by Tom Konrad, Ph.D., CFA

Last week, I wrote that I’d taken a short position in Enphase Energy Inc. (ENPH). I have now closed out that position and don’t intend to go short again.

My decision to go short was based on four factors:

1. I’m worried about risk in the overall market, and so am considering opportunistic short positions as a hedge.
2. Prescience Point Capital Management released a report accusing Enphase of earnings manipulation. The report seemed well-researched from a purely accounting point of view.
3. My favored indicator for avoiding companies which might be engaging in earnings manipulation, Beneish M-Score was indicating possible manipulation.
4. My own knowledge of the residential solar market made me skeptical of the long term competitiveness of Enphase’s technology.

A week later, the first factor is still in play; I’m still interested in taking opportunistic short positions as a hedge. However, I am no longer confident that any of the other 3 factors that led me to choose Enphase as a short target are valid. Because of that, I have taken advantage of the decline in Enphase’s stock price (mostly caused by Prescience Point’s report and follow-up article on Seeking Alpha, but also caused by somewhat disappointing revenue guidance for the remainder of the year.) I was able to close my short position at a profit mainly because I sold in reaction to the report, but before the Seeking Alpha article, which had a much greater effect on the stock price.

My opinion has changed mostly because readers of my first article made a good case that my understanding of Enphase’s competitive position is out of date. Enphase seems to have addressed my concerns regarding the inherent difficulty in servicing a large number of microinverters compared to a single string inverters.

For me, one of the most convincing parts of Precience’s argument was the allegation that ENPH had been boosting earnings by reducing warranty reserves. However, if Enphase’s microinverters truly have become much more reliable, then reducing warranty reserves is simply the accounting acknowledgment of the benefits of improvements in the company’s technology. I’m not saying that I know the reduction in warranty reserves is justified, but I now think that it could be, and lack the confidence I think necessary to use this as a factor in an investment decision.

Second, after Enphase released second quarter earnigns on August 1^st, I recalculated the quarterly M-Score using the new numbers. The results are shown in the following chart. In the version of M-Score I use, a value above 0 indicates possible earnings manipulation:

Note that, while Enpahse’s M-Score (red line) is still positive, it fell back significantly in the second quarter. Typically, a company that is manipulating earnings will have an M-Score that continues to rise as the manipulation goes on. This is because, as the deception goes on, larger changes to accounting numbers are needed to hide the disappointing reality and make it appear that the company’s finances are continuing to improve. Hence, the second quarter decline in M-Score makes me think that while Enphase is in a tight situation that would tempt many management teams to manipulate earnings, they have probably not done so, and the improved income seen in the first couple quarters is most likely real.

Digging a little deeper into the factors that contribute to the overall M-Score, the ones that an investor should pay attention to are the ones which are rising. In the first quarter, these were:

• SGI – the sales growth index.
• GMI – the gross margin index
• LEVI – the leverage index
• AQI – the asset quality index

Of these, the first three are all indicators of a company where management is likely to be tempted to manipulate earnings, not signs of earnings manipulation itself. These were all rising in the first quarter, but moderated in the second quarter.

The only real sign that there might be or have been earnings manipulation is the asset quality index, AQI. This sign of declining asset quality is, once again, most likely due to the fact that Enphase is holding less revenue in reserve to cover future warranty costs. If the durability of the most recent versions of Enphase’s microinverters has improved as greatly as the company claims, this increase in AQI will turn out to have been justified by business fundamentals.

Conclusion

While I still feel that holding some short positions is justified by the overall risk in the market, I no longer feel that there are any compelling reasons to short ENPH in particular. Hence I have closed out my short.

Disclosure: No position

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post Hopping Off The Short Enphase Bandwagon appeared first on Alternative Energy Stocks.

On July 25th,  Prescience Point Capital Management recently released a report accusing Enphase energy Inc. (ENPH) of earnings manipulation. Prescience is an investment manager with a reputation for strong short-side analysis. I was intrigued, and decided to investigate Prescience’s claims for two reasons:

• I am generally concerned about overall market conditions, so adding a short position to my portfolio is attractive in the current market environment.
• As an analyst who specializes in clean energy stocks, I have suspected that Enphase would not survive much longer because I believe that its core technology is no longer the best solution for most applications.  As a poorly capitalized, unprofitable company, Enphase lacks the financial resources to regain a competitive edge.

