With the rapid development of residential energy storage in Europe, it has emerged as a key player in the realm of energy transformation. On one hand, the imperative of transitioning to renewable energy sources is undeniable. On the other hand, certain regions grapple with weak grid infrastructure, intensifying the demand for localized residential storage solutions. As the industry matures, accompanied by declining raw material costs, the prices of residential storage systems are starting to decline. Simultaneously, the burgeoning demand for Energy Storage Systems (ESS) suggests ample room for further market penetration.
Moreover, residential energy storage products primarily cater to consumers (To C), necessitating a competitive edge in product quality, brand recognition, and distribution channels to ensure sustained profitability.
In 2022, the energy storage industry witnessed a meteoric rise, evolving from its nascent stages. By 2023, however, demand tapered off amidst shifting policies and inventory dynamics. Now, in 2024, the trajectory of the residential energy storage sector is poised to be influenced by a multitude of factors, including sustained policy support, product innovation, channel optimization, dwindling inventory levels, and declining interest rates. The forthcoming discussion will delve into the anticipated future of the industry, drawing insights from the experiences of international energy storage enterprises.
SolarEdge:
SolarEdge dominates the European market, offering cost-effective products that pose a challenge for our enterprises to match. Renowned as a top player in solar and storage inverters across Europe and the United States, SolarEdge boasts a market share that reigns supreme in both regions.
Established in Delaware in 2006, SolarEdge experienced rapid growth through strategic collaborations, notably with Tesla SolarCity from 2013 to 2015, culminating in its NASDAQ listing in 2015. The 2017 mandate by the United States NEC requiring solar PV systems to integrate Module Level Power Electronics (MLPE) with rapid shutdown functionality played to SolarEdge's strengths, enabling the company to swiftly expand its market share.
According to data from Wood Mackenzie, SolarEdge secured the 7th position in global inverter shipments in 2022, firmly establishing its dominance in European and American markets.
SolarEdge's product portfolio encompasses a diverse range of offerings, including solar and storage inverters, energy storage systems, uninterruptible power supplies, electric vehicle charging stations, and integrated solar and energy storage solutions. These solutions cater to various sectors, spanning from residential and commercial to utility-scale ground-mounted power installations.
In 2023, SolarEdge introduced the SolarEdge One software, marking a significant expansion into the realm of virtual power plants. Through sophisticated algorithms, this software facilitates new energy power trading, empowering customers with advanced solar and energy storage solutions. By bridging the gap between software and hardware, SolarEdge continues to bolster its product ecosystem, solidifying its position as a leading provider of comprehensive new energy solutions.
With a strong focus on customer collaboration, technological mastery, and leveraging the benefits of U.S. trade policies, SolarEdge has consistently excelled.
The first phase, starting in 2013, saw SolarEdge achieve rapid revenue growth through strategic partnerships, notably with Tesla SolarCity. During this period, the company experienced a remarkable compound annual growth rate of 83.7% from 2013 to 2016.
In 2017, the introduction of stringent safety regulations by the U.S. NEC mandated the use of Module Level Power Electronics (MLPE) with rapid shutdown capabilities in PV systems, rendering traditional string inverters obsolete for residential energy storage solutions. SolarEdge, with its mastery of the requisite technology, swiftly capitalized on this shift, rapidly expanding its market share and witnessing substantial revenue growth in 2018 and 2019.
The third phase unfolded in 2018 with the imposition of 10% tariffs on Chinese PV inverters under U.S. trade policies. SolarEdge benefited from these trade barriers. Subsequently, in May 2019, tariffs were increased to 25%, prompting Huawei's withdrawal from the U.S. inverter market. Despite the overall growth of the new energy industry, SolarEdge experienced a revenue decline in 2023, attributed to the industry-wide destocking process.
