The solar MLPE (Module Level Power Electronics) market is a multi-billion dollar market. The market has not matured, and there are still 2 distinct technologies vying for dominance - 1) an older, central string inverter-DC optimizers-based technology and 2) a newer, micro inverters-based technology. The central string inverter-DC optimizer is a mature technology and currently less expensive than the micro inverter solution, but not for long, and in reality, it is the only reason the old technology is prevalent.
Since the micro inverter technology is relatively new when compared to its competitor, it still has much room left for growth, optimization and enhancement. The Enphase micro inverter technology will reach price parity with the central string inverter-DC optimizers with the release of its 6th-generation S300 micro inverter probably by 2017-2018 timeframe according to Enphase Energy (NASDAQ:ENPH), and then there'll be no question as to which solar technology to choose for the residential rooftop, and with 5 years left of the Federal ITC.
The grid-tied central string inverter was first introduced in 1991 by SMA Solar Technology (OTCPK:SMTGF). The early technology consisted of daisy-chaining a "string" of solar panels which produce DC electricity, and wiring the final panel's electrical leads to a device known as a central string inverter which converted the DC electricity to AC electricity which residential homes use. Today, this technology has matured to the point where an additional device has been added to the configuration, known as a DC optimizer, which interfaces between each solar panel giving the panel a quasi-fault tolerance, and allowing it to act independently of all the other solar panels. Without a DC optimizer, the entire solar system would only be as powerful as its lowest energy-producing panel - any kind of shading or debris issue, or hardware failure would compromise the entire solar system using this technology. The central string inverter-DC optimizer technology is still the lowest-cost solar system technology available today when compared to its micro inverter competition, but that price difference is quickly eroding.
The micro inverter system was first introduced in 2008 by Enphase Energy; this technology placed a small, intelligent, inverter underneath each solar panel, and it connected all the micro inverters using a main cable which was then wired to the customer's home utility panel. This technology was 100% fault-tolerant having no single point-of-failure - unlike the central string inverter-DC optimizer technology where if the central string inverter failed, the entire system would be inoperable for an unknown period of time.
The leading central string inverter-DC optimizer technology vendor is SolarEdge Technologies (NASDAQ:SEDG), and riding on the coattails of SolarCity's (NASDAQ:SCTY) marketing machine, as of Q1 2016, they have managed to grab 28% share of the residential inverter market selling their central string inverters and DC optimizers. Even though their technology is inferior to the micro inverters, SolarEdge has proved that when it comes to price, installers and customers will choose the cheaper alternative - probably with many customers not really knowing that they were choosing an inferior solution, and probably with many sales personnel wanting their sales regardless of ethics. Without SolarCity, it is questionable whether SolarEdge Technologies could have gotten the marketshare it currently has.
The leading micro inverter technology provider, Enphase Energy, has 27% of the residential inverter marketshare, and since November, it has executed a plan to gain more marketshare, and its plan appears to be working. Since its technology is still relatively new with lots of room left for optimization, miniaturization, cost production reductions, et cetera, Enphase has laid out plans whereby its 6th-generation micro inverter - the S300 - should reach price parity with the competing central string inverter technology. As of this writing, GTM stated the following MLPE marketshare - Enphase Energy 27% (micro inverter), SolarEdge Technologies 28% (central inverter-DC optimizer), ABB (NYSE:ABB) 23% (micro inverter), SMA 13% (micro inverter & central inverter-DC optimizer) and others 7%. Even with Enphase's lackluster last quarter, there are some that believe a trend is forming which favors Enphase's strategy of gaining marketshare.
