Navigant Research Blog

Are Inverter Players and Data Loggers the Gatekeepers of Future Residential Solar Services?

— April 5, 2017

Inverter and data logger companies, the little cousins of the solar OEM world, are sometimes seen as playing a secondary role in the industry. The cost of inverters is usually a fraction of module costs and an even smaller fraction of the total installed cost of a residential solar installation. But their location in an installation—between the solar modules and the grid connection—gives their manufacturers an opportunity to play an important role in a distributed energy as a service world.

Who Owns the Client Relationship?

In my Solar as a Service (SOaaS) report, I argue that large SOaaS player like SolarCity, Sunrun, and Vivint Solar need to evolve their offerings to offer advanced energy services. Their hold on the client relationship gives them an advantage against external players offering this type of service. But despite grabbing most of the headlines in the solar industry, the truth is that there are only a handful of large SOaaS players. All of them are active in one market—the United States—and combined manage only between 50% and 60% of all distributed solar installations in the country.

Globally, there is simply no large installer or SOaaS provider with a significant hold on the market. This opens the question of who can own the client relationship in this fragmented world, especially for small installations.

Inverter and Data Logger OEM Providers

It is difficult to see small local installers investing heavily in this type of service, but their OEM providers could. While module manufacturers take the lion’s share of the hardware cost of an installation, their product is essentially dumb. On the other hand, inverter and data logger OEMs do offer relatively smart products.

Inverters and data loggers with monitoring software have been part of distributed solar installations since at least the late 2000s, when distributed solar gained popularity, and in virtually all installations after 2012. Data loggers (external or as part of inverters) and monitoring tools have been used by installers and inverter companies as differentiators in an otherwise very competitive market. While there aren’t any public figures on active users, there are some examples of the penetration in the market. SMA—a leading inverter OEM—has put its user figure at around 250,000 residential end users. Using an average of 5 kW per installation, each company is monitoring around 1,250 GW. Solar-Log has a similar number of data loggers in the field, providing monitoring and other services to around 11.6 GW of installed capacity (including large installations). Other inverter companies like SolarEdge and Enphase have also integrated monitoring services into small-scale products.

Most of the smart monitoring tools have been developed and run at a loss by inverter and data logger OEMs. By doing this, they have inserted themselves in the routines of solar installation owners, as the monitoring tools are the interface between the solar system and the installation owner.

Ideal Candidates

Monitoring tools can become the seed of more interesting energy services if the OEMs keep building the products offered through their tools. Most of them already allow for battery installations along with solar, and some companies are already adding ways to monitor loads and become home/building energy management tools. They could even open the platform to allow third-party service providers through an app store to add other services like generation forecasting, artificial intelligence-based load management, etc. The interface role that inverter and data logger OEMs play in solar installations, combined with their large user base, makes them ideal candidates to provide advanced energy services.

 

Is Quality Over Quantity the New Game in Solar?

— November 21, 2016

Rooftop SolarThe solar module manufacturing industry is facing the second abrupt collapse of module prices in a decade. Prices fell by 12%-20% between January and October 2016 (depending on the technology and location) as the industry expanded manufacturing while the Chinese government decided to reduce its targets amid a deceleration in other markets, particularly in Europe.

Manufacturers have been in planning mode for the last few months thinking how best to ride out this dry spell. The last time the market saw a significant oversupply (between 2009 and 2012), prices fell 80% in a 3-year period. The survivors of the crisis managed to do so mostly by cutting costs, hence offering better value for the same product.

New Strategies Needed

But the same strategy is unlikely to work this time around, according to the US Solar Photovoltaic System Cost Benchmark: Q1 2016 report published by the National Renewable Energy Laboratory. The report states that for a residential installation in the United States in 2015, non-equipment-related costs were $1.91/W, or 65% of the total cost, while module costs were $0.64/W (21%) and inverter and other equipment costs were only $0.42/W (14%). Therefore, a 20% reduction in the cost of a module only reduces the total installation cost by about 4%.

The impact for utility-scale projects is more important. Installation costs for these projects vary significantly depending on the size, but non-hardware costs usually make up between 45% and 55% of the final cost of a project, while the module represents between 40% and 45%. Although cheaper modules could make a difference in this market, the current auction system used in different countries to give long-term agreements has made the segment ultra-competitive, leaving only a razor-thin margin (if any) for the whole value chain.

Manufacturers Adjusting Course

After months of planning, companies are now announcing new strategies to their investors. SolarCity/Tesla announced an alliance with Panasonic for its Gigafactory, as well as a new set of building integrated PV solar tiles and shingles aimed at carving out a luxury segment from the residential market, especially for new builds and re-roofers.