Reports indicate that market demand in Europe and the U.S. was disrupted by high interest rates and policy uncertainties. In 2023, SolarEdge's revenue from its inverter, optimizer, and backup battery businesses reached $1.37 billion, $900 million, and $380 million respectively. This represented a 20.8% increase, a 20.5% decline, and an 11.8% decrease from the previous year. Furthermore, sales figures stood at 1.013 million sets, 17.4 million sets, and 744 MWh, marking declines of 0.8%, 26.6%, and 2.2% respectively compared to the previous year. The unit prices were recorded at USD 1,356 per set, USD 52 per set, and USD 0.51 per kWh respectively.
The substantial decline in optimizer sales can be attributed to the superiority of micro-inverter solutions over optimizer and string solutions in meeting the stringent MLPE requirements set forth by the NEC for rapid shutdown functionality.
In 2023, the company's photovoltaic business revenue in the European and U.S. markets amounted to $1.81 billion and $760 million, respectively. This represented a 15.8% increase in Europe but a significant 35.9% decline in the U.S. compared to the previous year. While the beginning of 2023 saw some relief in the industrial chain situation, the European market initially experienced rapid growth despite a slowdown. However, the latter half of the year was marred by high interest rates and policy uncertainties in countries such as the Netherlands, Belgium, and Italy, resulting in a substantial contraction in market demand. Although the company's revenue from the European market maintained modest growth, the growth rate declined by 55% compared to the previous month. Similar trends were observed in the U.S. market, exacerbated by the transition of California's NEM 2.0 policy to 3.0, which created a vacuum in the demand for distributed PV storage.
In 2023, the European and American market demand was significantly affected by uncertain policies, with expectations for gradual recovery in 2024. Throughout the year, power optimizer shipments fluctuated, reaching 6.4 million, 5.5 million, 3.3 million, and 2.2 million sets from Q1 to Q4 respectively. Inverter shipments followed a similar pattern, with 330000, 335000, 274000 and 74000 units shipped during the same period. Energy storage battery pack shipments also varied, with 221 MWh, 269 MWh, 121 MWh, and 133 MWh recorded from Q1 to Q4 respectively. However, in the latter half of 2023, impacted by lower demand and high inventory, SolarEdge's shipments experienced a sharp decline compared to the previous month.
Looking ahead to 2024, several developments are anticipated in the following regions:
- Germany: Expectations are that certain tariff caps will be lifted in 2024, resulting in higher electricity prices in the country. Consequently, the return on investment (ROI) for photovoltaic (PV) installations is projected to increase, fueling continued growth in residential PV installations.
- Austria: It is anticipated that the value-added tax (VAT) on PV power generation, introduced at the beginning of 2024, will be repealed.
- Netherlands: The uncertainty stemming from the 2023 election and the changing net metering policy led to a sharp decline in PV installations in Q4. Recent decisions by the Dutch Senate indicate a potential sustainability of net metering, prompting optimistic market responses in the future.
Enphase:
Anticipated shifts in demand are on the horizon as the second quarter of 2024 draws to a close.
Enphase stands as the undisputed global leader in microinverters, spearheading advancements in solar, energy storage, and charging solutions. Founded in 2006 in Delaware, Enphase revolutionized the market by introducing the world's first microinverter, the M175. In 2011, Enphase embarked on a global expansion strategy, penetrating the MLPE market in Europe, Australia, and other regions, culminating in its listing on the NASDAQ in 2012.
Leveraging its pioneering status in the MLPE sector, Enphase has continually enhanced its microinverter products, elevating power output from 175W in the first generation to 550W in the eighth generation. The latest iteration of inverters boasts additional features such as split-phase grid connection and off-grid capability. As a result, Enphase commands a market share exceeding 70%, firmly establishing itself as the industry leader.
Building on its expertise in microinverter technology, Enphase embarked on a series of strategic mergers and acquisitions, consolidating businesses in energy storage, electric vehicle charging infrastructure, and cloud services to develop comprehensive solar and storage solutions for households.
In 2016, Enphase introduced its inaugural residential storage product, marking its entry into the energy storage sector. By the close of 2020, the company unveiled the IQ Battery residential storage system, expanding its product portfolio to encompass residential energy storage solutions. Enphase IQ Batteries operate on low-voltage DC power, mitigating the risks associated with high-voltage DC power and enhancing system safety and efficiency.