It is interesting to note, and not disregard the fact, that micro inverter technology is not going away. The central string inverter-DC optimizer companies would like for this to happen, but the horse-n-buggy vendors probably wanted the same thing for the early automobiles. Micro inverter technology is the true evolution of residential rooftop solar technology much like the old central mainframe computers eventually gave way to multiple, decentralized "little" rack-mounted servers. The mainframe was an important part of the computer revolution, just like the central string inverter has been for residential solar, but gradually, decentralized micro inverters connected with each solar panel will dominate the residential rooftop market. Consider that 1) if ABB Ltd. spent $1 billion on Power One micro inverter technology to get into the MLPE market, and 2) SMA, the king of central string inverters tried unsuccessfully to take command of the micro inverter technology arena with its SMA SunnyBoy's, and 3) SunPower purchased SolarBridge Technologies for its micro inverter technology, then clearly these companies envision micro inverters as the way the MLPE market will evolve.
The old, venerable central string inverter would have gone the way of the wind, but the DC optimizer device gave it a life extension, but for how long? SMA has just recently bought a 27% stake of Tigo - the only company which comes even close to being a competitor of SolarEdge with its line of DC optimizer products. DC optimizer solutions will continue to survive as long as they are cheaper than the superior micro inverter-based solutions, but once the micro inverter technology matures, and the playing field is level, installers and customers will choose the better solution, and the horse-n-buggy will either be laid to rest or incorporated into the solar panels themselves.
The current hype surrounding Enphase's lackluster Q1 results, has failed to mention the $100 million dollar investment Enphase has made over the past few years, nor does it balance out the negativity by elaborating on the entirely new market which has emerged which Enphase has prepared for years in advance. Enphase is the only MLPE player that has created an entirely new invention which has the lowest cost-of-entry in the emerging solar-plus-storage market, and the foresight Enphase has had in producing this revolutionary new battery storage unit called the AC Battery shows that they have vision. The revenue from this investment derived entirely from this new market for Enphase will start to hit their books by Q3 of this year. Enphase Energy was founded on the idea of a complete home energy system, not just a micro inverter or DC optimizer gadget - a complete home energy system including intelligent micro inverter, battery storage and the hardware and software necessary to coordinate the system.
Since price matters, regardless of system superiority, Enphase will now have a winner with its new solar-plus-storage solution. SolarEdge and others will not be able to compete with Enphase in this market effectively, for Enphase has a single product to offer, whereas the competition has multiple products from multiple vendors making it an issue of complexity. I want to buy a product from vendor A not a product from vendor A which requires a product from vendor B, and then support of that product gets a bit nebulous. There have been rumors of stringent requirements for battery storage in Australia which the Tesla Powerwall and others will fall under, but Enphase with its all-in-one, encapsulated AC Battery will not - it will fall under UPS storage requirements which are much more flexible - easier to sell, easier to install, and offer a better ROI for the customer.
The battery storage product sold by SolarEdge is the Tesla Powerwall (NASDAQ:TSLA). Initially, it was released as a 7kWh, big-box, 214-pound battery. The battery has had noise issues. The 10kWh Powerwall was taken off the market in March. The 7kWh Powerwall has quietly been downgraded to 6.4kWh after customers complained and found that it did not have the listed 7kWh capacity. It is crucial to understand the storage technologies being sold - batteries can either be used for emergency backup or for daily load-cycling; the latter is a relatively new concept, and it is one which is used in the solar-plus-storage market, not emergency backup.
