Over the last few quarters, the market offered two globally present, full product range, pure plays for inverters: Power One (NASDAQ:PWER) and SMA Solar (ETR:S92). One of those may soon come off the market: Power One was bought last week by ABB (VTX:ABBN), the power equipment giant listed in Switzerland, for just over $1 billion. In the inverter world, this is an eye-watering amount (and a mouth-watering valuation) and signals the emerging maturity of this technology sector.
The marriage, discussed for several years now, is a smart move for ABB and Power One alike. Power One is a very strong company with a good product portfolio. Their utility-scale exposure could be bigger (20-30% of their business) but this is where ABB will help them really take off. Power One’s product has a modular design – a buyer can easily and cheaply upgrade to a new product to maximise the harvest of a panel – and this will be even more attractive at a utility scale. There’s also a beneficial cultural match up – Power One is only 40 people and very entrepreneurial. ABB is huge but technological and can expand Power One beyond their current capacity.
The inverters business is a tough industry. Prices have been coming down every year for the last couple of years with the rest of the suite of solar equipment, but unlike the panels, it’s the inverters that are the strategic play. This is because they’re the central nervous system of a solar installation – they enable the conversion of power from DC to AC, but far more importantly, they enable the intermittently generated power from a renewable installation to be smoothed out so as not to overwhelm the grid at peak generation times. Adding to these two key characteristics, inverters are also going to become even more key in the future as PV (and wind) is further integrated into the grid and installations become more remote from the points of demand.
As we expected, ABB’s move has not given a bump to other solar equipment manufacturers – their focus is not on “solar” per se but rather on power electronics, on a utility scale. This is not a move into the general solar market but rather an expansion of their core power electronics business to take advantage of their projection that solar PV will grow 10% per annum for the foreseeable future. Statements by the company appear to confirm our view that it’s grid parity and not government subsidies that will make solar PV even more successful in future as a premier energy source.
Looking around who’s left in the inverter market, Schneider (EPA:SU) is another inverter business which is targeting a move to broadening its existing utility-scale inverter infrastructure offering. But if they decided to do an ABB, who could they acquire to jump-start this move? SMA Solar is family owned and probably not a likely target, and seems to be making acquisitions of their own. Enphase (NASDAQ:ENPH) is a truly focused mini-inverter product line in the residential/commercial market. This would enlarge Schneider’s reach but also present it with a completely new inverter market segment.
Consolidation of the inverter market is likely to continue in this strategic part of the market – stay tuned for the next announcement in this area, because we don’t think you’ll have to wait too long.