The global market for power electronics at the PV inverter and module level exceeded the $ 9 billion threshold for the first time in 2019. Inverter deliveries also reached a record high last year and were, according to a new analysis of the inverter market by research company Wood Mackenzie.
In addition to the growth in global solar systems, two factors drove the inverter market to record highs in 2019: the rush to secure solar systems before the US investment tax credit was cut from 30 percent to 26 percent, and the growing inverter replacement market in Europe.
While pre-purchasing solar PV modules was the developers' preferred method of qualifying for ITC, some opted for Safe Harbor PV inverters, albeit at a lower price. In 2019, between 25 and 30 percent of US PV inverters shipped were purchased for safe use.
Developers have chosen Safe Harbor inverters for several reasons. First, while modules have seen significant efficiency gains and further improvements in the past few years, inverters are unlikely to generate significant gains in the short term. Therefore, it is assumed that they have a lower technology risk than modules. Second, inverters account for a smaller proportion of the total cost stack, which means that inverter price declines are less valuable compared to module technology on a dollar-per-watt basis.
In Europe, the solar market picked up speed in the late 2000s and early 2010s. Now, 10 years later, the inverters are starting to reach the end of their life and many need to be replaced. In the near future, Germany, Spain and Italy will lead the European inverter replacement market, while the Asia-Pacific region will gain momentum in the next few years, particularly Japan, Australia and China.
The impact of COVID-19 on the inverter market will be minimal
The COVID-19 pandemic will not have as dire consequences for the inverter industry as it will for the broader solar industry.
The inverter market's more diverse supply chains helped to dampen the impact. Some facilities have adjusted their manufacturing practices to meet pandemic-related safety guidelines. Other institutions that already use automation were less affected than those that rely more on manual labor.
The pricing impact of the pandemic appears to be minimal. Shipping logistical issues can add marginally to costs, as can the cost of personal protective equipment and safety protocols introduced into facilities.
Overall, the coronavirus pandemic is expected to reduce inverter deliveries by 14 percent in 2020 compared to pre-coronavirus expectations.
Chinese inverter manufacturers are further expanding their global presence
Chinese inverter manufacturers have expanded their presence overseas, growing from around 30 percent of global deliveries outside of China in 2018 to around 40 percent in 2019. China's market downturn and growing international demand have resulted in great success for these companies.
Chinese inverter companies are generally more competitive in terms of price than European companies and have increased price pressure worldwide. As a result, the market has seen a remarkable degree of consolidation.
Since the announcement of the takeover of ABB's inverter line by the Italian company Fimer in the summer of 2019, there has been little news about mergers and acquisitions or exits in the inverter sector, but that could soon change. The price pressure combined with the market downturn caused by the pandemic could lead to further exits and acquisitions within the next year.
Software and services
As in 2018, the inverter manufacturers have expanded their software and service offerings and are more than just manufacturers. Vendors have launched Internet of Things platforms, delved into artificial intelligence and machine learning, and ventured into other smart energy industries. These measures can create additional revenue streams and help businesses stand out from the crowd.
Reliability and customer attention are paramount when selecting inverter technology, and vendors have responded to meet these concerns. Recently, Enphase launched an online store to provide a more direct connection with customers. CPS America announced that it will provide inverter operation and maintenance services to these locations with its inverters, as well as locations with inverters from manufacturers who have left the room. And SMA started its repowering business in early 2019.
What's next for the inverter industry?
While the coronavirus pandemic will dampen the inverter market in the near future, the general trend for the inverter market is positive. The demand for inverters will increase as installations worldwide continue to grow, systems age, and more replacement inverters are needed.
As the industry focuses on digitization and customer needs, inverter manufacturers will be forced to innovate and branch out into non-traditional pure manufacturing.
Lindsay Cherry is Wood Mackenzie's solar analyst and author of a new research report on the global solar PV inverter market.