It has been a common refrain for inverter manufacturers: declining European markets, extreme competition and falling prices mean inverter builders must expand internationally. By now, it’s old news.
However, the numbers don’t lie, and according to the GTM Research Global PV Inverter Landscape 2015 report, the global market will continue to diversify, with the top three markets -- China, Japan and the United States -- expected to account for 47 percent of solar demand in 2018 from a high of 65 percent in 2014.
FIGURE: Global PV Inverter Shipments by Region, 2013-2018E (MW-AC)
Source: GTM Research report Global PV Inverter Landscape 2015
While GTM Research is more optimistic than most about the near-term prospects for PV inverter manufacturers, the demand shift emphasizes the need for inverter suppliers -- especially those without diversified balance sheets -- to expand internationally (or at the very least, across market segments) in order to shield themselves from market risks that still remain in nearly all major solar markets. This often means looking to developing markets. As such, we have identified a few key strategies for earning success in new locations.
Understanding the global market and competitive landscape
Understanding the market and strategically choosing where to focus growth efforts is crucial for manufacturers. Internationalization has been a required strategy for European vendors for several years, and lessons can be learned from the success and failures of these firms.
On the success side is Schneider Electric, which grew its sales every year from 2009 to 2013 in spite of waning European demand. Schneider achieved this largely by targeting a growing U.S. market with a hunger for bankable products (though the company has faced resistance due to its lack of UL certification), as well as a nascent, unsaturated Indian market. Schneider set up local manufacturing in both locations.
On the other side is SolarMax, which announced its insolvency in November 2014. SolarMax originally targeted a crowded Chinese market with no appetite for its premium Swiss products (and prices). The company remained resilient in Europe and had begun finding success with its commercial string inverter in the United States, but the late expansion did not make up for its earlier missteps, and the company ultimately folded.
For inverter companies, this proves that expansion strategies must be executed carefully and without significant mistakes. This is less true for globally positioned diversified firms, which may target more geographies at one time, but it is especially true for smaller regional players and distributed inverter suppliers that grow more gradually.
FIGURE: Major Inverter Suppliers in Developing Markets
Source: GTM Research report Global PV Inverter Landscape 2015
Building the proper sales channels and optimizing supply chain
While targeting the right market is important, execution is also key. Establishing sales and service offices is the first (and least capital-intensive) investment suppliers must make when targeting new markets. For distributed inverter suppliers, these offices are important for servicing distributors, providing customer training, and building a reputation. For utility providers, these offices help convince customers that a particular company will be there to service their products in the event of a failure or malfunction.
FIGURE: Latin America PV Inverter Supplier Offices, Q1 2015
Source: GTM Research report Global PV Inverter Landscape 2015
Though capital outlay is low for an inverter production facility (only $2 million or $3 million, according to anecdotal reports), the determination to locally fabricate products must be made on a case-by-case basis. In Latin America, the world’s fastest-growing solar PV region according to the Latin America PV Playbook, no supplier currently maintains local production.
Low-cost markets such as Southeast Asia tend to require local production to minimize component and shipping costs. Domestic content requirements -- such as those in South Africa -- also encourage local development of manufacturing. However, the latter factor can cause concern among manufacturers hoping to avoid getting burned as they did in Canada when domestic content requirements were struck down by the World Trade Organization in 2014.
Brazil is the next market where this discussion plays out, as exceptional import taxes of up to 80 percent on inverters serve as a de facto domestic content requirement. Though the market remains small, the first manufacturer to set up shop would have a significant competitive advantage in the near term.
Ensuring products are internationally compliant and upgradeable
Grid requirements vary drastically around the world. Differing grid frequencies and topologies, the requirements of regional standards bodies, and local feature requirements make it difficult for any manufacturer to build a truly universal inverter.
FIGURE: PV Penetration vs. Total Electricity Generating Capacity
Source: GTM Research report Global PV Inverter Landscape 2015
The features that are most globally universal include low-voltage and fault ride-through, reactive power control, and frequency-based power curtailment. However, manufacturers must be thinking long-term about power ramping, remote command and control, and even dynamic price-driven response.
While these terms might be vague to many, the most important factor for inverter buyers and sellers is that their products must be easily adaptable and upgradeable to changing and even retroactive requirements of high-penetration PV infrastructures.
What strategies will win out?
In light of the incoming step-down in the U.S. federal Investment Tax Credit, risk in the FIT-dependent Japanese market, and extreme pricing pressure in China, it remains imperative that companies in major markets employ targeted strategies to grow sales internationally to offset market risks. Global strategies will differ from company to company and will be unique for different vendor types. Those late to the game will face significant competition from European and Chinese suppliers that are years ahead in terms of executing their global strategies. However, market opportunities still remain, and those that diligently and carefully plan their next moves have the chance to grow with the globalizing solar PV industry.
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Scott Moskowitz is a solar analyst with GTM Research and the author of the recently published report, The Global PV Inverter Landscape 2015: Technologies, Markets and Prices. For more information on the report, visit http://www.greentechmedia.com/research/report/the-global-pv-inverter-landscape-2015 or contact Zack Munsell at [email protected].