Microinverter pioneer Enphase has achieved the convergence ofsolarmodule and microinverter once again, several years after the company's first attempt.
This month, LG will begin selling a so-called AC module manufactured with an integrated Enphase microinverter. The product ships flat; before commissioning, the inverter easily snaps into place 1.5 centimeters off the back of the panel to allow passive airflow cooling. The same concept is coming in partnership with Jinko late in the third quarter or early in the fourth. More partners are in the works but have not yet been named.
By combining these elements, Enphase can pitch more pronounced cost savings on installation time, helping installers compete in a tight market.
The new product arrives at a time when Enphase itself is fighting for market share in the competitive module-level power electronics segment. The company reported $30 million in cash at the end of the first quarter, with operating expenses this quarter expected to hit $18 million. Enphase has spent months scraping away costs and pushing through new iterations of its core product.
The AC module could be a major new revenue source, if the market responds the way Enphase and LG predict it will. But don't think of it as just a lifesaver for Enphase.
"We’re feeling very comfortable with where we are financially," said CEO Paul Nahi. "The AC module isn't addressing any of those [issues], it's just the right business decision in general...I see the AC module as the future of rooftop solar."
"Part of our mission"
The new development is not a surprise -- nor is it a first.
Enphase built a more primitive AC module several years ago. That microinverter bolted onto the frame, so it was not as seamlessly integrated as the new version. It did not take off at the time.
Three years ago, LG also released an AC module with its own microinverter. That pricey product didn't catch on either. SunPower acquired microinverter company SolarBridge in 2014; now all of its Equinox-branded modules come with the microinverter built in.
For Enphase, this product represents the culmination of a long-time drive to simplify solar electronics.
"It is very much our intention to basically make the inverter disappear," Nahi said. "That, to us, is the logical endgame when it comes to solar. It has been part of our mission pretty much since day one."
The combined module makes life easier for installers. It reduces the number of different components they need to keep in stock, and reduces the time spent on the roof plugging things in. The goal is to enable the installer to do two full residential systems per day with a crew of three people, Nahi said.
The collaboration came in response to installer interest, said Ryan Collins, the solar sales manager who oversees distribution for LG.
"What we found was the market generally installs LG and Enphase at the same time anyway, so it's kind of a natural pairing," Collins said.
Market indicators suggest the AC module could reach 75 to 80 percent of residential module sales, in short order, he added.
There's a strong deductive case for why this product makes sense. Now, Enphase and LG will have to see how the markets respond. One thing is for sure: they have big hopes.
"The vast majority of our business will be AC modules in the near future," Nahi said.
It's hard to predict exactly how long it will take to transition away from the model of selling discrete microinverters, he noted.
A few factors could slow that journey.
The nature of the AC module locks in one combination of module and inverter. Installers will have to weigh the benefits of easier installation versus the costs of reduced flexibility.
Enphase competitor SolarEdge has been selling modules embedded with DC optimizers for five years, but the product hasn't surpassed 10 percent of the company's sales, said Lior Handelsman, founder and VP of product marketing and strategy. He attributes that to the limitations the integrated module puts on installers to chase deals from different providers and mix and match based on the job.
"If you're tied to one module brand and one inverter brand, by all means buy [an AC module]," he said. "But if you want to play the market and buy different brands and have a mixture of inverters and of modules, then it might not be the best solution for you."
The vision from Enphase is that installers choose to standardize on the microinverter, and then have a range of AC modules to pick from. That maintains some degree of choice, although it will be a while before there's a full spectrum of options.
It's also important to prove out how attractive the ease of installation will be for installers.
"It's hard to show that you’re actually saving money on labor unless you’re like SolarCity and you track the minutes spent on the roof," said Scott Moskowitz, who analyzes solar inverter markets at GTM Research.
This reflects the business adage that you can't improve what you don't measure. Large and well-funded national installers run detailed time and motion studies to get their rooftop installs down to a science. Mom-and-pop installers who don't track that data may need more convincing that it really will save them money.
That hasn't been a problem in Enphase's beta studies, Nahi said.
"You don’t need a stopwatch," he said. "We’ve heard very consistently that once they’ve done a couple of installs, there’s no going back."
Bringing a third actor into a decision point can complicate the process, and the AC module supply chain puts Enphase in the position of relying on other companies to sell its product.
As it stands currently, Enphase sells the microinverters to the module manufacturer, which builds it into the module and sells it to installer partners. End customers buy an Enphase product without Enphase having to sell it to them.
Enphase is doing joint sales calls and joint marketing alongside the manufacturers to raise awareness around the product, and will do so with new partners in the future, Nahi said.
"We chose our partners very carefully," he added. "We’ve chosen a select few because we want to make sure they have the infrastructure to address it."
Both Enphase and LG want this product to succeed, but that doesn't mean their incentives are perfectly aligned. LG also sells nearly identical modules without the inverter built in; if a customer pushes back on the AC module pitch, LG can still walk away with a deal even if Enphase doesn't.
The most successful model for selling AC modules so far has been developed by SunPower, which sells both the module and microinverter as part of a fully integrated system through its own dealer network, Moskowitz said.
"Its AC module is one company’s product," he said. "In contrast, Enphase has to collaborate with third-party module vendors and get the message out to the broader market."
With so few attempts at selling AC modules to date, there is no reason to write off Enphase because it relies on third parties to sell. At the same time, it couldn't realistically become its own solar module distributor, given the tight cash-flow situation.
As the company pushes toward profitability and lower operational expenses, it will just have to budget in more time spent advocating a sale that's ultimately in someone else's hands.