Welcome to the era of parity, the evolution and pattern of the photovoltaic inverter industry

Whether it is coal, oil, or atomic energy, any change in human society is closely related to the efficient use and upgrading of energy. The control of energy is a topic that transcends class and time. However, due to the scale of investment, technological changes, and policy adjustments, investment in energy-related fields is often challenging.

The solar energy industry has encountered the greatest challenges in all human energy explorations, because since the birth of solar energy technology, the high cost has forced the advancement of solar energy technology to race against time. Therefore, since the birth of solar energy technology, the dream of "grid parity" has been planted in the hearts of photovoltaic practitioners. In order to realize this dream, "cost reduction" has almost become the common goal of the entire industry chain.

What we are going to discuss today is the inverter link in the middle and lower reaches of the photovoltaic industry chain.

Inverters play a key role in power stations. All electricity generated by solar panels must be processed by inverters before they can be output. Inverters connect the power generation side and the grid side, and transmit real-time power generation information of the power station to the monitoring system and determine whether operation and maintenance is needed.

I. Main solutions for inverters

Compared with the debate on monocrystalline, polycrystalline and thin-film technologies in the component market for many years, the inverter industry technology has not been a consensus, but four types of inverters have been formed: centralized inverters, string inverters, distributed inverters, and micro inverters. Micro inverters are not widely used yet, so I will not explain them in detail here.

Distributed inverter is a new inverter type proposed in the past two years, and its main features are "centralized inverter" and "distributed MPPT tracking". Distributed inverter is a product that gathers the advantages of both centralized inverter and string inverter, achieving "low cost of centralized inverter and high power generation of string inverter".

At present, the most widely used are still centralized inverters and string inverters.

Schematic diagram of a centralized inverter

Centralized inverters convert the DC power generated by photovoltaic modules into AC power, then boost the voltage and connect to the grid. The power of inverters is relatively large. Centralized inverters with a capacity of more than 500kW are generally used in photovoltaic power stations.

Compared with string inverters, centralized inverters have the advantages of high power, small number, good stability, and easy management. However, they also have the disadvantages of narrow MPPT voltage range, inability to monitor the operation of each component, making it impossible to make each component at the optimal working point, and inflexible component configuration.

String inverter schematic diagram

String inverters convert the direct current generated by photovoltaic modules into alternating current directly, then aggregate and boost the voltage and connect to the grid. The power of the inverter is relatively small. String inverters below 50kW are generally used in photovoltaic power stations.

Compared with centralized inverters, string inverters are not affected by module differences between strings and shadows, and reduce the mismatch between the optimal working point of the photovoltaic cell module and the inverter, thereby maximizing the power generation. However, due to the large number of components, the quality and stability of the electricity are poor.

Centralized and string types are the two main solutions for photovoltaic inverters. Each solution has its own advantages, disadvantages and application scenarios. In the future, with the increase in the amount of distributed photovoltaic installations, the proportion of string inverters will most likely increase.

II. Industry Evolution of Inverters

The industry evolution of inverters is related to three key words: "price reduction", "market transfer" and "string inverters".

Let’s talk about “price drop” first. Prices have fallen by nearly 80% in 7 years.

Many people know that the price of photovoltaic modules has been very high in recent years. In 2010, the module price was 12-13 yuan/W, and now the module price has dropped to 3 yuan/W. Compared with the price drop of photovoltaic modules, the price drop of inverters is comparable.

The price of a 30KW inverter was $0.33/W in 2010, but has dropped to $0.07/W this year, a drop of nearly 80% in seven years. If the price of a product drops by 80% in a few years, you can imagine how tragic the industry is.

Indeed, in such an industry, if the price of your product drops slower than others, it means that your product is not competitive, your company will lose orders and eventually go out of business.

In 2010, there were more than 300 companies in the entire industry. In the brutal elimination competition, the stock prices of many companies, like the price of the inverter in the figure above, fell and never recovered. In 2015, even Advanced Energy, the third largest inverter company in the United States, finally chose to withdraw from the market. Today, there are only more than 100 companies left in the inverter industry.

"Market transfer" is the second characteristic of the inverter market evolution.

The sharp drop in inverter prices from 2011 to 2012 was related to the European debt crisis. Before 2012, the entire solar energy industry was mainly in Europe. With the outbreak of the European debt crisis and the reduction of subsidies for solar energy by European countries, the solar energy market shrank sharply.

For the entire solar energy industry, if it wants to survive, it must find a new market. This new market is Japan and the United States. Therefore, after 2012, the countries that support the entire solar energy industry are the United States, Japan and Canada.

Companies that still focus on Europe will face a crisis of no orders. Famous German inverter manufacturers Solutronic and Platinum went bankrupt under such circumstances. However, companies that do business not limited to Europe, such as SMA and ABB, can still maintain their market position.

However, after 2013, a new force that affects the market structure emerged - the Chinese factor. In 2013, China's new solar installed capacity reached 9.3GW, 12.8GW in 2014, and 34.5GW in 2016, becoming the world's largest market for new photovoltaic installed capacity, accounting for 47% of the world's new photovoltaic installed capacity that year.

