Ahead of a free webinar from IHS Technology and PV Tech on 29 July 2014, IHS analyst Sam Wilkinson discusses some of key trends shaping the global inverter market. Please click here to register for the webinar.
All change in the PV inverter market, except revenues
The PV industry rarely remains static for long. Since PV became a mainstream technology, the industry had done everything — grown, declined, changed — at a frantic pace. The solar inverter market is no exception to this, and has also been subject to major changes since it became a billion-dollar industry over seven years ago.
In 2013, the PV inverter market was characterised by big declines in pricing, a radical change in the regional make-up of the industry and some big shifts in top-ten supplier rankings.
Despite the constant evolution of the market throughout the year, this cocktail of vast changes left the bottom line – annual market revenues – almost unchanged from 2012. The recently released PV Inverter World Market Report from IHS reveals that market revenues in 2013 were just under U$7 billion, a decrease of less than 3% compared with 2012. In fact, annual global revenues have changed very little for the last three years.
Industry volatility is predicted to continue into 2014, and this year has already seen further M&A activity — most notably the merger between SMA (the global leader) and Danfoss. Revenue growth is predicted to return to the market though, and revenues are predicted to grow by approximately 5% (see Figure 1, belowe).
The new order for PV inverter suppliers
Largely as a result of the rapid growth of new markets, the top-ten ranking of suppliers was also transformed in 2013. With Europe no longer the driver of growth for the PV industry and its demand dwindling, suppliers with business established in new growth markets such as China and Japan were able to capitalise on the expansion of these markets and gain significant share of the global market. In contrast, many European suppliers that were highly exposed to the decline of their domestic markets have lost share and slipped down the ranking.
In 2008, eight of the 10 largest suppliers were European, mostly a consequence of Europe accounting for a huge majority of PV demand. However, by 2013 that number had halved and just four European suppliers appear in the top 10. Even then, the PV inverter business of two of these four European suppliers had been gained through the acquisition of non-European suppliers.
In contrast to the European suppliers that have vanished from the global top 10, four of 2013’s 10 largest suppliers had improved their ranking compared with the previous year — and all four were from China or Japan.
Omron, Tabuchi and TMEIC, all headquartered in Japan, have been able to maintain a significant share of their domestic market whilst it expands at an alarming pace. Currently, these suppliers are largely focused on their home market and meeting the almost insatiable demand that is coming from it; but the scale and expertise that these suppliers have gathered on their home turf makes them well placed to look further afield for international opportunities. TMEIC recently acquired the Indian manufacturing facility of struggling European supplier AEG; and similar investments are considered to be quite likely.
Chinese supplier, Sungrow, also entered the top ten, largely thanks to its dominant share of China’s colossal utility-scale market. Despite the almost unfeasibly low prices of this market, its expansive shipments were sufficient to place it as the fifth largest supplier in the world by revenue. Whilst Japan’s suppliers are seen as likely to place great emphasis on international expansion in the near future, Sungrow has already begun its campaign. Its full range of products and highly competitive pricing have enabled it to establish itself in most major markets across Europe, America and South East Asia.
The growth of the markets of China and Japan was the sole reason that the global market was able to avoid a sizeable downturn and catapulted a number of Asian suppliers into the top 10. However, this growth provided almost no relief to struggling European manufacturers, which have been unable to penetrate these regions and benefit from their growth due to challenging market entry barriers.
Although SMA weathered the decline better than many of its smaller European competitors, its share of the global PV inverter market fell to 16% in 2013. SMA’s market share had stood close to 40% in 2009, but has now declined for five consecutive years. However, SMA has taken steps to mitigate the erosion of its market share. Compared with fellow Western suppliers, it has seen relatively good success in Japan, where it has secured several major supply contracts; and it has gained a foothold in China with the acquisition of Zeversolar. However, these two countries, which are the largest markets in the world in terms of annual installations, remain the only two countries analysed where SMA is not one of the top five suppliers; moreover, it does not appear in even the top ten in either of these markets.
European suppliers head west as their home market disappears
Despite the troubles that they have faced in surviving a turbulent and challenging period of decline in the European market, the list of active European PV inverter suppliers remains much the same, with roughly the same number of companies still counting Europe as a core market as two or three years ago. However, the size of the PV inverter market in EMEA in 2013 had fallen by over 60% since 2010. The collapse of the European market has sent its well-established local suppliers searching for a new opportunity to weather the decline of their core target market. For most, this has taken them across the Atlantic to the United States.
The United States has long been tipped to be a major PV market and in recent years has begun to deliver to expectations, so it is easy to understand the European suppliers’ attraction to the opportunity.
As a result of the influx of European suppliers, a number of manufacturers from EMEA now appear amongst the largest suppliers to the United States and have been successful across all segments of the market.
Another outcome of the European suppliers’ assault has been an increasingly competitive environment in North America, with fiercely aggressive pricing from all suppliers attempting to gain a share of one of today’s biggest growth markets. Prices in the United States had historically commanded a significant premium over those of core European market, as there was a smaller supplier base than in other more developed markets. However, this premium has recently begun to disappear.
Price declines in both the United States and Europe have been further accelerated by the arrival of Chinese suppliers to these regions. They are entering markets with highly competitive prices and have made notable progress in dispelling concerns over the quality and reliability of their products. Although the importance of long-term performance and bankability remains a major hurdle for them in conquering the utility-scale market, the low price of their products has allowed them to make some progress in the residential and commercial markets. A recent survey carried out by IHS, which asked PV installers, distributors and EPCs (engineering, procurement and construction companies) questions about their inverter preferences, revealed that the number of companies that consider Chinese inverters of acceptable quality has increased in both Germany and the United States.
Will changes continue?
The global PV inverter supplier base has some years of change left, and the top-10 suppliers are likely to continue changing in the coming years.
As most international suppliers are likely to remain all but locked out of China and Japan, which combined will account for at least a third of annual global revenues every year for at least the next five years, the domestic suppliers that are entrenched in these markets are likely to remain permanent fixtures in the global top 10. Considering also that the rest of the world outside their home markets remains almost untapped for most of them, and the volume, scale and cash flow that are currently generated by their domestic markets, it looks likely that they will be able to further improve their position in the global ranks.
Conversely, the market in the West remains overcrowded, with suppliers fiercely battling to maintain their share of a market that constantly shifts from country to country, as old markets decline and new markets come and go. New opportunities in emerging markets further afield are also nearly always accompanied by a long queue of suppliers fighting to establish themselves in the next big opportunity. South Africa’s much hyped utility-scale tenders held over the last few years drew enough suppliers to supply inverters to meet demand there ten times over.
As a result, although global revenues for the PV inverter industry are predicted to grow in the coming years, after stagnating for a three year period, many challenges remain for its supplier base; and further M&A activity, exits and consolidation are likely as a leaner supplier base develops.
The content of this article will be discussed further in a free webinar from IHS Technology and PV-Tech on Tuesday 29th July 2014. Please click here to register for the webinar.