It seems that even the big vendors rushed into the market without really preparing well or strategizing about the best way to enter the solar-plus-storage market. If you want cheap emergency backup, buy an $800 propane/gas generator and backfeed it into your home to give your critical loads (refrigerator, freezers, lights, garage door opener, et cetera) power during a power outage. I can understand if you have money to burn, and you are a green energy enthusiast, sure, spend thousands on an emergency battery backup system with accompanying bulky inverter box to stuff in your garage, but you cannot use the batteries for both emergency backup and daily load-cycling which is why big, heavy batteries are not the answer to this problem. Imagine using your big emergency backup battery for daily load-cycling, and the power goes down, and your battery has been completely discharged, then what? Battery technology for daily load-cycling purposes does not have to be a big-box battery solution, rather it is the performance criteria which is the key factor, for the number of times the battery can charge, recharge, charge and recharge again, all within the shortest period of time possible, is truly the measurement which will decide how quickly your battery ROI is. Daily load-cycling, load-shifting, load-balancing - it all means the same thing, is using your batteries during times of peak use and high TOU (Time Of Use) rates by the utilities during the day and at nighttime so that you are not 100% reliable on the grid, and the cheaper battery storage can help offset your utility bill. The more these batteries cycle, then the quicker you'll get your money's worth out of them. Yes, having a 7,000-Watt-hour battery compared to Enphase's 1200-Wh is pure overkill, but how many cycles can you get on a daily basis out of those huge, heavy batteries compared to Enphase's? With Enphase's, you should be able to reach your ROI much more quickly, and with Enphase's lowest cost-of-entry into the market, Enphase has taken on the correct strategy - not the big-box battery vendors who have rushed to market without thinking things through. And there are a lot of storage products out there, not just Tesla's Powerwall, but again, how many vendors do you want to have to deal with - solar inverter company, battery company, et cetera - why not just a single vendor selling all the components all manageable using a single software web portal?
By designing a small, light-weight, modular, intelligent, safe, AC-coupled storage solution, Enphase has clearly strategized above and beyond what the competition has to offer. All of the other competitors require a separate inverter box to interface to a battery, and since the two have not been combined into a single device as Enphase has done, there will be problems. With noisy Powerwalls, proposed fixes which will include moving parts, Glycol, and potential radiator leaks, and possibly even false advertising, do you really trust such a complex storage solution from a vendor such as SolarEdge trying to market Tesla's storage battery? What happens if the 214-pound battery starts to leak in your garage, and you have to move it - hopefully you are a professional weightlifter or you know someone who is! Tesla's Elon Musk has stated that the second version of the Powerwall will be released around August, about the same time that Enphase releases its AC Battery to markets in Australia and New Zealand, but how many customers have to get burned by Tesla before they get the right solution? Unlike Tesla, Enphase has not rushed to the market; Enphase's idea of battery storage was hatched almost a decade ago in the company's infancy. Enphase is a master of technology safety, intelligence, modularity and scalability when it comes to solar micro inverters, and it is repeating that with battery storage - a whole new market which Enphase has already invested in, to the tune of over $100 million. Call any solar distributor and ask them what the preferred micro inverter technology is - Enphase is still king of that market, for no other micro inverter manufacturer is currently selling its 5th major generation of micro inverter, and no other MLPE player has a product which beats the specifications of the latest Enphase S-280 micro inverter. Another important aspect of Enphase's AC Battery, is that you can start with just a few, and if they're effective for you, you can get more - probably with better Enphase technology and lower prices, because it is a guarantee that battery prices will begin to drop as the market matures. The whole point is not to have a single, big, hulking battery, but to have a whole set of little batteries thereby reducing the significance of any one battery!
In this new emerging market, Enphase will have the lowest cost-of-entry, and it's light-weight battery will be wall-mountable, out of the way, and respectful of the consumer's right to use their garage space for their automobile and not their battery system! For those that have bought into the Powerwall hype and jumped onto the market bandwagon early with the 214-pound, noisy Powerwall keeping them up at night, good luck, for selling it is going to incur a huge removal fee! In order to better clarify and guide both the installer and customer in this exciting, new solar-plus-storage market, GTM and Enphase have teamed up to provide a Storage 101 for Solar Installers.
In comparing Enphase's solar-plus-storage solution with the competition, it clearly shows that bigger is not always better. If you have children running around and playing, do you want a potentially dangerous, big, heavy, high-voltage DC power source in your garage, or would you rather have your battery storage system mounted on the wall inconspicuously near your home's main panel, and inaccessible to the kids, or young puppies that like to chew?
