Building clean-technology companies with real revenue on relatively little investment is increasingly possible, and it's happening in the small-but-exploding market for electronics that boost the power output of solar systems.
Several venture-backed companies are rushing in with new products as they play catch-up to the sector's leader, Enphase Energy Inc. Whether the competitors will be able to gain ground on Enphase - and what will happen once bigger corporates swoop down on the space - remains to be seen. "The market is on fire," said Jason Matlof, partner with Battery Ventures, which backed SolarBridge Technologies Inc., an Enphase competitor, in 2007.
All solar panels produce power in direct current, which must be converted into alternating current used on the grid. This is typically done by central inverters, made by companies like Satcon Technology Corp., SMA Solar Technology AG and Power-One Inc., which deal with DC current that is pooled from a string of connected solar panels. The advantage of central inverters is that they are cheap.
The problems with this method of power conversion, however, include relying too much on individual panels. If one panel is shaded, for example, the output of the entire string of panels drops. A malfunction of the central inverter, which is considered the weakest link in the entire solar system, also would cause output from the whole system to disappear. Finally, there's lots of wiring and installation time required, as well as fire hazards associated with high voltage central inverters.
Companies like Enphase are addressing the shortfalls of central inverters by making microinverters, which go on the back of individual solar panels, and do the conversion at that level. There are also companies that make small converters, again located at individual panels, that smooth out the current and help boost the output, but then connect to central inverters.
The entire solar inverter market last year was about $3 billion, according to Ash Sharma, research director with IMS Research. Of that total, microinverters represented just $20 million. This year, he said, he expects the total inverter market to nearly double, with microinverters and converters taking up about $80 million to $90 million in sales.
"Overall in five years it [the new technology] will be less than 10% of the overall [inverter market], but the market itself is growing so quickly it will become a fairly large industry," said Sharma.
Enphase Chief Executive Paul Nahi sees an exact reverse of that vision.
"I think that central inverters will be a small niche in the next four-five years," said Nahi. "It's clear that the movement toward a microinverter is a directional shift in the industry that cannot be stopped," he said.
Enphase began shipping its product in volume in July 2008, and has now sold more than 400,000 units, said Nahi. The company, backed by more than $100 million in venture funding from Kleiner Perkins Caufield & Byers, Bay Partners and others, has seen a meteoric rise in product sales.
In California, for example, the largest U.S. solar market, the share of residential solar installations that have Enphase inverters was at 16% as of September 2010, according to state data, up from about 5% a year ago. That's "quite staggering in my view," said Jeff Osborne, analyst with investment bank Stifel Nicolaus.
In a recent report, Osborne listed about a dozen makers of microinverter and converter technologies, many of them venture-backed start-ups with products about to hit the market, citing SolarEdge Technologies Inc., of Israel, and Petra Solar Inc., which serves the utility solar market, as prominent examples. Sharma, of IMS Research, said that he knows of several others that will appear in the next 12 months.
The growing competition doesn't daunt Nahi.
"Our tremendous success will spawn imitators and others that will try to copy what Enphase does," he said. But with a fourth generation of product, developed distribution, brand and technical knowledge, Nahi expects Enphase to hold ground.
The company is also branching into offering home-energy management, like electronic thermostats, that can build upon the software it has for monitoring solar panel performance. The interest in using inverters as gateways to home-energy management seems to be behind the move by central inverter maker Power-One Inc. to purchase Fat Spaniel Technologies Inc. this week.
Other companies, meanwhile, are trying their own ways of tackling the market. SolarBridge, for example, is selling directly to solar panel makers, which will incorporate the microinverters into the manufacturing of panels and then sell to installers and distributors. This includes a 25-year warranty, backed by the panel manufacturer, which is not something Enphase can boast of.
Most of the companies in this space are leveraging outsourced manufacturing, to major manufacturers of electronics such as Flextronics, and can therefore scale quickly, said Sharma.
Currently Enphase sells its microinverters for about $1.10 per watt, which is more than twice as much as a central inverter. The start-ups say that though the upfront cost is higher, solar output is higher, and that the product quickly recoups the initial investment.
This is true in residential installs but is not as immediate in commercial and utility scale plants, said Osborne. Nahi said that a substantial part of the company's pipeline is with commercial projects.
"The holy grail would be to make a micro inverter cheaper than a traditional one. That's a couple years away - that's the disruptive technology," said Osborne.
For venture investors, meanwhile, as the competition increases there's more of an opportunity for exits. SMA bought a microinverter designer, OKE, last year, National Semiconductor has made acquisitions, and Power-One said it's developing an in-house technology.
This type of technology "is a strategic asset to module companies who are suffering from margin compression," Matlof said, and could use the inverter to differentiate their panels and sell these panels at higher prices.