After considering the evidence in the report, and using one of my own favorite tools to detect possible earnings manipulation, I decided to join Prescience Point in shorting the stock.

The Solar Inverter Landscape

Solar photovoltaic systems produce direct current (DC) electricity, and inverters are required to convert DC power to the alternating current (AC) power which is used by the electric grid.

There are four basic types of inverters, with different strengths and weaknesses for different types of solar installations.

1. Central inverters
2. String inverters
3. Microinverters
4. String inverters with DC optimizers

Central inverters are used in very large utility and commercial scale solar farms. They do not compete with Enphase’s microinverters, and so I will not discuss them in detail here.

String inverters were the industry standard for small and medium-scale solar installations until recently.  String inverters achieve high conversion efficiency by relying on high voltage DC current, which is achieved by wiring several solar panels in series.  A group of solar panels wired this way is called a string.

The downside of strings of solar panels is a weakest link problem.  The power output from each of the panels is effectively limited by the power output of the lowest power panel in the string.  Variations in output between panels arise from mismatched panels (panel manufacturing is not completely consistent), soiling of the panels by dirt or bird droppings, and by partial shading.  Even a tiny patch of shade on a single panel can greatly reduce the output from the entire string.

Advantages of Microinverters

The microinverter instantly solved the weakest link problem for solar strings by eliminating the string. In addition, new fire codes being adopted by states since 2012 have given microinverters a leg up on their larger cousins for rooftop installations. These codes require that a solar system can be shut down from near the panels on the roof. String inverters are incapable of this feat, because they do not have any electronic controls on the roof, while cutting power to a microinverter turns off the current all the way back to the panel.

It can also lower the cost of installation, since installers only need to know how to handle wiring for AC current at typical household voltages.

Some solar panel manufacturers, notably SunPower (SPWR) took the next logical step in installation cost reduction by bundling a microinverter with a solar panel in a single package they called an “AC module.” Sunpower’s AC modules come with a 30 year guarantee on the complete system. This premium product (Sunpower’s panels are also higher efficiency than any of their competitors’) appeals to many homeowners, especially ones trying to get as much electricity as possible out of limited roof space.

SunPower’s AC module strategy was dealt a serious blow by President Trump’s solar tariffs, because by combining the microinverter and the DC solar panel into a single product, they inadvertently made both subject to the tariff. Unable to obtain an exemption, SunPower sold its microinverter business to Enphase in June.

Enphase’s stated motivation was to acquire a captive customer and consolidate its hold on the microinverter market, although Prescience Point calculates that Enphase significantly overpaid for a five year supplier agreement at inflated prices in an effort to artificially boost its profit margins. The company admits that it did not gain significant intellectual property in the deal.

Even if Enphase did not overpay, I believe that consolidating its control on the microinverter market is a risky strategy because, without significant technological advances, microinverters are an inferior product for most applications.

Microinverter Drawbacks

Microinverters come with several drawbacks.

• The large number of microinverters needed to replace a single string inverter adds to cost.
• The 120 or 240 volt AC current that microinverters produce requires larger and more expensive wiring than the several-hundred volt DC current typically used by strong inverters to connect the panels to the inverter.
• Inverters are typically less durable than solar panels. Placing microinverters on the roof under the solar panels places them under additional stress than a string inverter which can typically be placed in an area subject to fewer temperature extremes. Although a single mincroinverter failure will not take down an entire solar installation, the larger number of microinverters means that such failures are more common, and the placement of the microinverters under the solar panels adds to replacement costs, especially on rooftop installations.

Given these drawbacks, microinverters have only been competitive for small residential systems, especially ones that have to cope with significant shading. For larger systems, the economics of scale generally win out.

The most recent innovation in the space is string inverters with DC optimizers. These combine the economics and efficiency of having a string inverter in a protected location, with the control and power balancing of microinverters by pairing each panel with a much smaller piece of electronics, a DC optimizer with each panel. These DC optimizers both compensate for differential power production between panels (solving the “weakest link” problem), and allows power to be shut down all the way back to the panel, allowing them to comply with the new fire codes.