Light-weight is also another critical quality for storage products in this bold, new market, and the costs to ship it to you, the costs of installation, relocation, or return are very important considerations! Notwithstanding that the battery will not last forever - just consider the hidden cost of the "removal fee" for a 214-pound Powerwall! Enphase's AC Battery is rated at 10-years, but what if you need to replace it before then, what if there is a failure? Wouldn't you rather just call your electrician, have them remove it, and arrange for replacement of a 55-pound battery that your electrician can carry without any help? How many service people will you need to hire to move your Powerwall? Maybe SolarEdge will have a team of trained weightlifters that can single-handedly do the job! So, modularity is definitely key, for it eliminates the weight problem as well as the complete 100% system failure problem, too. If there is a problem with your Powerwall or any other single-box storage solution, then your whole storage solution is down and for how long? Do you call SolarEdge or do you call Tesla? Will SolarEdge and Tesla always have a cozy relationship, especially when Elon Musk needs those batteries for his electronic cars - will they be available? With Enphase, if you have a few AC Batteries, and there is a problem with one, then you'll still have the majority of your storage system running without being affected by the defective unit, and it will not be critical that the defective unit is replaced immediately. Decentralized, fault-tolerant, modular - these are meaningful qualities which the competition does not really have, for their marketing is really aimed at buying a big-box battery - can you have multiple big-box batteries? Sure, but it's your wallet! Technology will most likely fail at some point in time - what is that cost awaiting you? That cost should be considered before buying a big, bulky box along with yet another clunky inverter box to store in your garage. Enphase has understood simplicity for years, and what smart, safe, modular electronics means for its solar micro inverters, and it has duplicated these features into its new AC Battery product.
Enphase's modular storage solution is perfect for the battery-side of a solar-plus-storage solution. It can be retrofitted into any existing solar solution, and it can even be installed without any solar solution in place! The product is being released in August in Australia and New Zealand, and then Hawaii where FiTs or Net Metering contracts have ended. Strategically, Enphase has opened a new R&D location in Christchurch, New Zealand, which should offer great support for the product roll-out.
The AC Battery has been designed from the ground up with daily load-cycling in mind, and has not been some big, heavy, bulky battery product rushed into an emerging market like happened with the Powerwall. A lot of design and forethought has gone into the AC Battery - 1) weight and size considerations, it is a small, 55-pound light-weight and wall-mountable battery, a true space saver! 2) high reliability, its modularity guarantees that the total storage system will never be down, 3) low cost-of-entry, given its 1.2kWh capacity compared to the big-box batteries which are overkill when used for daily load-cycling; Enphase has focused on performance not size, 4) safety - its encapsulated battery with built-in inverter offers the customer the only safe, AC battery on the market; a DC battery with separate inverter box is not a safe solution to have in your garage, and 5) intelligence, an "intelligent battery" used to be an oxymoron but not anymore - Enphase is bringing intelligence to batteries just as it did to solar panels using its micro inverters!
So, the residential rooftop solar market is evolving into the solar-plus-storage market. A vendor with a single product, having a single product SKU, competing with vendors with multiple products, having multiple product SKU's - both trying to provide the same solution; who is more likely to win a big chunk of this market? Simplicity is attractive. Installers who use Enphase, like Enphase for its simplicity. Price has been a limiting sales factor, but that is about to change, for Enphase will beat the competition on price with its AC Battery storage product. Furthermore, with an emerging market where battery storage is only going to get cheaper, why not start out with a battery storage solution which 1) allows 100% scalability and modularity, and 2) is not going to lock you into a long-term commitment so you can break even on your investment? Because Enphase's AC Battery storage solution can be retrofitted into any existing solar system, and allows you to grow your storage system in smaller manageable chunks, as Enphase's co-founder, Raghu Belur states, why would you not choose Enphase? And for those loyal 430,000+ Enphase Enlightened customers already enjoying Enphase's intelligent monitoring of their solar panels, why would they even consider leaving their already 100% Enphase solution - single vendor, single product - think simplicity, think superior solution, and buy Enphase!
Disclosure: I am/we are long "ENPH".
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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