut costs. For example, in response to its poor results forecast, SMA said it will take further advantage of the recent strategic alliance with Danfoss, which was completed in late May.
The goal is to strengthen their cost positions through economies of scale and through joint development initiatives, the companies said. According to the plans, Danfoss will acquire 20 percent of SMA’s outstanding shares, amounting to some €302 million, and in return sell its entire solar inverter business to SMA.
Elsewhere, power systems giant ABB completed its acquisition of Power-One Inc in July last year at $6.35 a share or just over $1 billion in equity value, including net cash of $266 million. At the time Ulrich Spiesshofer, head of ABB’s Discrete Automation and Motion division, into which Power-One will be integrated, noted: “The combination of these two successful companies will create significant value-driven growth based on innovation – which means inverters offer opportunities for differentiation – global reach, high quality and technology leadership.”
Though MPP tracking, power optimizers minimize power losses from partial shading. Credit: SolarEdge
At the end of April ABB said that it was selling the Power Solutions business of Power-One to Bel Fuse Inc. for approximately $117 million, though holding on to the solar inverter business, which it said is core to its renewable strategy.
There are other examples, but at heart solar PV is a technology-led industry, so it’s no surprise that the manufacturers of inverters, the central and cleverest part of solar PV architecture, have also turned to technology to maintain a competitive edge.
A raft of new products, designed to appeal to a more demanding and diverse customer base, have been launched in recent months, the majority of which look to increase the sophistication of the inverter offering.
By far the most influential development of recent years is of course the emergence of module level electronics (MLPEs) such as microinverters or power optimizers.
According to a February report from Navigant Research, annual installations of MLPE capacity will grow from 1185 MW in 2013 to close in on 13 GW by 2020.
Navigant’s Gauntlett noted: “The MLPE industry is moving quickly, with a growing list of solar PV module manufacturers now integrating microinverters and DC optimizers at their own production plants.”
With module level networking and communications technology, microinverters and DC optimizers are playing an increasingly significant role in improving grid reliability and the overall energy harvest of solar PV projects, their analysis suggests. Indeed, Navigant considers MLPE “essential for integrating large amounts of renewable energy onto the grid.”
TÜV SÜD also recently noted that cost reductions associated with the use of “smart’ PV modules have “prominently increased the advantage of using these modules, triggering a major trend in their development.”
Innotech Solar’s Hönigsberg Industrial Park PV installation. Credit: Innotech Solar
Mark Abrams, director of product management in the U.S. for microinverter manufacturer, Enphase Energy, explained: “Because we convert the power at every module we truly optimize each module’s performance, therefore we get a better harvest out of the array.”
He argues that microinverters are also inherently more reliable than string inverters because of the distributive nature. Abram adds that Enphase, which recently launched a 250 Wp AC fourth generation unit, is investing a significant amount in reliability: “Our belief is that over time the thing that will separate the strong inverter players, those who survive, from those who don’t make it quality, reliability will be a big factor.
“A single microinverter failure has very nominal impact to even a residential array, but we want to make it so they simply don’t fail.”
Lior Handelsman is founder of SolarEdge, a company that provides end-to-end distributed solar power optimization and PV monitoring solutions. He explained that his company’s DC power optimizer handles DC electronics at the module level, like microinverters delivering optimized array performance, improved safety and so forth, but combined with a separate string inverter, which has its attendant advantages in respect of grid management.
Handelsman highlights the “grid-friendly” advantages, noting the June launch of its new smart energy management system. This feature dynamically adjusts PV power production, ensuring that power output to the grid does not exceed pre-set limits, for example by increasing self-consumption through storage or water heating. Handelsman said that Solar Edge, which accounted for 80 percent of the global DC optimizer market in 2013 and claims 20 percent of the overall U.S. inverter market, expects to deliver 1 GW of product capacity this year.
He explained the rapidly changing dynamics of the sector: “The inverter market is quickly evolving, in terms of added value. The inverter used to be a device that only performed DC to AC conversion and now we see more and more functions being added to inverters.” He citeed examples such as interaction with the grid, safety functions such as arc detection and fire safety, as well as managing elements such as storage, additional power sources such as gensets and consumption optimisation.
“In a market like this, companies can offer increasing value and the market is less sensitive to [the] price erosion that we saw with modules,” he noted, adding: “If you want to survive as an inverter company you have to make the inverters very interactive, very smart and new topologies like power optimizers are, I think, the way to do it.”
Major Players Respond
Naturally enough, in the face of such a challenge, longer-established manufacturers have sought to expand the capabilities of their own products.
For example Thomas Enzendorfer, director of solar energy at Fronius USA, told REW: “The real breakthrough that we are seeing in the industry right now is much more on the communications side, the interface side.” He highlighted additional functionality such as supplying reactive power to the grid, but also noted the recent launch of his company’s FE series, explaining: “This is our approach to module-level electronics and a module-level approach to communication.”
Busch Stadium solar intallation by Miecrogrid Energy using Enphase inverters. Credit: Enphase
Supporting both string and MLPE architecture up to 12-kW capacity Enzendorfer said of the FE series: “We believe that this strategy will provide the most seamless and bankable solution.” He added: “It provides a strong opportunity to add value to the solar ecosystem by combining both module and inverter control onto a single platform.”
Other established players have recently launched more sophisticated products, too. For instance Schneider Electric Solar Business introduced the next generation of its Conext XW Hybrid inverter in the summer. Specifically designed for backup power, grid-tied solar with backup and micro-grids in mind, the range features single-phase or three-phase system sizes up to 102 kW.
SMA’s Urbon even highlighted some technological bright spots, saying: “The first products of a new generation of SMA inverters will be launched in the first quarter of 2015.” In July the company commissioned a new 3.2-MW test-bed project near its HQ in Niestetal, Germany and it launched a microinverter line back in 2011.
New approaches are also emerging, for instance Innotech Solar has recently developed a module that uses three in-laminate IC chips to optimize the output of just 20 solar cells connected in series. The company claims a lifetime improvement in yield of up to 20 percent.
Knud Clausen, global product manager at Innotech Solar explained: “In standard modules, if a single cell underperforms due to factors such as shading or soiling, this compromises the yield of the entire string. However, intelligent microchips laminated into our new SmartPlus modules ensure that PV installations generate the maximum possible output power right down at cell level – not just at module level as is the case with conventional power optimizers.”
It is clear that the inverter sector is focused on making its products smarter, with more functionality in terms of communications and interaction with both the grid and other ancillaries such as storage. As a result, while market conditions are extremely competitive there are still clear opportunities, particularly given overall global growth. Indeed, even those markets that appear subdued right now can still be seen as attractive. As Enphase’s Abrams said: “We look at Europe, for example, as a market full of opportunity and I’m not sure every inverter maker would say that.” He explained that in terms of optimal sites for solar installations much of the low-hanging fruit has already been developed, but “now it’s time for the Enphase roofs” he said.
“Our view is that as solar becomes more and more cost effective, especially for those applications that weren’t obvious in the first pass, that’s going to be a great business opportunity.”