While most solar power related companies are coping with lower margins these days, solar inverter manufacturers are not suffering at all. Unlike other companies in the solar industry, solar inverter makers have some insulation from competition despite the weak economy. Their products are complex and prices remained stable.
Solar inverter profit margins are small compared to the total inverter market that’s worth $6 billion but they are more profitable than other solar power parts manufacturers. A conventional solar power system has photovoltaic cells connected together to form solar panels. These are connected to inverters that would convert the DC power into electricity.
The prices of solar modules and cells have been dropping in the past months because of oversupply, competition and decrease in government subsidies that the industry depends on. It is easy to make an inverter but hard to make a good one. This means higher entry barriers into the industry, which leads to better margin protection.
But this does not mean that the solar inverter business will not post a negative output. SMA Solar, which is the world’s top maker of solar inverters, had to cut its forecast for the year. Its competitor Power-One decreased its third quarter forecast this week. Unlike with solar panels where brand is not important, solar inverters rely on their brand name and technology.
Asian companies that tried their luck in the cell and module market are afraid to go into inverters. Chinese suppliers control 40 percent of the modules market and only 5 percent of the inverters. The small number of competitors in the market somehow slows down the decrease of inverter prices. At present, there are around 150 suppliers but the top 10 control about 75 percent of the market.
The prices for solar panels have dropped by 40 percent this year compared to 10 percent to 15 percent for inverters. Solar panels make up 40 percent of the total cost of a solar power installation and inverters are just 15 percent.
People wanting to invest in the solar industry would have to look at inverters as the safe bet. The supply and demand as well as pricing dynamics in the inverter market makes it more attractive than solar panels.
SMA Solar’s shares are down more than 40 percent this year while Power One dropped half of their value. This is due to the volatile demand and pricing by both companies, which was being punished by the stock market. But their overall outlook is still promising.