GROWTH, MARKET SHARE AND DYNAMIC CHANGE IN THE PV INVERTER INDUSTRY

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A SPECIAL REPORT FROM GTM RESEARCH | ERIC WESOFF GTM RESEARCH

GROWTH, MARKET SHARE AND DYNAMIC CHANGE IN THE PV

INVERTER INDUSTRY

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LIST OF FIGURES

Figure 1-1: Distributed Electronics Startups 4

Figure 1-2: Microinverters vs. Distributed MPPT 4 Figure 1-3: PV Inverters Installed In California 6

Figure 1-4: Inverter Company Market Shares 7

Figure 1-5: Inverter Firm Market Share 2009 7

Figure 1-6: VC Funding for Microinverter Firms 9 Figure 1-7: VC Funding for Distributed MPPT Firms 9

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1 PRELUDE

In the last fi ve years the solar industry has experienced unprecedented expansion, with spectacular volume growth spurred on by progressive energy policies in Japan, Germany, Spain and increasingly in the U.S. The year 2009 has seen a retreat – but so has every industry. Regardless, solar is in the midst of a 20-year boom.

In addition to revenue growth we have seen intense technical innovation and billions of dollars of investment across the full range of the solar value chain:

» Silicon feedstocks

» Crystalline silicon cells

» PV thin-fi lm physics in CIGS, CdTe and amorphous silicon

» PV panels and PV panel manufacturing

» PV materials

» Financing solar installations

» Installing solar systems

» Inverters and balance of plant

1.1 What About Inverters?

Inverters represent about 8 percent of the cost of a solar installation, a signifi cant portion. But until recently, innovation had been more incremental than disruptive. Certainly the dominant inverter suppliers, SMA in small inverters and Satcon

(dominant in North America) in large inverters, have been nudging their CEC effi ciency ever upwards. And with inverters occupying the weak link in the reliability chain, vendors have been slowly but surely bolstering their quality and their warranties in a positive direction.

Still, while VC investment was pouring into massive solar materials plays like Nanosolar and Solyndra – little investment was reaching the inverter sector. That started to change in 2006 and 2007 when VCs woke up and began investing in early stage inverter fi rms: Petra Solar and Enphase Energy, to name the most prominent. Soon after, a fl ood of VC investment entered this fi eld.

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1.2 Distributed Electronics Startups

At least 20 new distributed electronics fi rms have entered the fray. Here’s a current list:

FIGURE 1-1: DISTRIBUTED ELECTRONICS STARTUPS

Source: GTM Research

1.3 Microinverters vs. Distributed MPPT

Microinverters and Distributed Maximum Power Point Trackers convey a number of advantages to solar installations compared to central inverters. By individuating the panels – maximum power point tracking is optimized for each panel. Power harvest is improved while losses due to shading, soiling and panel mismatch are reduced and overall system voltages are lowered. There are potential performance and reliability advantages to both schools of distributed PV electronics.

FIGURE 1-2: MICROINVERTERS VS. DISTRIBUTED MPPT

MICROINVERTERS DC-TO-DC ARCHITECTURES OTHER BOP STARTUPS

Accurate Solar Accurate Solar Annexus

Azuray MPPC Act Solar (acquired by NSC)

Direct Grid NSC Solar Magic Array Converter

Enecsys eIQ Energy (fka Sympagis) EOS

Enphase Energy SolarEdge eWatz

GreenRay Solar S.E.T. GenDrive

Larankelo Tigo Energy NavSemi

OKE (acquired by SMA) Phobos

Petra Solar Helios Power Solutions

SolarBridge

MICROINVERTERS DC-TO-DC

No specialized DC wiring or high-voltage components. Higher voltages = lower resistive losses in copper Strong monitoring capabilities Strong monitoring capabilities

No single point of failure Not necessary on every panel Enables DIY home owner and consumer sales channels High effi ciency

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1.4 Performance Monitoring

Both microinverter and distributed MPPT topologies offer, as part of their feature set, a sophisticated suite of monitoring functions. Most monitoring is offered with a web-interface that allows the system owner, installer or PPA provider detailed panel-level diagnostics. Panel level monitoring is only possible in a distributed architecture and offers a new level of insight into system performance.

1.5 Panel Pricing Trends vs. Inverter Pricing Trends

Solar panel pricing has dropped 10 percent to 25 percent per quarter over the last four quarters and that trend is expected to continue through the fi rst half of 2010 with prices expected to stabilize by third quarter of 2010. Demand is picking up but there are still inventory issues.

Remarkably, inverter pricing has remained relatively stable over the last few quarters. Small-size inverter pricing (below 5 kW) has consistently been in the $0.80 to $1.00 per Watt range. Large-size inverter pricing is about half that price.

1.6 Microinverter and DMPPT Firms Making Strategic Alliances, Recent

Partnership, Capacity and Acquisition Announcements

A number of solar suppliers and utilities have made alliances or acquisitions of distributed electronics vendors in what is clearly a validation of the potential for this new solar architecture.