While not quite as flexible as microinverters in terms of compensating for variations in output from different panels, string inverters with DC optimizers are nearly as good as microinverters in typical installations, but are competitive with traditional string inverters from a price standpoint.

The string inverters with DC optimizers are sold by SolarEdge (SDGE). By maintaining a high, fixed DC voltage from the panels to the inverter, SolarEdge’s solution has a slight advantage over traditional string inverters (and a large advantage over microinverters) in terms of wire sizing. It also maintains most of the maintenance advantages of traditional string inverters by locating the most sensitive electronic parts at the inverter.

These advantages have allowed SolarEdge to grow its market share by 182% from 2014 to 2017, while Enphase’s market share declined 17.5% over the same period. In order to reverse this trend, Enphase would have to improve its technology and cost structure in order to remove SolarEdge’s price advantage. While Enphase is working towards this goal, it is not well capitalized or profitable. SolarEdge is both of these things, and is also investing in improving its technology. It seems unlikely that Enphase can win this innovation race with fewer resources when it is already behind.

Meanwhile, other profitable and well capitalized inverter and electronics manufactures are working on solutions to comply with fire codes and address partial shading.

Earnings Manipulation

As a contestant is what seems to me to be an unwinnable race, it would hardly be surprising if Enphase’s management were tempted to cook the books in order to boost the share price and raise some much needed funds. This is precisely what Prescience Point’s report alleges. I found that the report makes a compelling case, which I will not summarize here. Instead, I suggest that you read it yourself.

In addition to reading the report, I decided to do my own test. I like to use the Beneish M-Score, a statistical model which combines a number of financial ratios to detect financial situations which would tempt a business to fudge its accounts, as well as tell-tale signs of actual cheating. Before the first quarter this year, Enphase’s M-Score was normal, but with the Q1 numbers a number of the component ratios moved in the wrong direction, and the M-score began signaling a high probability that Q1 earnings may have been manipulated.

In particular, the ratios that contributed to the unfavorable M-Score were the Gross Margin Index and Sales Growth Index, both of which were showing a high incentive to manipulate, while the Asset Quality Index was indicating likely excessive capitalization of expenses.

An unfavorable M-Score is nothing like proof of earnings manipulation, it just means that cautious investors should be going over the books with a fine-toothed comb. Which is exactly what Prescience did.

Conclusion

I was already looking for stocks to short as a hedge in what I believe is an increasingly dangerous stock market environment. I was also already skeptical of Enphase’s long term business prospects. Prescience’s report, and the unfavorable M-Score combined to make the decision to short Enphase a particularly easy one.

It turns out that the stock is hard to borrow, so rather than shorting directly, I sold Enphase $7.50 December calls the day the report came out (July 25^th.) I only wish I’d sold more.

Disclosure: Short ENPH calls.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post Hopping On The Short Enphase Bandwagon appeared first on Alternative Energy Stocks.

by Paula Mints

In June, Suniva crawled out of its badly managed grave courtesy of a request to the U.S. Bankruptcy court made by its partner-in-tariff-petition, SQN Capital Management, which had sought relief for itself and Suniva’s other creditors. A public auction will be held sometime between June and August for, what was described as, some of Suniva’s manufacturing equipment. Meanwhile, back on planet hope-springs-eternal, investment is being sought to restart manufacturing with whatever equipment remains. Lucky SQN now owns Suniva’s monocrystalline cell manufacturing capability, its module assembly capability and its licenses.

Comment: Concerning the upcoming auction … if you’ve got a dollar and are tired of Vegas odds, go for it. Seriously though, the company’s US module assembly was already outdated (most of its modules were assembled in China and even there, focused on 60 cell modules) and its cell manufacturing uncompetitive – because – the cost structure in the US is higher than that of China (and other Asian countries). Concerning 60 cell modules, manufacturers such as LG, still offer these modules as premium products for the rooftop residential market.

Labor costs are higher – much, much higher than in Vietnam (<$3.00 per hour), China (<$6.00 per hour), Thailand (<$3.00 per hour), India (<$3.00 per hour). In the US the minimum wage is $7.25 per hour and is higher in some states.

