In an industry that relies so intrinsically on the sun, seasonal variations in demand are expected; generally the first quarter of the year is the quietest as the core markets in Europe remain restricted by the winter snow. However, the first quarter of 2010 was remarkably different for PV inverters, with shipments surging almost 200% vs. the same period in 2009. In contrast, suppliers are now reporting that the seasonal lull of 1Q has returned in 2011.
The surge in demand at the start of 2010, driven by impending cuts to incentives in several of the major European markets, created a race amongst PV inverter suppliers to secure components and expand production capacities. Many suppliers were unable to source a steady supply, causing a shortage of PV inverters; some suppliers were more affected than others, resulting in major shifts in market share. SMA Solar Technology lost market share throughout 2010, whilst other such as Power-One were able to ramp up production and make major share gains.
2010’s turbulent summer was characterized by inverter suppliers struggling to meet demand while aggressively expanding production capacity, and panicked customers placing the same order with several different suppliers to complete installations before major incentive cuts. Lead times remained painfully long through the first half of the year — “at least 25 weeks” was a common response to enquiries for delivery times. When inverter production hit 8GW in the 3Q10 the inverter shortage eased, and the true scale of the double ordering was revealed. By the fourth quarter the inverter shortage had quickly transformed into a vast oversupply of inverters with inventory building throughout the supply chain.
Compounding the oversupply problems were a slowdown in the German market (November-December) and a complete stoppage of the French market, leaving Italy as one of the few buoyant markets in Europe.
What to Expect in 2011
Although 2010 was an outstanding year for PV inverter suppliers, the huge demand exposed an industry that was ill-prepared for the surge, with component supply problems and capacity limitations. The inverter sector now faces a very bleak first quarter in 2011 as excess inventory fulfils much of the early demand, and suppliers now need to deal with the consequences of over-supplying the market last year.
One end market that has largely by-passed the oversupply problem experience is the US. Two of the largest suppliers, Advanced Energy and Satcon, enjoyed a very successful 2010 and their outlook continues to be positive with massive growth predicted for the North American market in 2011. These suppliers were less exposed to the German market and so have not been so afflicted by the huge inventory problems being experienced in Europe.
The key question facing the industry now: When will the excess inventory in the European market be depleted? With only the Italian market providing major demand so far in 2011 this point seems to be a little way off. The answer is largely dependent again on Germany, and if demand will begin to surge again with the pending cuts to the feed-in tariff scheduled for July.
Tom Haddon is a research analyst with IMS Research‘s PV Group with a background in economics and business. He is responsible for IMS Research’s industry-leading PV inverter market intelligence reports, authoring several annual and quarterly studies.