Enphase Energy's Trump Cards

| About: Enphase Energy (ENPH)

Summary

Trump's victory might benefit residential solar.

What is the future of the Federal ITC under a Trump administration?

Enphase Energy has other revenue streams besides just its microinverters business.

Enphase might surprise in Q4 2016.

There are other factors driving residential solar and storage adoption.

Enphase Energy (NASDAQ:ENPH) is busier than it has ever been. Enphase's Q3 2016 results were impressive. Enphase's more aggressive pricing strategy resulted in a 10% increase in shipments for Q3 2016, as revenue reached US$88.7 million. That equated to the second-highest quarterly shipment figures in the company's history.

President elect Donald Trump's policy website states: "We will … scrap the $5-trillion-dollar Obama-Clinton Climate Action Plan and the Clean Power Plan and prevent these unilateral plans from increasing monthly electric bills by double-digits without any measurable effect on Earth's climate...more jobs, more revenues..." Trump plans to level the playing field with huge government subsidies going away and the creation of an "all energy" open market. C/I and residential solar projects will continue to flourish because energy monopolies will only get greedier. Jobs will generate income and the ITC will still be available to entice income earners to buy solar to save money on their outrageous utility bills.

Will the ITC remain in place for the foreseeable future for solar and residential storage systems? According to Roth Capital Partners, "the Trump team has indicated ... that it has no plans to roll back the ITC extension"; Roth values the ITC at about US$40-50bn. And according to a Trump insider, "everything with renewables continues, and the [ITC] will remain in place."

SunPower's (NASDAQ:SPWR) Howard Wenger stated that FERC's "jurisdiction is really on the transmission system, and NEM plays out more at the local level." So SunPower doesn't think residential solar is the focus of FERC and should not be harmed. SunPower's Tom Werner stated that "modifying the ITC would have to go through Congress"; he is "cautiously optimistic that there is continuing bipartisan support for solar. A recent Pew Research survey finds that 89% of U.S. adults favor expanding use of solar power and that the sentiment bridges the partisan divide … solar is the way to energy independence, which is something that both sides of the aisle have historically wanted. Capitalism will work in light of solar's clear [low] price advantage. Significantly changing energy policy and the ITC might not be a top priority in the Trump administration -- the ITC doesn't cost that much; it's working and already has an expiration date."

So some of solar industries top sages, financial analysts and anonymous political insiders do not think a Trump administration will harm the ITC. As per the Pew survey, broad support for solar exists across the country, and people buy into residential solar for four main reasons: 1) lower utility bills, 2) "save the Earth" ideology, 3) health/safety aspects, and 4) the Federal ITC. With solar hardware cost at about $1/Watt, the ITC is becoming less and less relevant. Nevertheless, it would still be a safe bet to say that Trump will not dump the ITC in the foreseeable future.

Enphase's other "trump" cards are as follows:

1) Its new AC battery storage solution with over 70,000 orders in Australia alone. According to Enphase Vice President Philip Farese, Enphase commands about 50% of the residential storage market in Australia already. Enphase's new storage market revenue will be hitting the books for the first time in Q4 2016.

2) The new partnerships Enphase has forged in the past year or so; selling Enphase microinverter products will now be increased greatly with the addition of LG, Jinko Solar, and SolarWorld sales muscle and marketing visibility. The AC module with integrated IQ6+ microinverter is the true evolution of solar panels and electronics on the roof. The mere fact that Enphase touts a 5-PPM true failure rate for Enphase microinverter products suggests that AC modules will be incredibly successful for Enphase and its partners, and they will offer a sort of iPod halo-effect on all the other Enphase products, as well. With this trump card, Enphase will be able to enter entirely new markets without spending a dime on marketing. Enphase's partners have all responded that their company's AC module with integrated Enphase IQ6+ should be available around mid-2017.

3) Their Envoy-S Metered product; this device is not that well-known to the consumer, but like anything Enphase, it is very well thought out and very well designed -- the strategy is to combine the old utility meter with some real intelligence. Enphase's choice of placement for the brains of its IoT solar solution is pure genius since the old utility meter is where you would expect to have the brains; the Envoy-S Metered product could become a utility-scale product installation, and this type of smart meter solution could even be combined with Enphase's AC Battery product.

Clearly, the central string inverter box holding the brains of an IoT solution is really more of a centralized solution with multiple failure points; again, Enphase decentralizes the design, keeps things simple, with less failure points to bring down the entire solution and locates the brains of their solar solution in the most logical place -- where the utility meter is and where a utility technician would look first. If a central string inverter-based solar solution fails, then the brains of the solution are knocked out -- aka SolarEdge (NASDAQ:SEDG) and other central string inverter solar solutions.

This potential hidden trump card could increase Enphase's C/I revenue with respect to using Envoy-S Metered devices by the utilities, and possibly even help the utilities dispatch energy into the larger networks using Enphase's AC Batteries regardless of whether or not the customer has solar. Furthermore, smart grid solution companies like Silver Spring Networks (NYSE:SSNI) and Itron (NASDAQ:ITRI) might be very interested in Enphase's smart-grid technology and their 500,000+ Enlighten-ed customer base.

4) The behind-the-scenes 11% company reductions that have been made, as well as the sale of their commercial O&M business. Enphase has been mum on the specifics of this reduction, as well as the revenue generated from the sale. This trump card should add to potential Q4 surprise results.

5) The ever-increasing installation numbers for Enphase's solutions in markets all over the world. When just evaluating solar community activity in the past six weeks, there has been at least a 20% uptick in solar installations -- and this does not include additions to existing Enphase solutions.

6) The "greed" factor. Energy monopolies and PUCs in an open market might become even greedier than they already are, especially with Trump's administration tightening the Federal belt on incentives. Examples of "greed" already abound in Florida, Nevada, Arizona, and Utah, and also in places like Australia, where some utilities are even proposing fees regardless of whether or not you are even connected to the grid. New TOU rate structures, demand-charge fees, etc. will drive customers to Enphase residential solar and energy storage solutions -- anything to escape the tyranny of the energy monopolies.

In summary, Enphase's trump cards are full of all sorts of wild card scenarios, all potentially helping to boost Enphase's bottom line. But one future thing is certain -- Enphase is an active member of the technology disruptors on the horizon now, and their future is looking very promising.

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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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