Enphase Energy has booked about 50 megawatt-hours of sales of its long-promised Encharge battery in North American markets since launching it in July, tapping a growing demand for energy storage from residential solar customers, and laying the groundwork for a more complete home backup power system set to arrive early next year. 

Sales of the battery system made up about 10 percent of the microinverter maker’s $178.5 million in third quarter revenues, CEO Badri Kothandaraman said in Tuesday’s third quarter earnings conference call. While he didn't disclose how many batteries have been shipped to date, the microinverter maker will have the manufacturing capacity for 50 megawatt-hours of Encharge systems in the fourth quarter of 2020, and “we are mostly booked to it” in terms of orders, he said. 

It’s a notable debut for a product seen as a critical step in Enphase’s plans to extend its reach beyond its core microinverter product and into broader home energy management. Batteries are increasingly being added to residential solar systems in key U.S. markets, with competitors like TeslaLG ChemSunrun and Generac battling for market share with a combination of price points, ease of installation, and home energy management features. 

Enphase is a relative latecomer to this competition in North America, having delayed the launch of Encharge from an initial late 2019 target date. The new batteries differ from those it has been selling to customers in Australia, New Zealand and certain European markets, in that they are part of an integrated system, combining batteries, inverter, related switchgear and controls, and connectivity to the company's Enlighten cloud-based solar monitoring platform. 

Encharge systems come in 3.36 kilowatt-hour units or in a three-unit, 10 kWh configuration, and they use lithium-ion batteries from China-based manufacturer A123. Enphase recently added China’s CATL as a second battery manufacturer, and is in discussions with a third unnamed supplier, Kothandaraman said. By mid-2021, it expects to have 480 MWh per year of production capacity available, he said. 

The critical California solar market

Beyond storing and shifting solar output to optimize its value against time-of-use net metering rates or meet export-limited regimes in different states, batteries are in demand for California customers seeking backup power to ride through fire-prevention blackouts over the past two years.

That’s put an emphasis on solar-storage systems with energy controls that can direct battery power to different household loads, to avoid the need for either hard-wiring critical circuits or running the risk of having their whole-home loads deplete batteries prematurely during outages that can last from hours to days at a time. 

“Right now our product does not have that feature,” requiring customers to manually pick and choose which household loads they keep on during outages, Kothandaraman said. Enphase hopes its IQ8 microinverter, which he called its “first grid-independent microinverter,” will help solve that problem when it’s made available later next year. 

IQ8 will integrate the company’s Ensemble home energy control software to provide an“extensible architecture, capable of load control” via smart switches for certain circuits or appliances, or adding generators or fuel cells, and eventually electric vehicle chargers, he said. The company is also planning to release an IQ8D dual inverter for three-phase power commercial applications. 

Enphase has been working through the more than 2,000 solar installers in its network to deploy its Encharge system to date, but is also in discussions with unnamed “Tier 1 and Tier 2” solar installers interested in the product, Kothandaraman said. The company is also working on “multiple opportunities” to put its batteries to use for grid services, as companies like Sunrun and Tesla are doing, although he declined to provide more details on how or when that would happen. 

Third-quarter revenues for the Fremont, Calif.-based company were up 45 percent from the previous quarter but down slightly from the same quarter last year. Third quarter earnings of $41.8 million beat the second quarter’s $23.5 million, which saw impacts from the COVID-19 pandemic, and also exceeded third quarter 2019 earnings of $39.5 million, measured on a non-GAAP basis. 

Sales of Enphase’s core microinverter products also continued to grow in North America, Europe, Australia and Latin American markets, and non-GAAP gross margins, which measure revenues minus cost of sales, rose to a record 41 percent in the third quarter, up from 39.6 percent in the second quarter and from 36.2 percent in the third quarter of 2019. The company projected fourth-quarter revenues in a range of $245 million to $260 million and non-GAAP gross margins in the range of 38 to 41 percent. 

Enphase has been locked in battle for market share in the residential solar inverter space with Israel-based SolarEdge, which held about 60 percent of the market as of the first nine months of 2019, compared to about 20 percent for Enphase, according to Wood Mackenzie’s U.S. PV Leaderboard.

“We are continuing to take share, I believe, in microinverters,” Kothandaraman said, though he declined to provide specific figures on its competitive stance with SolarEdge, which is scheduled to report its third quarter results next week.