String inverter shipments will account for 70% in 2025

New photovoltaic installations and replacement of existing capacity drive inverter demand

New photovoltaic installations and replacement of existing capacity drive the continued growth of inverter demand

According to BNEF data, by the end of 2019, the cumulative installed capacity of photovoltaic power exceeded that of wind power, becoming the world's fourth largest source of electricity generation after coal, natural gas and hydropower. Between 2013 and 2019, the compound growth rate of global new photovoltaic installed capacity reached 20%.

The annual new installed capacity in major photovoltaic markets such as China, Europe, and the United States remains at a high level. In addition, emerging markets such as India and Australia have emerged, and the number of GW-level markets for new photovoltaic installed capacity has increased. By 2018, there were 13 markets (the first one appeared in 2007), and the number is expected to continue to increase. The annual growth in new photovoltaic installed capacity has led to a rapid increase in demand for photovoltaic inverters.

The shipment volume of photovoltaic inverters reached 127GW in 2019, with a compound growth rate of 22% between 2013 and 2019. In addition to the demand for new photovoltaic installations, the inverter replacement demand market is expected to continue to grow in the next few years. Since the service life of electronic components such as IGBT in inverters is generally 10-15 years, the inverter needs to be replaced at least once in the 25-year operating cycle of the component. According to IHSMarkit's calculations, the global replacement demand for photovoltaic inverters in 2020 is about 8.7GW, an increase of nearly 40% year-on-year.

It is estimated that the inverter market will reach 66.3 billion yuan in 2025, of which string inverters will account for 52.3 billion yuan. Based on the annual increase in photovoltaic installed capacity and the replacement of the existing market ten years ago, it is estimated that the shipment of photovoltaic inverters will reach 327GW in 2025, with a market space of 66.3 billion yuan, of which the domestic inverter market will account for 11.6 billion yuan and the overseas market will account for 54.8 billion yuan, with a compound growth rate of 12%. Assuming that string inverter shipments account for 70% by 2025, the global string inverter market will reach 52.3 billion yuan, with a compound growth rate of 14% from 2020 to 2025, of which the domestic string inverter market will account for 8.5 billion yuan and the overseas market will account for 43.8 billion yuan, with a compound growth rate of 14%.

Trend 1: The proportion of string shipments will continue to increase

Most players in the inverter market operate both centralized and string inverters, with a clear global layout. Currently, Power Electronics and Sineng Electric's products are mainly centralized inverters, Enphase's products are mainly micro inverters, Huawei, SolarEdge, Jinlong, and GoodWe are all mainly string inverters, but Huawei's products are mainly large strings, targeting large ground power stations and industrial and commercial photovoltaic systems, while the latter three are targeting the household market. Sungrow and SMA have complete product lines, including centralized and string inverter businesses. Most companies in the market are committed to a global layout, with sales areas covering traditional markets such as Europe and the United States, as well as emerging markets such as Australia and India.

The proportion of distributed scenarios has increased, and the shipment proportion of string inverters is expected to increase. Among the four types of inverters, centralized and string types occupy most of the market. Since 2017, global string shipments have exceeded centralized ones, and the proportion has increased year by year. The shipment proportion of domestic string inverters reached 59.4% in 2019. Which inverter to use depends mainly on the application scenario. String inverters are mainly used in the distributed field. At present, the global photovoltaic industry has entered the era of parity. Without subsidies, the project yield rate in some provinces in my country has reached about 8%. The willingness of small and medium-sized owners to invest has increased, and the proportion of distributed is gradually increasing. The capacity of string inverters is about 100kw. The failure of a single component does not affect the overall system. It can be directly installed outdoors. It is the most suitable inverter for distributed use. With the rapid decline in the cost of string inverters, we believe that the proportion of string inverters is expected to continue to rise steadily.