As the solar market shifted from the United States and Japan to China, Chinese inverter companies have risen. Before 2014, SMA was the company with the largest inverter shipments, but after 2015, Huawei became the world's largest inverter shipment company. Moreover, among the top ten inverter manufacturers in the world, four are Chinese companies.

The third characteristic is the increase in the proportion of “string inverters”.

The increase in the proportion of string inverters is closely related to the development of distributed photovoltaics in China. String inverters are suitable for small and medium-sized rooftop photovoltaic power generation systems and small ground power stations, especially in mountain photovoltaic projects. Under the same conditions, the power generation is 3~5% higher than that of centralized inverters.

Of course, compared with centralized inverters, string inverters also have their disadvantages, such as slightly poorer power quality and higher prices. In 2016, the market share of centralized inverters was 62%, and the market share of string inverters was 32%. It is expected that the share of string inverters will continue to increase in the future.

III. Inverter Industry Landscape

Compared with the fragmentation of the component industry, the market concentration of the inverter industry is already very high. The top ten companies in global inverter shipments have a market share of more than 80%, and the top five companies have a market share of more than 50%. It can be said that the pattern of the photovoltaic inverter industry has basically been formed.

According to the 2017 report of IHS Markit, Huawei was still the company with the largest inverter shipments in 2016. Four of the top ten companies are Chinese companies, namely Huawei, Sungrow Power Supply, Sineng Electric and TBEA.

Although Huawei's overall shipments are higher than those of Sungrow, Huawei's inverters are mainly string inverters. Among centralized inverters, Sungrow's shipments far exceed those of Huawei.

Since Huawei’s data is not public, we can use Sungrow’s data to understand the gross profit margin of the inverter industry.

Sungrow was the leader in domestic photovoltaic inverters before 2015. However, with the expansion of distributed photovoltaics, Huawei's inverter shipments exceeded Sungrow for the first time in 2015.

From the shipment data, we can get a glimpse of the development speed of the domestic photovoltaic industry in recent years. In 2011, Sungrow's inverter shipments were only 0.9GW, but by 2016, Sungrow's shipments had reached 11.1GW, a 12-fold increase in 5 years.

However, even so, Sungrow's inverter revenue only increased by 3 times, but its gross profit only increased by a little over 2 times, because the ex-factory price dropped from 0.88 yuan/W to 0.22 yuan/W.

Seeing the above data, I believe it is not difficult for everyone to understand the feelings of this guy on Xueqiu. Indeed, if you simply see that an industry will have great future prospects, but fail to see the price wars and price declines that this industry will experience in the process of maturity, then the price you pay will be huge.

However, this process has already been completed in many industries in the past, including the now popular home appliances and home furnishings. They all experienced painful price wars and industry reshuffles in the past, and eventually led companies with pricing power were born.

I think that after several rounds of reshuffles, without any major technological changes, the structure of the inverter industry has basically taken shape.

Sungrow and Huawei are the leaders in centralized inverters and string inverters respectively, with Sungrow's market share reaching 13% in 2016 and Huawei's market share exceeding 20%. As the leader in centralized inverters, Sungrow's gross profit margin for inverters is about 33%, 9-10% higher than that of SMA Solar Technology, the third-ranked inverter company.

In the photovoltaic inverter industry, Huawei and Sungrow have surpassed overseas companies with many years of accumulation. In such an environment of fierce price wars, they have become the leaders in string and centralized inverters respectively. They are truly two legends in the inverter industry.

IV. Inverters and Grid Parity

According to the "China Photovoltaic Industry Development Roadmap 2016 Edition", the total investment cost of large-scale ground photovoltaic power stations in 2016 was about 7.3 yuan/W, and the inverter cost was 0.30 yuan/W, accounting for just over 4%.

Although the report shows that the purchase cost of inverters in 2017 was 0.28 yuan/W, the market purchase cost fell much faster than expected.

According to the 10th batch of centralized bidding of State Power Investment Corporation in 2017, we can see that the bidding price of 50kw string type by Sungrow is already 0.23 yuan/W, while in the 54th batch of inverter bidding of State Investment Corporation in 2016, the bidding price given by Sungrow was 0.31 yuan/W.

Comparing the data of the past two years, we can see that in 2017, the quote range of the mainstream brands in the industry (Sungrow, Sineng Electric, TBEA) was 0.23-0.25 yuan/W, which has dropped significantly compared to 0.31-0.33/W in 2016. String inverters will inevitably enter a new round of price wars.

At present, the quotation range of centralized inverters is 0.155-0.24 yuan/W. It is expected that with a new round of price drops of string inverters in the future, the cost gap between string inverters and centralized inverters will narrow.

In the next 1-2 years, driven by market competition and technological innovation, it is foreseeable that the price of string inverters will drop to 0.2 yuan/W, which will also accelerate the arrival of photovoltaic grid parity.