Current status, competition landscape and development trends of China's photovoltaic inverter industry in 2020

Centralized medium-sized inverters are the main type

Photovoltaic inverter (PV inverter or solar inverter) is an inverter that can convert the variable DC voltage generated by photovoltaic (PV) solar panels into AC power at the mains frequency, which can be fed back to the commercial power transmission system or used for off-grid power grids. Photovoltaic inverter is one of the important system balance (BOS) in photovoltaic array systems and can be used with general AC-powered equipment.

Photovoltaic inverters are generally divided into three categories: centralized inverters, string inverters and micro inverters. Specifically, the differences in application scenarios are as follows:

1) Centralized inverter: large ground, water surface, industrial and commercial rooftops (500-3400kW), represented by domestic companies such as Huawei, Sungrow Power Supply, and Sineng Electric.

2) String inverters: small distributed and ground stations - industrial and commercial rooftops, complex hills (20-300kW, currently the maximum is 250kW), and household use (below 20kW). They have the best control effect; the main representative companies are Solaredge, Ginlong Technology, Growatt, and GoodWe.

3) Micro inverter: The single unit capacity is generally below 1kW, with multi-channel MPPT + single-machine centralized inverter. Representative companies include Enphase, Omnik, etc.

Figure 1: Comparison of three major types of inverters

With the rapid penetration of string inverters in centralized power stations and distributed fields, it is an inevitable trend that almost all domestic manufacturers have deployed string inverters. In 2019, string inverters accounted for 60.2% of China's total market share. Considering the high penetration rate of string power stations this year, it is expected that the proportion will increase to 65%+ by 2020 and to more than 75% in the future.

Figure 2: Distribution of the three major types of inverters in China from 2016 to 2020 (unit: %)

Industry concentration continues to increase

Looking at the development and changes in the competition landscape of the photovoltaic inverter market, the industry concentration has gradually increased over the past 10 years, and the market share of the top ten companies in the world has reached 73% in 2019. From the perspective of segmentation structure, the positions of 1-3 are stable, with a market share of about 45%, and the rankings of 4-10 are constantly rotating, with a market share of about 30%. The top companies are stable, while the competition in the middle is fierce.

Figure 3: Changes in global inverter market concentration from 2012 to 2019 (unit: %)

Figure 4: Changes in CR10 ranking of the global inverter market from 2012 to 2019

Domestic competition is fierce, and it is inevitable for leading companies to go overseas

The overseas photovoltaic industry developed earlier and is more mature. It has high requirements for product reliability and quality, and will consider the value of products throughout their life cycle. The industry entry threshold is also high, and it attaches importance to corporate brands, so the gross profit margin is high. Domestically, people are more sensitive to prices, and domestic manufacturers are in fierce competition, which has lowered the gross profit margin.

Figure 5: Comparison of gross profit margins of Chinese inverter companies at home and abroad in 2019 (unit: %)

From the comparison of unit prices of inverters from domestic and foreign companies in 2019, domestic companies Sungrow, GoodWe, and Growatt sold inverters at about 0.3-0.4 yuan/W per watt, while overseas SMA sold inverters at 0.57 yuan/W. Solaredge and Enphase, which are rooted in the US market, sold inverters at 0.78 yuan/W and 2.20 yuan/W respectively, which are much higher than domestic companies' prices. Domestic companies' products are cheap and high-quality, more than 50% lower than overseas prices, and they can quickly seize market share through pricing strategies in the future.

Figure 6: Comparison of inverter unit prices of domestic and foreign companies in 2019 (unit: yuan/W)

Strengthening advantages and penetrating the world

From the perspective of regional distribution, except for the Japanese market, which is particularly inclined towards local inverter manufacturers and the US market, which has many restrictions on Chinese photovoltaic products, Chinese companies are constantly penetrating emerging markets such as Asia Pacific (excluding China), India, and traditional European markets. Chinese companies have advantages in labor costs and manufacturing advantages in the entire industrial chain in the photovoltaic inverter industry. The combination of these two advantages makes China's inverter products "large in quantity and high in quality." Overall, the dominant position of Chinese manufacturers in the inverter market will be maintained for a long time and will even continue to strengthen.

Figure 7: Global inverter market share rankings by region (yellow represents Chinese companies)

According to Wood Mackenzie data, global inverter shipments in 2019 were 126.735GW, up 18% year-on-year, with China accounting for more than 65%. In May 2020, the CNE data analysis team released an analysis of PV inverter exports in Q1 2020. According to statistics, the export value of major PV inverter companies in Q1 2020 was US$551 million (including PV, off-grid PV, automotive, inverter power supplies, energy storage inverters and other products, excluding shipments from Chinese brands in overseas factories).

Figure 8: Global PV inverter export share in Q1 2020 (unit: %)

Overseas revenue of leading enterprises continues to rise

Judging from the regional distribution of revenue of leading domestic inverter companies, the overseas revenue of leading domestic inverter companies has continued to grow rapidly in the past two years. In 2019, Sineng Electric's overseas revenue increased 12 times from the previous year, from RMB 19.79 million to RMB 270 million. The overseas revenue of leading companies such as Sungrow and Jinlong also increased by 50%+ against the trend. The overseas market has become the growth engine of leading domestic inverter companies, and it is expected that the overseas market will have at least 3 years of rapid growth.

Figure 9: Comparison of revenue growth rates of leading Chinese inverter companies at home and abroad from 2013 to 2019 (unit: %)

Chinese brands are expected to occupy an absolute dominant position

Chinese inverter companies have quickly seized the market through pricing strategies. In 2019, domestic companies' overseas shipments increased by more than 60% year-on-year, and their overseas market share (by GW) was 55%. This is expected to increase to around 60% in 2020, and is expected to increase to more than 70% in 2025.