Trend 2: Manufacturers are accelerating their overseas expansion, and domestic substitution is obvious

The position of the leading inverter companies is relatively stable, and the second echelon is in fierce competition. The competition in the inverter industry is mainly in product strength, brand, channels, cost control, after-sales service and other aspects, and the leading companies have advantages in these aspects. In 2019, Huawei and Sunshine accounted for 35% of the market share in total shipments, leading the photovoltaic inverter industry with a stable market share. The market share of other inverter companies is below 10%. SOLAREDGE is the world's largest supplier of component-level inverter systems. In 2019, it shipped 5.6GW and shipped 15.8 million optimizers. Its market share in the United States is about 50%. Due to the high added value of the US market, if calculated by amount, SOLAREDGE ranks first in market share. Between 2016 and 2019, CR5 dropped from 60% to 54%, mainly due to the decline in the market share of companies such as SMA and ABB. Their market share was snatched by some new inverter forces such as domestic manufacturers such as Jinlong Technology, GoodWe, and Growatt. The market share of these 8 domestic manufacturers increased from 12% to 18%.

Source: WoodMackenzie, GTM Research, Tianfeng Securities Research Institute

The global market share of domestic enterprises continues to increase, and the inverter market shows a trend of domestic substitution. The global market share of domestic enterprises is increasing rapidly: in terms of global inverter shipments, the top Chinese companies include Huawei, Sungrow, Sineng Electric, TBEA, Ginlong, GoodWe, Cosda, Growatt and Chint. In 2018 and 2019, the market share of CR3 declined slightly due to domestic and foreign policies, while the market share of CR4-9 inverter new forces has steadily increased, and domestic substitution has accelerated. In 2012, the market share of SMA, a long-established German inverter company, was still 22%, and with Huawei's entry into the inverter market, domestic substitution has accelerated. Since 2013, except for SolarEdge and Power Electronics, the market share of SMA, ABB, TMEIC and Schneider has been declining year by year. From 2013 to 2018, the market share dropped from 13.9%, 7.8%, 3.5% and 2.6% to 7.9%, 5.0%, 2.6% and 1.7% respectively.

Source: WoodMac, GTM Research, Tianfeng Securities Research Institute

The inverter business revenue of overseas established inverter companies has declined and their market share has shrunk. Overseas non-main inverter companies are at a disadvantage in terms of technology iteration and cost control. Faced with fierce competition from Chinese rivals, non-main photovoltaic inverter companies such as Bosch and Siemens withdrew from the market in 2013. Electrical giants such as Schneider and ABB are still struggling to survive, but with little success. The photovoltaic inverter business is under Schneider's medium voltage (infrastructure) electrical equipment business. The revenue growth of this business was weak from 2012 to 2017, with a compound growth rate of -3.5%, and a year-on-year decrease of 9% in 2017. In 2019, Schneider and ABB also chose to exit the market or divest their businesses after their market share declined year after year.

SMA is a German inverter company with a long history. It successfully developed and produced the world's first inverter in 1991. Since 2013, its revenue has declined significantly, with a drop of 36%. In the past seven years, its revenue has been declining in most years, with a compound growth rate of -6.5%. In 2019, its revenue increased by 20% year-on-year, more from household and large-scale project solution business. It actively develops other businesses besides inverters, including energy storage systems, energy management solutions, etc. The company plans to account for 40% of businesses other than inverters in 2020.

Product iteration is significantly faster than overseas, and domestic inverter manufacturers will continue to seize overseas market share

The product iteration speed is fast, and the cost advantage of domestic enterprises is obvious: Compared with overseas manufacturers, domestic inverter companies have excellent cost reduction capabilities. The cost reduction of inverters mainly depends on the rapid iteration of products. The main reasons for the cost reduction of different generations of products are: 1. Circuit design optimization, 2. Continuous development of electronic components, improved functions and reduced prices.

Specifically, the inverter cost can be reduced through the following ways:

1. Increasing the power of a single machine will reduce the number of inverters required for the same system, and reduce the cost of cables, construction and operation and maintenance;

2. Customize suitable magnetic devices;

3. Use more cost-effective power devices, such as SiC in high-power products to improve energy efficiency;

4. Optimize circuit design and improve system energy efficiency, such as shortening the distance between IGBT and capacitor to reduce stray inductance and spike voltage, thereby extending system life.