Someone asked me a great question recently: “Nige, I know you're a fan of micro-inverters. How big do you really think their share of the market will be?”
Its
a great question because those who have been around for a while have
seen plenty of excellent products never really take off because they
don’t have the engineering, sales and market mix right. The most
fabulously engineered product will fail to sell if it’s marketed
poorly. The cheapest product will fail to gain sales momentum if it
isn’t supported or fails the test of time. A great all round product
offer will fail if the timing or feature set isn’t what the market
wants.
Micro inverters aren’t miracle devices, but I have sense
that the sales success they are achieving around some parts of the world
is because some manufacturers have landed on the right mix and that’s
where it starts to get exciting. I would argue that Australia has a
unique set of circumstances and that the recent growth in micro inverter
sales is proof that the mix is particularly right for our market.
“They’re too expensive”, I hear you say. “Australia is a price driven market”. Really?
I wrote a story about market prices recently, diving into this issue
and I think that “big fat worm” of low price has turned. Sure, there
will always be a market for the cheapest gear and you have to be
competitive but there are several major reasons why I believe lowest
cost models will continue to lose market share. Firstly because
consumers are learning that to a large degree you get what you pay for.
The data shows that Tier 1 inverters and Tier 1 modules are gaining
share rapidly, despite the price premium. Secondly, consumers are also
increasingly aware that if you don’t buy from a reputable company who is
making a profit you are unlikely to get support when it matters. I’ve
personally spoken to crying customers who ring me for help when things
go wrong. They are busy telling there friends how wonderful solar is and
why they should learn from their mistakes and not buy the cheapest
systems they can find. Thirdly, price data from several sources shows
that despite the super low advertised prices, a large majority actually
buy systems at a higher price than we often see promoted.
So, the data suggests that more people are willing to pay a premium if they can be convinced that there is real value in it. This
in itself tells us there is an increasing opportunity for companies to
sell systems with micro inverters. But more importantly, when you
crunch the numbers and compare apples to apples, the gap between micro
inverters and string inverters is not as big as it first appears. In
fact, one installer I spoke to today quoted me his numbers and
demonstrated that from where he sits, micro inverter systems are cheaper when you factor in warranty periods, ease of design, speed of installation and the simplicity of ordering and stock holding.
Even
of this isn’t the case in every situation, it certainly demonstrates
that taking a second look at the real gap is probably worth while. The second element of this equation is solar retailers (that would mostly be you).
What
many solar retailers also tell me that they need to increase sales
and/or, to cut costs. At the beginning of last year you could sell at
perhaps $2.10/W net and today you have to sell at around $1.60/W net.
That’s a drop of almost 25% in revenue and margin dollars for the exact
same work load. It’s a hamster wheel that you have to get off.
Operational
efficiency is one way to help cut costs that our industry simply has to
tackle head on. Finding ways to get the same outcomes with less effort
is crucial; be it in design, purchasing, advertising, lead costs or
conversion ratio’s. This where micro’s can really help.
Need an
easier design process for your relatively unskilled sales people? Would
you really like to optimise the output of every single system through
product matching but cant afford the time? Micro inverters make it
about as simple as it can be, with their lego-like configuration models
and intrinsic performance optimisation.
Sick of carrying a range
of inverters to suit your ever widening range of system sizes? Ever been
caught with old inverter stock that didn’t suit the markets needs and
had to sell it below cost to clear it? Problem solved with micro
inverters. One model, perhaps two at most and you have a range for
almost every application.
Buying too many sales leads which have shaded roofs? Seeing increasing numbers of roofs that have multiple orientations? Worried that your commission incentivised sales gun might be overlooking minor shading? That’s dead money and a recipe for disappointment. Micro inverters will help.
The
other way is to increase price. Few can get away with simply ratcheting
price up without adding value, so tuning into what customers really
want and developing offers loaded with benefits is essential.
Although
we highlighted earlier that micro inverters are much closer to the
price of existing systems than was previously the case, lets assume
there is a gap for a moment. I ran a quick model comparing three 3kw
system types.
- A Tier 3 inverter/ module combo at $1/W (net)
- A Tier 1 inverter/module combo at $1.50/W (net)
- A Tier 1 micro inverter/module combo at $1.73 (net)
Lets
assume you sell 500 x 3kW systems a year at 25% Gross Margin and
compare the results. What you can see pretty quickly is that (logically)
if you sell higher priced systems you’ll make more revenue and margin
dollars. But more importantly, you can also see that if you sold almost
40% LESS micro inverter systems at that higher price, you would make the
same revenue and gross profit as you would selling 500 crappy systems.
For a whole lot less effort. And you would generate more energy for your
customers.
In a nutshell I think micro inverters provide a really
compelling business case for clever solar retailers in a declining
market, full of crappy products. In our next feature on micro’s
I’ll focus on some of the other reasons we believe that micro inverters
could really challenge the market share of string inverters.
http://theenergycollective.com/solarbusiness/372516/how-micro-inverters-are-changing-solar-business-models
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