In 2021, Enphase ventured into the electric vehicle charging infrastructure market with the acquisition of ClipperCreek. The following year, the acquisition of GreenCom positioned Enphase as a leading provider of home solar, energy storage, and charging system solutions, bolstering its offering with Internet of Things (IoT) solutions.
Thanks to favorable policies, expanded channels, and enhanced product competitiveness, Enphase has experienced rapid revenue growth since 2019.
On one hand, Enphase has reaped the benefits of supportive policies such as the NEC 2017 mandate requiring residential PV systems to integrate Module Level Power Electronics (MLPE), driving demand for the company's microinverters. Additionally, the 301 tariff prompted Huawei's exit from the U.S. inverter market in 2019. Furthermore, the IRC's gradual reduction of the Investment Tax Credit (ITC) subsidy from 2019 onward stimulated PV market growth. The introduction of the IRA in 2022, alongside the extension of the Advanced Manufacturing Production Tax Credit (AMPTC) and Advanced Energy Project Investment Tax Credit (AEPITC) subsidies, has had a significant impact. These subsidies, extended to 2032 and 2030 respectively, have bolstered Enphase's microinverter production.
In terms of channel expansion, Enphase's acquisition of SunPower's subsidiary in 2018 solidified its position as the exclusive supplier. Moreover, strategic partnerships with Sunrun, LG, Panasonic, Solaria, and GRID Alternatives have further expanded its reach and market presence.
Regarding product development, Enphase has concentrated on promoting its IQ 7 and IQ 8 series microinverters since 2019. With conversion efficiencies of up to 97.5%, these inverters cater to a broader range of solar panel installations. Additionally, the higher power range of Enphase's inverters ensures compatibility with solar panels in various regions, while the company's commitment to efficient after-sales service has reduced average waiting times to less than one minute.
By the latter half of 2023, Enphase faced increased pressure in both the US and European markets due to weakened demand for energy storage and high inventory levels.
In the US market, the transition to NEM 3.0 and elevated interest rates dampened investor confidence in residential solar storage investments. As per the company's investor communications, revenue from the US market dropped by 16% and 35% in the third and fourth quarters of 2023 respectively, compared to the previous quarters. Notably, the California market experienced a sharper decline, with Enphase's microinverter sales falling by 25% and 27% in Q3 and Q4 respectively, while non-California markets remained relatively stable.
In Europe, the anticipated demand recovery in the latter half of 2023 fell short of expectations, exacerbating distributor inventory backlogs. Enphase's top three European markets—Netherlands, France, and Germany—faced distinct challenges. The Netherlands saw hesitancy among users awaiting the removal of the net metering program, while seasonality impacted the French market, and the German market grappled with feed-in tariff reductions. Consequently, market demand and shipments related to residential PV in major European countries all experienced declines.
According to Enphase's investor communication disclosures, microinverter shipments in 2023 were as follows: 4.8 million units in Q1, 5.2 million units in Q2, 3.9 million units in Q3, and 1.6 million units in Q4. Additionally, battery shipments totaled 102.0 MWh, 82.3 MWh, 86.0 MWh, and 80.7 MWh from Q1 to Q4 in 2023 respectively. However, in the latter half of 2023, microinverter shipments experienced a sharp decline due to weak demand and inventory accumulation. Enphase estimates that channel inventory will normalize by the end of Q2 in 2024, with shipments expected to increase again in Q3. Conversely, battery sales, buoyed by NEM 3.0, continue to rise.
Currently, the European market shows signs of recovery, while the California market is anticipated to gradually improve. The Dutch parliament recently confirmed that net metering policy will remain unchanged in the short term, and electricity costs have increased in France and Germany. Consequently, it is expected that the company's business will reach its nadir in the first quarter of 2024. In the United States, non-California markets are poised for swift recovery after interest rate fluctuations. However, the California market's recovery may take several quarters due to the transition from NEM 2.0 to NEM 3.0. Nevertheless, given the high electricity costs, the integration of solar and energy storage offers a higher return on investment under NEM 3.0, leading to a gradual recovery in market demand.
