Enphase Energy – The Cost Advantage – Enphase Energy Inc. (NASDAQ:ENPH)

Enphase Energy (ENPH) offers the most optimal energy solution on the planet. Their recent alliance with SunPower (SPWR) and acquisition of SolarBridge, along with already existing Tier-1 partners like LG, Solaria, Panasonic, Jinko Solar and others, is truly a trend which should not be ignored. With the latest $60M revelation, the last albatross left from the previous management — the Tennenbaum loan, could finally be laid to rest, boosting operational income quarterly by ~$0.02/share. Furthermore, one of the last disadvantages for Enphase appears to be no more — that is the cost advantage of a microinverter-based solar solution over an optimized-string solution. Read on to see why Enphase Energy is a serious stock to hold for the long-term investor.

What is the most optimal energy system you can have? In reality, you have to look at the power source and break it down to its smallest unit of power generation — the individual solar panel; at the single panel level, the microinverter is the most optimal choice. Sure, you can have 1) your venerable central string inverter sized to the number of solar panels in a given string, and you can even add optimizers to improve power generation; 2) you can have dual- or quad-inverters converting energy from 2- or 4-panels, respectively, or 3) you can have the most optimal configuration which pairs an inverter to each solar panel; the latter provides the best reliability and safety, as well as, lowest-common-denominator for DC-to-AC conversion in a solar system; the duplicity of multiple “micro” inverters guarantees reliability, and the low-voltage DC conversion optimizes longevity and safety above all other configurations. This is where DG is headed, and why Enphase’s 10-year evolution of product is the best in the industry. With the acquisition of #2 microinverter company, SolarBridge, from SunPower, this gives Enphase complete domination of the microinverter market which is the crux of an AC Module, and with an Enphase-SunPower dynamic duo, this would equate to ~36{0b7da518931e2dc7f5435818fa9adcc81ac764ac1dff918ce2cdfc05099e9974} of the US residential solar market for Enphase.

In focusing upon the longevity aspect of a solar system, by adding storage, the entire warranty scenario is changed. Solar PV systems and their accompanying solar inverter tend to run for half of the day, so any given warranty assumes that sort of work regimen. With the advent of storage, a centralized energy topology which utilizes a single string inverter for both panels and storage will now work twice as hard, and should therefore have half the life expectancy. If a second string inverter is added to the system just for managing the storage and keeping the solar PV panels managed by the other inverter, then there will be 2 single points of failure with both devices having a ~10-year lifespan. With microinverters performing low-voltage DC-to-AC conversion, the warranty is estimated to be 25 years or longer.

As huge residential storage solutions come on the scene, along with hungry EV batteries, home energy solutions will demand reliability, safer and longevity, and Enphase Energy with its low-voltage DC-to-AC conversion and completely decentralized and optimized power topology, will become the standard MLPE for residential energy solutions. The recent SunPower deal is a testament to that. Customers will not want to buy a system that can fail, especially if one exists that is comparably priced that does not. MLPE will cease to exist as a consideration in residential energy solutions as AC Modules proliferate.

As the awareness of initial, BOM and O&M solar costs has become more apparent, and as IQ7, IQ8, IQ9 and future generations of the IQ microinverter debut, the optimized-string “cost advantage” has evaporated. Remember, the microinverter is newer technology than the central string inverter, so it still has more room to mature and optimize. The central string inverter is pretty much mature technology. For years now, SolarEdge’s (SEDG) chief advantage over Enphase has been it’s pricing, but that advantage does not exist any longer, for the new management at Enphase truly excels in operational excellence.

On Renvu.com, the so-called “cost-advantage” that optimized-strings have over microinverter-based solutions is no longer there. For the example below, a 9.2kW DC/7.6kW AC system configuration is given:

Given that Enphase’s microinverter solution has the best reliability, safety and longevity for a solar system, and has now reached cost-parity with the optimized-string solution, it only makes sense that installers are returning to Enphase. Their new IQ technology boasts a 2-wire configuration which reduces installation costs, and along with other perks, the productivity increase achieved by installing Enphase IQ solutions is worth the switch from any of the competing solutions which utilize a central point-of-failure device, 4-wire conduit, separate MLPE and panel components, et cetera.

And one last thing to consider as an advantage for Enphase, as well as the entire solar industry, is the residential ITC, and how it is now really helping negate the effects of the tariffs. According to the latest filings from SunRun (RUN) and Vivint Solar (VSLR), where residential solar business is booming, both skim off a lofty $0.70/Watt acquisition and have installation costs down to ~$1.89/Watt. With time running out on the residential ITC (30{0b7da518931e2dc7f5435818fa9adcc81ac764ac1dff918ce2cdfc05099e9974} thru 2019, 2020 26{0b7da518931e2dc7f5435818fa9adcc81ac764ac1dff918ce2cdfc05099e9974}, 2021 22{0b7da518931e2dc7f5435818fa9adcc81ac764ac1dff918ce2cdfc05099e9974}, after 2021 0{0b7da518931e2dc7f5435818fa9adcc81ac764ac1dff918ce2cdfc05099e9974}) there should be a run on solar for the next 4 quarters at least, until it is wound down, and at 62/38 USA/RoW, Enphase will benefit.

Enphase’s Analyst Day is here, and with this latest $60M surprise giving Enphase the capability to deal with its “indebtedness” and fund growth, the future is looking very positive for the company. IQ8 microgrid will be a game-changer for Enphase because it is the first battery-less microgrid of its kind, and this new funding will help insure its success. In the coming quarters, IQ8 will be the cure to possibly millions of solar customers still suffering from “anti-islanding“, as well as bring LCOE microgrid power into regions of the world with weak or no power grids at all. The market is HUGE Caroline.

Disclosure: I am/we are long ENPH.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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