Though other countries may have overtime laws the base pay is lower and so, again, does not compare to the US. The cost of inputs is lower in other countries. The manufacturing concern may be well-supported by local and central governments in other countries. The manufacturing concern may not pay taxes, or, may pay significantly lower taxes in other countries and land for the facility may have been free or close to free (no rent) in other countries.

And … lest we forget, there is the cost of the Trump Administration’s tariffs on, basically, everything and against, basically everyone. These tariffs have led to retaliation from, basically everyone, on basically everything. The added cost of inputs (steel, aluminum, et al) is already trickling through the US economy (and, that of, basically, economies everywhere).

Finding an investor willing to buy what is left of Suniva’s equipment after the auction, and who will then restart manufacturing of cells and/or modules, will be (and should be) difficult.

The What Ifs for SunPower of Suniva’s possible reemergence

If whatever entity buys whatever is left of Suniva restarts its cell manufacturing, a major strategic coup for SunPower (SPWR) will be reduced. As the only US cell manufacturer (if the SolarWorld US acquisition is finalized) SunPower would have the control over requesting an extension for the 2012/2014 and current 201 tariffs, and could allow them to sunset, ask for an extension, or pursue another country. If Suniva successfully restarts cell manufacturing SunPower’s control in this regard is somewhat diluted. However, a successful restarting of Suniva’s cell manufacturing is a big if with very little upside to it, is frankly hard to justify, and though it may happen, hard to imagine. Granted, the unimagined happens every day. Perhaps one of the companies that has announced plans for module assembly in the US will consider Suniva a cheap buy worth retooling.

Lesson: This is not a lesson about the struggle of a little company to survive. This is a lesson on how to read announcements for what really matters. The announcement was about an auction. More will be forthcoming after the auction.

Enphase buys SolarBridge with immediate plans to shutter a lesser rival

In June, right on the heels of its SolarWorld acquisition announcement, SunPower announced it had sold its microinverter division (SolarBridge) to microinverter manufacturer Enphase (ENPH). SolarBridge was founded in 2004 in Austin, Texas. In 2013, longtime SunPower Executive Bill Mulligan was named SolarBridge’s CEO. In 2014, SunPower acquired SolarBridge.
Enphase acquired SolarBridge for $25 million and will issue 7.5-million shares of stock. Enphase also gets a supply agreement with SunPower for its microinverter product. Enphase stated it would immediately shut down production of the SolarBridge microinverter technology.

The real competing technology for Enphase remains string inverters with power optimizers.

Lesson: This is another lesson on how to read announcements. Enphase bought a pipeline. SunPower got rid of an underperforming and expensive asset, and secured funds to help with its SolarWorld US acquisition costs. Happens all of the time. You want a new purse … sell the old one on eBay. Kudos all around.
This is also a lesson about expectations. Just like the future, expectations are ephemeral and are a product of our hopes, dreams and in some cases fears. This means that worst case, Enphase paid $25-million and issued stock to get rid of a rival technology. The success of the worst case depends on how big a rival SolarBridge really was for Enphase. If SolarBridge had negligible market traction, then the worst case scenario is pretty expensive, and if the pipeline is less robust than expected, the expense is hard to justify.

Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on Twitter @PaulaMints1 and read her blog here. 
This article was originally published in SPV Reaserch’s monthly newsletter, the Solar Flare, and is republished with permission.

The post Suniva, SunPower, Enphase, SolarBridge and SolarWorld – Six Degrees of Solar Separation appeared first on Alternative Energy Stocks.

Alternative energy companies delivered compelling returns for investors.  A look at Crystal Equity Research’s ‘indices’ of renewable energy, conservation and environmentally-friendly technology companies found some exceptional price moves.  We review five companies here that have experienced top price moves from 52-week lows.

Codexis, Inc. (CDXS:  Nasdaq) has gained 257% from its 52-week low. The company won a place in our Beach Boys group through development of proteins for a mix of applications from biocatalysts for industrial enzymes, chemicals and pharmaceuticals.  While the company has started generating revenue from its technology, it has yet to post a profit.  Codexis delivered a smaller than expected loss in the first quarter ending March 2018.  Revenue came in at $14 million in the quarter as the company successfully engaged a clutch of top customers such as Tate & Lyle, Nestle Health Science and Merck in compensation research and development projects.  The results were enough for management to reiterate guidance for 26% top-line growth in 2018.