Sharma said that he expects several microinverter and converter companies would be able to survive and compete in the market. The central inverter market, for example, which is much older, has about 60 players. "There's lots of supply, lots of competition, and lots of opportunity," said Sharma.
http://www.enphaseenergy.com
Several venture-backed companies are rushing in with new products as they play catch-up to the sector's leader, Enphase Energy Inc. Whether the competitors will be able to gain ground on Enphase - and what will happen once bigger corporates swoop down on the space - remains to be seen. "The market is on fire," said Jason Matlof, partner with Battery Ventures, which backed SolarBridge Technologies Inc., an Enphase competitor, in 2007.
All solar panels produce power in direct current, which must be converted into alternating current used on the grid. This is typically done by central inverters, made by companies like Satcon Technology Corp., SMA Solar Technology AG and Power-One Inc., which deal with DC current that is pooled from a string of connected solar panels. The advantage of central inverters is that they are cheap.
The problems with this method of power conversion, however, include relying too much on individual panels. If one panel is shaded, for example, the output of the entire string of panels drops. A malfunction of the central inverter, which is considered the weakest link in the entire solar system, also would cause output from the whole system to disappear. Finally, there's lots of wiring and installation time required, as well as fire hazards associated with high voltage central inverters.
Companies like Enphase are addressing the shortfalls of central inverters by making microinverters, which go on the back of individual solar panels, and do the conversion at that level. There are also companies that make small converters, again located at individual panels, that smooth out the current and help boost the output, but then connect to central inverters.
The entire solar inverter market last year was about $3 billion, according to Ash Sharma, research director with IMS Research. Of that total, microinverters represented just $20 million. This year, he said, he expects the total inverter market to nearly double, with microinverters and converters taking up about $80 million to $90 million in sales.
"Overall in five years it [the new technology] will be less than 10% of the overall [inverter market], but the market itself is growing so quickly it will become a fairly large industry," said Sharma.
Enphase Chief Executive Paul Nahi sees an exact reverse of that vision.
"I think that central inverters will be a small niche in the next four-five years," said Nahi. "It's clear that the movement toward a microinverter is a directional shift in the industry that cannot be stopped," he said.
Enphase began shipping its product in volume in July 2008, and has now sold more than 400,000 units, said Nahi. The company, backed by more than $100 million in venture funding from Kleiner Perkins Caufield & Byers, Bay Partners and others, has seen a meteoric rise in product sales.
In California, for example, the largest U.S. solar market, the share of residential solar installations that have Enphase inverters was at 16% as of September 2010, according to state data, up from about 5% a year ago. That's "quite staggering in my view," said Jeff Osborne, analyst with investment bank Stifel Nicolaus.
In a recent report, Osborne listed about a dozen makers of microinverter and converter technologies, many of them venture-backed start-ups with products about to hit the market, citing SolarEdge Technologies Inc., of Israel, and Petra Solar Inc., which serves the utility solar market, as prominent examples. Sharma, of IMS Research, said that he knows of several others that will appear in the next 12 months.
The growing competition doesn't daunt Nahi.
"Our tremendous success will spawn imitators and others that will try to copy what Enphase does," he said. But with a fourth generation of product, developed distribution, brand and technical knowledge, Nahi expects Enphase to hold ground.
The company is also branching into offering home-energy management, like electronic thermostats, that can build upon the software it has for monitoring solar panel performance. The interest in using inverters as gateways to home-energy management seems to be behind the move by central inverter maker Power-One Inc. to purchase Fat Spaniel Technologies Inc. this week.
Other companies, meanwhile, are trying their own ways of tackling the market. SolarBridge, for example, is selling directly to solar panel makers, which will incorporate the microinverters into the manufacturing of panels and then sell to installers and distributors. This includes a 25-year warranty, backed by the panel manufacturer, which is not something Enphase can boast of.
Most of the companies in this space are leveraging outsourced manufacturing, to major manufacturers of electronics such as Flextronics, and can therefore scale quickly, said Sharma.
Currently Enphase sells its microinverters for about $1.10 per watt, which is more than twice as much as a central inverter. The start-ups say that though the upfront cost is higher, solar output is higher, and that the product quickly recoups the initial investment.
This is true in residential installs but is not as immediate in commercial and utility scale plants, said Osborne. Nahi said that a substantial part of the company's pipeline is with commercial projects.
"The holy grail would be to make a micro inverter cheaper than a traditional one. That's a couple years away - that's the disruptive technology," said Osborne.
For venture investors, meanwhile, as the competition increases there's more of an opportunity for exits. SMA bought a microinverter designer, OKE, last year, National Semiconductor has made acquisitions, and Power-One said it's developing an in-house technology.
This type of technology "is a strategic asset to module companies who are suffering from margin compression," Matlof said, and could use the inverter to differentiate their panels and sell these panels at higher prices.
Sharma said that he expects several microinverter and converter companies would be able to survive and compete in the market. The central inverter market, for example, which is much older, has about 60 players. "There's lots of supply, lots of competition, and lots of opportunity," said Sharma.
http://www.enphaseenergy.com
A host of start-ups are jockeying for position as they try to provide alternatives to central inverters, which are cheaper than microinverters but can be prone to problems. It's a key moment in the space, as the overall solar inverter market is growing rapidly and the start-ups try to seize the momentum.
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