First Solar also chose quality over quantity. On November 16, it took the decision to scrap its Module 5 product, which had been expected to debut next year. The new plan is to instead accelerate the production schedule of its Module 6 and introduce it in 2018, a year earlier than previously planned.

On December 9, SunPower will be the last American module manufacturers  to make an announcement of its strategy. We will see if the company follows a similar pattern, but for the time being, it seems that quality is winning over quantity.

In Navigant Research’s Next Generation Solar PV report, published before the latest collapse of module prices, we forecasted that advanced solar modules would become mainstream by 2025. The plunge in prices could slow the adoption of new technologies, but it seems that American manufacturers are willing to sacrifice market share and are doubling their bets on higher quality (and higher price) products to keep positive margins.

 

New Technologies and Systems Widening the Solar Market

— September 30, 2016

Rooftop SolarUntil recently, most solar installations have been set up to generate the maximum kilowatt-hours per day/year possible. This was because the incentive programs in place only took into account the overall production of a plant. This is not an issue in regions with low solar PV penetration in their energy mix, but it’s becoming a problem in areas with high solar penetration relative to the peak demand, such as in California, south Germany, northern Chile, and southwestern United Kingdom. As I have argued before, all kilowatt-hours are not equal, but since the two most common policy incentives (feed-in tariffs and net metering) treat them as equal, installers choose to maximize generation.

There are some signs that this is changing. Chile has introduced a tender system that divides the market by delivery time, and there are efforts to introduce solar-based time-of-use (TOU) tariffs in some markets. But perhaps the strongest force pushing the industry away from equal kilowatt-hour values is corporate power purchase agreements (PPAs).

Unlike in traditional PPAs, in which a utility (or the government in the case of feed-in tariffs) buys electricity and then sells it to their customer base (which has different load requirements), corporate PPAs are signed with single entities that have a specific daily load demand curve. In this scenario, the offtaker corporation might prefer to match the PPA agreement (and hence generation profile of the project) as closely as possible to its demand curve, even if that means the project will produce less than its full potential.

New Technologies Widen the Opportunity

In a world that only looks at maximizing output at the lowest cost possible, the premium that innovative solar technologies that tackled the TOU mismatch was almost nothing; the modules that were sold at the lowest price per watt were king. Once TOU enters the equation, installations will favor technologies that maximize revenue (or avoid cost from the corporate view). It is possible to use technologies like energy storage systems or implement demand response systems to match generation and demand, but it can also be tackled from the solar system design, including new technologies like bifacial solar modules based on n-type PERT (passivated emitter, rear totally-diffused) module designs, which allow vertical installations that flatten the daily generation profile of an installation, producing more electricity in the morning and in the late afternoon and less at midday.

 

Once Again, Renewables Costs Reach a Record Low

— September 1, 2016

Rooftop SolarOn August 17, Chile announced the results of what the specialized media called the Mega Tender. The country’s energy regulators tendered 12,430 GWh per year of electricity over 20 years starting in 2021—that’s 30% of the load of Chile’s regulated market (residential and small commercial consumers). Not surprisingly, the country received the lowest bids for renewables in history; this is the fourth or fifth time in 2016 that we are seeing record low numbers—it’s also happened in Peru, Mexico, and Dubai.

The lowest solar bid, by Solarpark, will sell electricity for $29.10 per MWh, while wind’s lowest bid was also a record-setting $38.00 per MWh. It is important to note that the projects will start producing electricity in 2021, and as such will probably be built in late 2019 and 2020, giving the developers another 4 years of technology innovations before construction.

One interesting feature of Chile’s auction system is that it splits total load to be tendered into different blocks, differentiating by time of the day when the electricity must be provided instead of dividing it by technology. Block 1 allowed for generation at any time of the day, block 2-A allowed generation only between 11 p.m. and 8 a.m., 2-B allowed generation between 8 a.m. and 6 p.m., and 2-C between 6 p.m. and 11 p.m.

It was expected that wind developers would dominate Blocks 1, 2-A, and 2-C; interestingly, they also got most of 2-B. Solarpark’s Maria Elena Solar project was the lowest bidder in the whole tender, but it was the only winning solar bid in a country famous for its excellent solar resources.

Connecting the Sun

The problem for Chile’s solar industry is that its best resources are concentrated in an unpopulated area of the country—in and around the Atacama desert. A significant number of solar projects were proposed there in the last few years to supply the copper miners in the area, but with the collapse in the price of the metal, a significant amount of solar projects in the area have struggled. For the Chilean solar industry to see significant growth, the country first needs to connect the sunny north to the rest of the country where most population lives.

 

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