From a technical standpoint CDXS is overbought.  However, another company in our Beach Boy’s group is still registering as oversold even after an impressive 193% appreciation from it’s 52-week low price.  Amyris, Inc. (AMRS:  Nasdaq) uses industrial bioscience to design yeasts that can convert plant-sourced sugars into renewable ingredients.  The company has found success in monetizing its technology through Novvi, LLC, a joint venture with Cosan, SA and American Refining Group.  Joint venture will be developing novel renewable base oil technologies with the Chevron, the world’s largest producer of lubricants and premium oils.  It will probably take some time to see significant revenue streams, but a relationship with Chevron most than likely means significant volumes over an extended period of time.  Chevron also made an equity investment in Novvi in late 2016.

The shares of TPI Composites, Inc. (TPIC:  Nasdaq) bounced 270% from its 52-week low. The stock has experienced two major price moves following major announcements.  The most recent was the disclosure that TPI is expanding its relationships with Vestas Wind Systems in Mexico.  TPI is the only independent producer of composite blades for the wind energy market.  The company will produce blades for Vestas’ four megawatt wind turbine platform beginning in Fall 2018.  The deal bodes well for long-term revenue streams. The Vestas deal follows directly on the heels of similar supply agreement with ENERCON GmbH, which will be buying blades for two of its turbine platforms.  Expect the consensus estimate for TPI to move higher in coming weeks.

Top of the pack in the Mothers of Invention group is Enphase Energy, Inc. (ENPH:  Nasdaq).  The stock price has soared 686% from its 52-week low earlier this year, propelling the stock well into overbought territory.  What has traders so enthusiastic is the promise of revenue streams from the sale of a newly introduced microinverter.  The Enphase IQ7X Micro is the seven generation version, providing the highest power and efficiency.  The company has yet to produce profits, but with new products aimed at the fast growing market for smart grid applications, there is optimism that the red ink will not be needed must longer.

The solar industry is undergoing vast changes as systems reach large scale. First Solar (FSLR:  Nasdaq), which was discussed in the recent post “Moving On with Solar in Ohio,” has clocking in 100% price appreciation from its 52-week low.  One more solar company with investors celebrating a doubling in their share value is Real Goods Solar, Inc. (RGSE:  Nasdaq). The company reported $15.2 million in total sales in 2017, resulting in a new loss of $18.1 million.  Investors apparently see much promise for Real Goods, ponying up $4.4 million in new capital in early April 2017.  The company’s in-roof solar shingle is expected to gain popularity with builders. The move by the state of California to mandate solar power installations on all residential structures is seen as confirmation of demand.

In the next post we look at additional companies in the alternative energy indices to find those which are still attractively priced.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

The post Alternative Energy Companies Posting Large Returns appeared first on Alternative Energy Stocks.

This article was last updated on 12/20/2022.

Inverter stocks are publicly traded companies that manufacture or are suppliers to companies whose products, called inverters, convert power from direct current (DC) to alternating current (AC).  Inverters are used to allow power from solar, wind, and batteries to feed the electric grid.  They are also included in the list of electric grid stocks.

Advanced Energy Industries (AEIS)
Darfon Electronics Corporation (8163.TW)
Enphase Energy, Inc. (ENPH)
Hoymiles Power Electronics Inc. (688032.SS)
Schneider Electric (SU.PA, SBGSF, SBGSY)
SMA Solar Technology (S92.DE)
SolarEdge (SEDG)

If you know of any inverter stock that is not listed here and should be, please let us know by leaving a comment. Also for stocks in the list that you think should be removed.

The post List of Wind and Solar Inverter Stocks appeared first on Alternative Energy Stocks.

James Montgomery

Back in mid-August, Vine Fresh Produce in Ontario unveiled a 2.3-MW solar rooftop array on its greenhouse, the largest commercial rooftop project under the province’s feed-in tariff (FIT). This system notably incorporates a technology that’s been more familiar in the U.S. residential solar market: microinverters. (The devices, made in Enphase Energy’s [ENPH] Ontario plant, helped the project qualify for that FIT.) Weeks ago Enphase followed that up with another large-sized project using microinverters, 3.1-MW of distributed solar across 125 buildings for the San Diego Unified School District.

