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The module level power electronics (MLPE) market is currently
dominated by two suppliers, Enphase and SolarEdge. Enphase
innovated in this space early in the growth of solar market with
microinverter technology. SolarEdge, on the other hand, offers a
competing solution consisting of power optimizers paired with a
solar inverter. Both suppliers have grown rapidly, especially in
the United States which is now the largest market for MLPE
globally.
COVID-19 continues to cause disruption to target MLPE
markets of residential and commercial installations
The MLPE market was initially impacted by COVID-19 due to
manufacturing being slightly delayed in February as both SolarEdge
and Enphase manufacture some of their products in China. Both
suppliers mitigated the impact by using air freight on occasion to
meet strict delivery timelines for some customers due to safe
harbor orders in the United States as well as by ramping up
production in other locations outside of China such as Mexico for
Enphase and Israel, Hungary and Vietnam for Solaredge. As the
COVID-19 pandemic reached key MLPE markets such as the United
States and Europe in March, both Enphase and SolarEdge reported a
significant slowdown in recent earnings calls in demand in Q2 2020,
especially in April, with demand gradually recovering through
June.
Enphase, whose demand comes primarily from residential
installations, noted that the decline in shipments of 45%
quarter-over-quarter (Q-o-Q) was in large part due to workplace
disruptions and social distance requirements which negatively
impacted door to door sales for residential installers. On the
supply side, Enphase reported that it worked with contract
manufacturers to reduce production to mitigate the risk of
over-supply in the channel and shifted production to Mexico to
reduce the impact of 25% tariffs in the United States on
Chinese-made PV inverters.
SolarEdge similarly reported a reduction in shipments in MW
terms of 56% Q-o-Q in the United States due to COVID-19. SolarEdge
noted that while they saw an overall recovery from April through
June in the United States, however the recovery in the commercial
segment was slower compared with the residential segment. Recovery
in the commercial and industrial segment may be slower through the
second half of 2020 as businesses downsize their budgets or push
projects due to economic uncertainty stemming from the COVID-19
pandemic.
MLPE market expected to recover in H2 2020
Even as the COVID-19 pandemic continues to impact the primary
MLPE market of the United States, MLPE demand is expected to
rebound through the rest of the year as IHS Markit forecasts global
PV installations to grow by 43% in Q3 compared to Q2, with one of
the main target growth markets of the Europe expected to grow at
29% in Q3. Accordingly, both suppliers reported increased
visibility into orders and installations in the beginning of Q3 and
are forecasting increasing revenue quarter-over-quarter.
Each supplier is responding to this expected growth in demand by
boosting production. Enphase is setting up a new manufacturing
location in Chennai, India to help meet expectations around growing
demand. Production is scheduled to commence as early as Q4 2020.
This new location is in addition to production in Mexico which
Enphase continues to ramp up. Similarly, SolarEdge continues its
plans to ramp manufacturing in Israel specifically to serve growing
demand in the United States.
Additionally, as demand continues to grow, MLPE suppliers are
developing new sales. For example, microinverters are increasingly
being built into modules at the factory, sold as a single product
known as an "AC Module". Therefore, Enphase announced a partnership
with Hanwha Q Cells to develop new AC modules in June 2020. It also
announced a new line of AC modules with SunPower under the "Maxeon"
brand. A similar sales channel exists for SolarEdge in the form of
"smart modules", or power optimizers built into modules at the
factory. SolarEdge continue to offer smart modules products from a
variety of module partnerships. IHS Markit expects shipments of AC
modules and smart modules to grow as installers look for ways to
reduce costs and labor time.
Europe to be key growth market for MLPE despite intense
competition
The United States accounts for the majority of global MLPE
shipments. However, suppliers such as Enphase and SolarEdge have
been expanding their business into new markets, especially in
Europe. IHS Markit estimates that their combined market share has
grown from 6.5% in 2016 to 8.4% in 2019 and expects overall
shipments to continue to grow in Europe.
However, although Enphase and SolarEdge command a dominant lead
in the MLPE industry, competition threatens to erode their market
share and profits, particularly in Europe. PV inverter prices in
Europe are generally more competitive than in the United States due
to a much wider range of suppliers active in the region. In
particular, Chinese suppliers, offering aggressively priced
single-phase inverters have increased their presence dramatically
in Europe over the past few years. Equally in the United States,
these two leading MLPE suppliers account for the majority share of
PV inverter shipments particularly in residential, however both
suppliers are not immune to increased competition and potential
price erosion. Import tariffs from Chinese-made inverters are
keeping new entrants at bay for now, however a reversal in tariff
policy could open the door for new competition. As a result, the
leading MLPE suppliers are expanding into new lines of business
both in order to offer complete energy management solutions to
their customers and also to diversify into new markets.
MLPE suppliers target commercial and utility-scale solar
segments for next phase of growth
A critical pillar of growth for both Enphase and SolarEdge is to
expand into larger system sizes. The residential sector has been
the largest market for the MLPE industry. However, installers and
customers have gradually increased their adoption of microinverters
and power optimizers for commercial installations. SolarEdge in
particular has rapidly expanded its business to serve the
commercial sector and stated in its Q2 2020 earnings report that
56% of its global shipments were for commercial installations.
Furthermore, SolarEdge has indicated that it will launch a 380 kW
inverter for utility-scale solar segment as it expands its
portfolio offering. The vast majority of microinverters have been
shipped to residential installations and adoption in commercial
installations has been relatively low. Suppliers have begun
offering larger microinverters capable of operating with more than
one module such as "2-in-1" and "4-in-1" microinverters.
Multi-module microinverters offer a more attractive solution for
commercial installations in terms of simpler installation and a
lower price on a dollar-per-watt basis. As Enphase continues to
expand its microinverter business, it announced it will launch a
commercial microinverter 'IQ 8D' product by end of 2020 in order to
increase its penetration in commercial (>10kW)
installations.
Energy storage market offers big potential to increase
revenue spend per install by homeowners
Enphase launched its new residential storage solution, Encharge
in Q2 2020. Storage will be one of the keys for Enphase to provide
a more comprehensive energy management system for their customers.
SolarEdge is expected to continue to grow its non-solar products,
mainly lithium ion batteries from its subsidiary Kokam. It reported
revenues from non-solar products in Q2 2020 to be $21.8 million.
Additionally, it plans to grow Kokam's manufacturing capacity by
10X in 2022. The energy storage market is another important
opportunity for both Enphase and SolarEdge to grow revenue. IHS
Markit forecasts that global energy storage revenues, including
batteries and energy storage inverters (PCS), to grow at a CAGR
(19-24) of 18% to reach just under $8 billion. If Enphase and
SolarEdge are able to leverage their leading positions in the MLPE
industry to capture market share in energy storage solutions, they
will see even stronger revenue growth.
Learn more about the IHS Markit solar PV research.
Miguel De Jesus is a solar market analyst for the Clean
Energy Technology team at IHS Markit.
Posted 14 August 2020.
Posted 14 August 2020 by Miguel De Jesus, Solar market analyst