» SMA acquired the micro-inverter technology of Dutch fi rm OKE

» Satcon has added DMPPT to their Solstice sub-combiners

» Enphase is working with Akeena Solar and SunTech Power

» Petra is working with PSE&G on a $200 million pole-mount AC module contract

» Tigo Energy is working with distributor AEE Solar

» Solar Edge is working with Schott, BP Solar and Gerlicher Solar

» NSC’s Solar Magic is working with SunTech Power and SunEdison

1.7 Which Distributed PV Electronics Startups Are Shipping?

» Enphase has shipped more than 100,000 microinverters in the last 12 months.

» Solar Edge started shipping their DMPPT product in the third quarter of 2009

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1.8 Inverter Market Size and Market Leaders

The top four players account for 60 percent of the $2.4 billion PV inverter market with SMA holding a dominant 38 percent global market share in 2008. But that 38 percent doesn’t tell the entire picture – SMA dominates in small inverters but not large-sized inverters Satcon claims a 60 percent market share for large size inverters (>100kW) in North America. Its total revenue for 2009 decreased approximately $0.6 million (or 3 percent) from $24.7 million in 2008 to $24.1 million in 2009 (from the most recent Satcon10Q). Gross margin decreased from 9 percent in 2008 to 6 percent in 2009. SMA – unique amongst solar suppliers – actually forecasts its business (and the global solar market) to show growth or stay fl at in 2009. SMA said total sales in the fi rst half-year equate to sold inverter power of 792 MW. The full-year’s sales are expected to be in the range of $998 to $1,072 million. The lower end of its guidance corresponds approximately to the sales of the previous year.

1.9 PV Inverters Installed in California

Despite the global drop-off in solar, the California residential and small commercial PV installation and inverter market is booming. Three of the leading inverter suppliers in California (SMA, SunPower and PV Powered) have already doubled their inverter unit sales in California when comparing 2008 to 2009 year-to-date. Enphase has already come close to quadrupling last year’s unit sales in California.

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1.10 Inverter Company Market Shares

FIGURE 1-4: INVERTER COMPANY MARKET SHARES (GLOBAL)

FIGURE 1-5: INVERTER FIRM MARKET SHARE 2009

Source: GTM Research INVERTER FIRM 2006 MS% 2007 MS% 2008 MS% 2009 MS% SMA 24% 33% 38% 40% Ingeteam 3% 10% 6% 6% Kaco 6% 7% 8% 8% Fronius 10% 9% 8% 8% Enphase NA NA 0% 1%

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1.11 Conclusion

The inverter market as a whole is doing better than the solar panel market. Inverter fi rms are not confronted by a global market with three times more capacity than demand. Nevertheless, the fi nancing drought impacts all players in solar and no segment of the PV value chain is immune.

That said, inverter prices have remained relatively stable – at least compared to the plunging ASPs of PV panels.

The Spanish solar market has collapsed and the German solar market is slowing. Germany is about to see its usual seasonal cold-weather lull over the next few months. But the U.S. market is going strong – especially in rooftop installations with California (and to a lesser extent New Jersey) leading the way. Progressive solar policy is the driver here. With the U.S. being seen as the next growth market for solar, inverter companies and, notably, microinverter companies are benefi ting from this surge.

Leading the way in microinverters is venture-funded Petaluma, Calif.-based Enphase Energy. California leads the U.S. solar charge and with California as the U.S. driver – Enphase has emerged as the fastest growing inverter company in the U.S. Enphase has shipped about 100,000 units in the last 12 months, a stellar achievement by a startup in a challenged market.

By all indications Enphase will be ramping up to hundreds of thousands of units in 2010, putting microinverters within a rounding error of a 4 percent global market share in the once-stagnant inverter market.

Enphase and the other microinverter fi rms have shaken up the established inverter order and are reaping the revenue from a disruptive value proposition.

1.12 Appendix A – VC Investment in New Inverter Architectures

Venture Capital investors have channeled more than $140 million into this sector and founded at least a dozen startups. Of the many compelling reasons to invest in this sector is the general capital effi ciency of an inverter fi rm.

VCs clearly understand the benefits and market potential for these distributed inverter technologies.

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FIGURE 1-6: VC FUNDING FOR MICROINVERTER FIRMS

FIGURE 1-7: VC FUNDING FOR DISTRIBUTED MPPT FIRMS

FIRM SEED ROUND A ROUND B ROUND C INVESTORS

Azuray 2008 $8M NEA

Enecys $500K 2009 $10M The Carbon Trust, Wellington Partners,

BankInvest

Enphase 2007 $6.5M 2008 $15M 2009 $27M Madrone, Third Point, Applied, Rockport

GreenRay 2007 500K MTC

Petra Solar 2007 $14M DFJ Element, BlueRun DOE Funding

Solar Bridge 2004 2007 $6M Battery Ventures, Illinois Ventures

eIQ (Sympagis) 2007 $10M NGEN, Robert Bosch Venture Capital

FIRM SEED ROUND A ROUND B ROUND C INVESTORS

Solar Edge 2006 2007 $11.8M 2008 $23M Walden, Opus Capital, Genesis Partners, Vertex, et al.

Tigo Energy 2008 $6M 2009 $10M ICV, Matrix, OVP, Clal Energy

GROWTH, MARKET SHARE AND DYNAMIC CHANGE IN THE PV INVERTER INDUSTRY

A SPECIAL REPORT FROM GTM RESEARCH | ERIC WESOFF GTM RESEARCH