Vine Fresh Produce’s 2.3-MW (2-MW AC) solar project in Ontario, Canada. Credit: Enphase.

Those announcements were meant as stakes in the ground. “We’ve proven [microinverter technology] in residential, we’re proving ourselves in small commercial… but our ambitions are much bigger than that,” said Raghu Belur, Enphase co-founder and VP of products and strategic initiatives. “We’re seeing people deploy [microinverters] in significantly larger systems.”

The technology is rapidly gaining traction, according to Cormac Gilligan, IHS senior PV market analyst. Microinverter shipments will reach 580 MW this year, with sales topping $283 million, and average global prices sinking 16 percent to $0.49/Watt, he projects. By 2017 he sees shipments soaring to 2.1 GW with revenues of about $700 million, and expansion beyond the U.S. into several regional markets, especially those in early stages of development that might be more open to newer technologies: Australia, France, the U.K., Switzerland, and even Hawaii. Japan’s big residential solar market is especially attractive, but poses certification challenges and strong domestic competition.

But as those two Enphase projects illustrate, there’s another growth area for microinverters that’s emerging alongside regional expansion  up into commercial-sized rooftop solar installations. The same reasons residential customers like microinverters apply to small-scale commercial projects as well: offset partial shading, more precise monitoring at the individual module level, provide a more holistic readout of what the system is producing, and improve safety because they typically use a lot lower voltage. Just nine percent of microinverter shipments in 2012 were to commercial-scale use, noted Gilligan  but he sees those surging to nearly a third of shipments by 2017.

Who’s Making Microinverters

The microinverter space is getting crowded (see table below), if not yet a model of parity. Enphase continues to dominate with more than half of the sector’s revenues in 2012, four million units cumulatively shipped and four product generations. “We are a high-tech company that happens to be in the solar sector,” Belur explained. Compared with what he called the “big iron, big copper guys” who are now broadening their inverter portfolios with microinverters, “we’re all about semiconductors, communications, and software.” The company designs its own chips for its microinverters, and outsources manufacturing to Flextronics.

SMA got its entry into the game with the 2009 acquisition of Dutch firm OKE. “In the residential market it became clear to us that customers were interested in the microinverter architecture,” said Bates Marshall, VP of SMA America’s medium-power solutions group. SMA also sells the string inverters that have gained favor over big centralized inverters, so SMA’s simply broadening its portfolio. With the emergence of the U.S. solar end-market, SMA is more willing to push some R&D and product development over here; “we get to drive the bus to a greater extent,” he said. SMA recently started shipping microinverters to the U.S. from its German inventories, but a production line is now being qualified at the company’s Denver facility.

Similarly to SMA, Power-One (recently bought by ABB) aims to supply whatever type of power conversion capability customers need, noted Chavonne Yee, Power-One’s director of product management for North America. So far demand for microinverters has come in the U.S. residential market, offering high granularity and maximum power point tracking (MPPT), but she sees most of the commercial-scale demand switching from traditional central inverters to three-phase string inverters, not microinverters.

Module supplier ReneSola sells a standalone microinverter, touting the typical features with some higher (208-240) voltage options for small light commercial, but at a 15-20 percent lower price point, explained Brian Armentrout, marketing director for ReneSola America. “We are seeing some demand” in small light commercial applications ranging from 50-kW up to 500-kW at which points there’s “the breaking point where string inverters make more sense.”  Down the road the company wants to take the end-around route of integrating microinverters directly onto panels; its gen-2 microinverter should be available in the spring of 2014. Armentrout projects ReneSola will be “in the top three” next year for microinverter sales, while simultaneously aiming high for the top spot in module shipments.

Others are looking to integrate microinverters directly into the modules. SolarBridge has worked closely with SunPower and BenQ to design its microinverters to eliminate several components that typically fail, notably the electrolytic capacitors and opto-isolators, explained Craig Lawrence, VP of marketing. They also minimize other typical costs such as cabling, grounding wires and even tailoring the microinverter for a specific module type to optimize the microinverter’s firmware, he explained. He sees the trend to bring microinverters into the commercial-scale environment, particularly with SolarBridge’s more recent second-generation microinverters in the past year or so.

