PV inverter supply shortage and price hikes are coming

The supply shortage and price increase of photovoltaic inverters are quietly approaching.

On April 12, a domestic inverter company took the lead in issuing a "Notice on Adjusting the Prices of Photovoltaic Inverter Products". The notice stated that chips and IGBT products have been in extreme shortage recently, and prices have risen accordingly. At the same time, the prices of bulk raw materials such as copper and aluminum have also continued to rise. For this reason, the company decided to increase the prices of some distributed inverters by 10-15%, effective from April 12.

"This year's orders have already been snapped up," an executive of another leading inverter company told the media. "Prices should also rise. But this does not mean an increase in profits. We can only be caught in the middle and try to maintain a balance in the development of the industry."

Since last year, the photovoltaic industry has experienced strong demand for photovoltaic glass, shortage of supply, and skyrocketing prices, but it is still difficult to find.

Then, affected by the epidemic and production accidents, the supply and demand of polysilicon tightened, and the price even doubled, and it is still rising. Major photovoltaic companies have signed long-term contracts to lock in the supply of products in the later period.

Now, inverters, whose prices have been on a downward trend, are experiencing a price increase due to a severe shortage, and this phenomenon may be particularly severe by the end of the year.

"The bottleneck for the development of household photovoltaics this year is not components, because their price tolerance is high. The biggest obstacle should be inverters, which are the core strategic resource this year." The chairman of a leading photovoltaic downstream company told the media, "We have already stockpiled some inverters in advance."

What is more worrying than the price increase of inverters is the shortage of inverters. Although the supply and demand of photovoltaic inverters seem to be stable, in fact, the production capacity of the entire second quarter has been consumed in April alone.

Unlike the shortage of glass and silicon materials, the shortage of inverters is a strategic shortage. Especially for household photovoltaic companies, their purchasing and reserve capacity in the inverter segment may determine their market position this year.

The expected price increase caused by the shortage seems to be a profit opportunity for inverter companies, but in fact it is not the case.

From the perspective of the industrial chain, this shortage will lead to different fermentations in different links of the industrial chain. From the perspective of industries and enterprises, this shortage also means different opportunities and challenges.

Household photovoltaics bear the brunt

The China Photovoltaic Industry Association predicts that my country's new photovoltaic installed capacity will reach 55GW-65GW in 2021. Driven by new installed capacity and energy transformation, downstream companies' demand for inverters is rising.

Another positive factor has promoted the prosperity of the household photovoltaic market. On April 8, the National Development and Reform Commission issued the "Notice on Matters Related to the 2021 New Energy Grid-connected Electricity Price Policy (Draft for Comments)", which clearly stated that the subsidy for household photovoltaics in the last year will be 3 cents/kWh.

Household photovoltaic is expected to become the only subsidy project in the last year, which will undoubtedly attract many photovoltaic companies to compete for this piece of cake. The industry expects that the scale of household photovoltaic will reach 10GW this year.

"Because the development of household photovoltaics has far exceeded expectations, while ground-based power stations have not exceeded expectations, the supply and demand of inverters used in ground-based power stations have not changed significantly, while household photovoltaic inverters will be particularly scarce," said the above person.

Obviously, household photovoltaics has to face two problems: First, when the demand for inverters from ground power stations increases, the inverters needed for household photovoltaics will be given secondary priority, and the supply of household photovoltaic inverters will be squeezed by the demand from ground power stations.

The second is the ratio problem. With the increase in household photovoltaics, more inverters are produced for ground power stations, and the overall ratio of household photovoltaics will be problematic. This is a process of supply chain adjustment.

Unlike the 20-25 year service life of components, the service life of inverters is generally 10 years. This means that the inverter needs to be replaced once during the entire operation cycle of the photovoltaic power station.

In 2019, global inverter shipments reached 126.7GW, with revenue reaching US$8.59 billion. With the booming development of household photovoltaics, some institutions predict that the global inverter market will reach 300GW by 2025, corresponding to revenue of US$18 billion, which is a huge potential.

