Power inverters have become a critical component of solar power systems large and small. They're what converts the direct current (DC) generated by a solar cell into the alternating current (AC) the grid uses, and they can be the control system for an entire installation.
As the solar industry evolves, it's at the point of the inverter that companies are considering grafting on energy storage, another value-added component. Naturally, the inverter could be the control center for both the solar system and energy storage, making it an even more critical component. Given that, here are four solar power inverter stocks that renewable energy investors should keep their eye on.
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SolarEdge Technologies (NASDAQ: SEDG) may not be a household name, but it's a global leader in residential solar power inverters. The company battles with SMA, Huawei, and Enphase Energy (NASDAQ: ENPH) in the residential solar market, but its leading power inverters, which are installed on each solar panel, have given it a leg up in expanding into the power inverter market.
While SolarEdge's technology is advanced, it's using a fairly old strategy in the solar market. It's making the string inverter, a central inverter that connects a "string" of solar panels together, the key hub in a solar system. That's the way solar systems were designed in the mid- to late-2000s before microinverters became popular.
What's allowed SolarEdge to succeed is its superior efficiency on the power optimizer level. These module-level power electronics are becoming standard for solar installers as regulators demand the ability to safely shut down a solar panel remotely. There's no reason the technical advantage won't continue to give the company a leg up in the solar power inverter market.
One of the biggest electricity industry suppliers is ABB (NYSE: ABB), and it's also a leader in solar power inverters, primarily due to its acquisition of Power-One. According to IHS Markit's 2017 rankings, the company is No. 5 in inverter volumes (by megawatt) and No. 6 in revenue.
ABB is a diverse company with only about 30% of revenue coming from electrified products, where inverters are a contributor. But as one of the largest solar power inverter companies in the world, it's worth making these products part of your investment thesis.
I mentioned that SolarEdge started as a power optimizer company. Its big competitor at the time was Enphase Energy, a leader in microinverters. Like SolarEdge, Enphase has benefited from regulators mandating module-level electronics in residential solar systems. But that momentum was largely extinguished when the company began losing market share to power inverter companies like SolarEdge. Nevertheless, Enphase is the seventh largest inverter supplier by revenue, according to IHS Markit.
While Enphase has a large market share in microinverters, it's also a high-risk stock. The company is in the midst of a turnaround plan that involves management slashing operating expenses and focusing on returning the company to profitability. On a non-GAAP basis, they expected to be profitable in the fourth quarter, about which we will hear next month. If momentum continues, the stock could be in for a strong recovery. But this is not a low-risk investment for solar power inverter investors.
Another diversified supplier with a large presence in this space is Schneider Electric, the eighth-largest inverter supplier by volume and revenue, according to IHS Markit. I don't think investors should look at it as a pure power-inverter play, as they would with SolarEdge or Enphase Energy, but rather a next-generation energy company. Schneider Electric supplies components like inverters, switchgear, transformers, and monitoring and control systems for renewable energy projects. It's even building an energy storage business to bolt onto these installations.
Schneider Electric will use its position as an electrical equipment supplier to expand out from inverters to other value-added components. It will also have exposure to the booming utility-scale solar market, where SolarEdge and Enphase aren't active in right now. That'll give the company an opportunity to leverage its existing business to gain access to solar projects, creating a new growth market.
Solar power inverters are a key to a renewable future
They're not the most talked about components in a solar installation, but inverters may be the key to unlocking value for investors. They can be the smart hubs that integrate energy production with energy storage and the grid, a critical component of any installation. SolarEdge, ABB, Enphase Energy, and Schneider Electric are the industry leaders investors will want to keep an eye on.
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