Microinverters vs. String Inverters 

In general, installers are making a choice between microinverters and string inverters, comparing functionalities and costs. Both sides make a case for reliability: microinverters use fewer components and represent lower cost when something does fail; string inverter vendors point out microinverters have only been on the market for a few years and can’t make substantial claims about reliability. IHS’s Gilligan noted the sheer number of microinverter devices in the field potentially requiring repair/replacement could be daunting.

Solar panels on a building for the San Diego Unified School District. Credit: Enphase.

SolarBridge’s Lawrence argues in favor of microinverters on an operations & maintenance basis. Central inverters account for half of an operations & maintenance budget and it’s the single highest failure component in a solar PV system; that’s why there’s been a shift from those to string inverters on commercial-scale solar. “All the reasons you’d do that, are the exact same reasons to go from string inverters to microinverters,” he said. “You want as much redundancy and granularity as you can possibly get, to maximize your rooftop utilization and simplify your O&M.” Factoring in replacement costs, labor savings in not having work with high-voltage DC, “for most of our customers that alone is enough to justify the additional [price] premium.” With a microinverter you’ll know when (and which) one panel is underperforming, and it might be tolerable to just leave it alone; on a string inverter you might not know where the problem is while you lose power over the entire string, he pointed out.

Scott Wiater, president of installer Standard Solar, acknowledges that microinverter technologies and re
liability have improved over the past couple of years, but he’s not convinced this is an argument in their favor vs. string inverters. “I have concerns over the long term,” he said. “If you truly believe you’re going to get 25 years out of a microinverter with no maintenance, that might hold true, but we haven’t had that experience.” In fact he advises that any residential or commercial system should plan to replace whatever inverter it uses at least once over a 20-year lifetime. 

Commercial-Scale Adoption: Yes or No?

Talking with both inverter vendors and solar installers, the choice of microinverters vs. string inverters for commercial solar settings is making some initial inroads into light commercial applications, but might not be quite ready to move up in scale at that commercial level.

“For projects under 50kW, we have found that microinverters can be positive for the project LCOE on an ‘all-in’ basis,” explained Jeremy Jones, CTO of SoCore Energy, an early adopter of microinverters, including commercial solar projects into the hundreds of kilowatts in size. In general the technology’s “high granularity of real time data is very useful in the ongoing asset management,” and SoCore’s projects with microinverters “have consistently outperformed our other string inverter and central inverter sites.” The technology stacks up favorably to central and string inverters (especially for three-phase 208-volt systems) in terms of added costs, he said: warranty extensions, third-party monitoring, and other balance-of-systems costs. Microinverters’ performance and low-cost warranties also benefit longer-term finance deals, he added.

However, above 50kW “we have had a harder time making microinverters ‘pencil’ on typical projects,” Jones added. Until costs come down, those larger-sized projects where microinverters can make sense tend to be unique cases where there’s a higher value per kilowatt-hour (higher electric rates or SREC values), or sites that can maximize kWh per kW due to high balance-of-systems costs, such as parking canopies, he explained.

SMA’s Marshall is “bullish on the commercial market, that’s where the volume will be” for inverters in general, but he doesn’t see it as a big boon for microinverters because of what he calculates as a 25-30 cents/Watt cost delta from residential string inverters. In the residential space there are ways to knock prices down to mitigate that difference, but in the commercial space that gap is too big for the average buyer, he said. “As a mainstream option? We don’t see it today.” Microinverters may have a play for “some unique projects” such as campuses or municipalities spanning multiple buildings, but the big growth in commercial solar will be in large retailers, “big flat open roofs, and big flat structures like carports,” he said, and there a three-phase inverter “blows the door off in terms of raw economics.” 

SolarBridge’s Lawrence is “seeing a lot of activity” in smaller commercial settings (100-kw or less), tallying to 15-20 percent of the company’s product installations. But while the company is bidding into projects ranging up to 1-MW, it’s “harder to make the case above 250-kW,” he acknowledged; “those don’t pencil out for us right now.”