In the face of grand ideals, downstream companies need to be vigilant.

"This year, household photovoltaics will face a reshuffle similar to the one after the introduction of the '531' new policy in 2018. When everyone rushed into the household photovoltaic market, they found that they could not buy inverters, which will inevitably lead to a major reshuffle," said the above executive.

What exactly caused this change?

The main materials required for the production of photovoltaic inverters include mechanical parts, electronic components and auxiliary materials. Among them, mechanical parts mainly include plastic parts, die-casting parts, sheet metal parts, heat sinks, etc.; electronic components include IGBT, integrated circuits, inductors, PCB circuit boards, capacitors, switch devices, connectors, etc.; auxiliary materials mainly include glue, packaging materials, insulation materials, etc.

The shortage of inverter production capacity this year is mainly due to the shortage of IGBT, the core electronic device, in addition to the widespread chip shortage in the automotive and home appliance fields.

As a new type of power electronic device, IGBT is internationally recognized as the most representative product of the third revolution in power electronic technology. It is directly responsible for controlling the conversion of direct and alternating current in the drive system and is known as the "CPU" of the power converter in the industry. As a national strategic emerging industry, it is widely used in rail transportation, smart grid, aerospace, electric vehicles, new energy equipment and other fields.

In the global deployment of inverters last year, most of them were string inverters. String inverters are mainly above 200 kilowatts in ground power stations and adopt a modular approach. However, household inverters are completely different.

The shortage of IGBTs will directly affect the types and output of inverters. Inverter companies plan the proportion of modular and household inverters based on project pre-judgment. This proportion will also directly affect the development scale of ground power stations and household photovoltaics.

The localization journey is accelerating

my country is the world's largest IGBT market, and the global IGBT market is expected to reach $6 billion next year, with huge room for growth. However, a more urgent problem is that my country currently has a huge gap between supply and demand for IGBTs, and relies heavily on imports.

For this reason, even if the price of inverters increases due to the upstream IGBT shortage, this profit is unlikely to fall into the pockets of inverter companies.

The IGBT production process is extremely demanding, capital-intensive, and requires a long-term talent pool, so only a few companies are able to mass-produce it.

At present, the top five companies in the field of discrete IGBT devices account for about 70% of the global market share in this field. They are Infineon of Germany, ON Semiconductor of the United States, STMicroelectronics, which is a merger of Italian and French companies, and Mitsubishi and Toshiba of Japan.

Among them, Infineon accounts for 38.5% of the sales, 7 percentage points higher than the second to fourth place combined, and has an undoubted absolute control position in this field.

In order to seize the Chinese market, international giants have invested in building factories in China. On November 6 last year, Infineon announced that it would increase its investment in China and expand the IGBT module production line of its Wuxi factory into one of Infineon's largest IGBT production bases in the world.

IGBTs have been in short supply since last year. Normally, the supply cycle of IGBTs is 7-8 weeks, but last year the supply cycle doubled to 13-30 weeks.

In the past, my country's inverter companies expanded the market through their own strength. Foreign-funded non-main inverter companies gradually withdrew from the market due to competitive pressure, such as Bosch in March 2013, Siemens in May 2013, and ABB in July 2019.

Today, my country's leading inverter companies Huawei, Sungrow and SMA have always been the top three in inverter shipments. The withdrawal of foreign capital has given local companies such as GoodWe greater room for international development.

However, the production of IGBT, the core electronic component of inverters, is still a shortcoming. Once the supply is cut off, the impact will be almost devastating. It will take time for China to master these key technologies.

On March 19, 2010, the National Development and Reform Commission issued a red-headed document: "Notice of the General Office of the National Development and Reform Commission on the Organization and Implementation of the 2010 New Power Electronic Device Industrialization Special Project". The special project focused on the design, development and industrialization of devices represented by IGBT, and the industrialization of power modules.