“Anything below around 1 megawatt, we are shifting from a central to more of a string inverter, but we’re certainly not going to the microinverter level yet nor do we think we will anytime soon,” said Standard Solar’s Wiater. “The economics behind the projects and having it pencil out, microinverters just can’t compete with string or central inverters on a larger scale.” While microinverters can help on some rooftop applications where shading might be an issue (close to elevator shafts, vents, HVAC units), a more tightly-designed system with an efficient string inverter “can have a much better return for the customer,” he said.

Jeff Jankiewicz, project/logistics manager at Renewable Energy Corporation in Maryland, “definitely considers” microinverters as part of a system design; “we like the performance and efficiency they provide.” But for his company it’s really only for residential and small commercial projects; the largest they’ve done is a 20-kW system out in Maryland’s horse country. Any bigger than that and it’s a case-by-case comparison, specifically looking at shading and energy conversion.

Microinverters and the Grid: The Solar Industry’s Next Battle

Everyone we talked with about microinverters agreed on one thing, however: there’s a trend coming that will incorporate more advanced grid management capabilities, such as reactive power and low-voltage ride-throughs, to give utilities more control and the ability to reach in and curtail availability to support grid reliability. California’s Rule 21 proceedings is the first such example, seeking to mandate control functions in distributed generators. Those grid-management capabilities are already coming and “very, very soon,” Lawrence urged, pointing to new requirements being codified in Australia and the U.S. probably following within a year or so.

SMA Solar Technology [S92.DE] is becoming very vocal about this topic. Its microinverter architecture incorporates a multigate feature with wired Ethernet that allows for a single point of interface into the array, which he emphasized is important for modern grid codes and providing grid management services, Marshall emphasized. Power-One’s [PWER] Yee, ReneSola’s [SOL] Armentrout, and SolarBridge’s Lawrence echoed the concern over regulations and requirements coming down the road that will necessitate microinverters becoming more grid-friendly. They also questioned whether all microinverter architectures are suited for such site-level controls specifically market-leading Enphase, which they said is limited in its architecture and topology.

Enphase’s Belur responds strongly to this debate. “We 100 percent support the need for advanced grid functions, and we are absolutely capable of providing those,” he replied, calling those criticisms an “oversimplification of the problem.” Enphase, he said, is “the most proactive company” pushing for those grid-management requirements  but is seeking to do it judiciously through standards bodies and with proper certification and testing bodies, “and you cannot ignore the policy on top of that,” he said. “It needs to be done; let’s do it properly,” he said.

Integration of energy storage, which also recently got a California state mandate, is another looming question as it relates to inverters. Standard Solar’s Wiater thinks that’s a bigger challenge for inverter functionality than grid-friendly controls, to more directly address the issue of buffering solar energy’s intermittency. Some inverters are being designed to interact with energy storage, he noted, but he questions how that would work for a microinverter because it “defeats the purpose” to switch from DC to AC on a roof, then convert back to DC again. Power-One’s Yee, meanwhile, sees more distributed solar combined with battery storage as a tipping point in favor of multi-port string inverters being a more cost-effective approach.

Wiater agrees that grid management features are coming, and that the bigger inverter technologies have been out in front of some of these requirements, e.g. to curtail output. On the installer side, SoCore’s Jones isn’t seeing customers or utilities push strongly for such capabilities yet, but “spec’ing these features in now will allow us to future proof our designs and open up possible future revenue streams.”

< p>This issue might have bigger ramifications than just competitiveness between inverter suppliers. Once distributed solar generation gets enough penetration into the grid, utilities will say they can’t support it without stronger control capabilities, Lawrence warned. That’s likely going to be hashed out as a negotiation between the solar industry and utilities and implemented via codes and standards applicable to everyone, and the industry needs to get out in front of that resolution, he pointed out. “The solar industry is going to have to participate, or utilities will have a good case why they can limit the penetration of solar PV,” he said. He cited discussions with a large U.S. solar developer who listed these smart-grid control capabilities as one of their top-four priorities for the coming year: “They believe it’s coming,” he confirmed. Getting the solar industry working together to help these speed these capabilities along “will help head off utility objections to more and more solar.”

Jim Montgomery is Associate Editor for RenewableEnergyWorld.com, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.