This Is the Most Exciting Space for Solar Investors

A handful of small companies play a critical role in the solar-energy industry. Two experts explain why they think two of these companies are the most exciting investments in the solar industry right now. 

A full transcript follows the video.

This video was recorded on Dec. 20, 2018.

Nick Sciple: Let's go into the solar component accessory manufacturers. This is something that gets me the most excited. These are the folks that make inverters, as you mentioned off the top of the show, they make some panel mounting racks, but the really exciting stuff in addition to the inverters is what's going on with the energy storage systems. If solar is going to be a larger and larger segment of our energy production over the long-term, we're going to have to find a way to store some of that energy produced during the day when the sun is out for use at night.

What are we seeing with these component manufacturers? What's really driving the story for these companies right now?

Jason Hall: The big needle-moving thing right now is definitely the shift to module-level power electronics. MLPE is the acronym that you'll hear. Historically, the way a solar system has worked is, you get the panels on the roof, then you have an inverter in your garage that converts DC from the panels to AC from all of them and sends it to the grid or sends it into your house for you to consume. The problem with that is, it's a single point of failure. If the inverter goes out, you are no longer getting any solar at all. Those panels are just sitting up there on your roof soaking up heat.

There's been a move to shift to actually having inverters and power optimizers on each individual panel. A couple of things that this going to do is, it's going to, No. 1, if you have an inverter go out, it only affects the panel that it's attached to. You're still getting power production from the rest of your system. Also, since it's taking the power from each panel, it's more effective at managing. You have power optimizers and also inverters on there, and they're managing the power. For example, if you have a tree that shades part of your solar system for part of the day, then it moves across, you get more efficient production because it's managing the power at the panel level. It's a much more efficient way to do it, in terms of getting power output. That could mean you need less panels to generate the same amount of power. It's a more efficient way to do it.

Two companies that are really well positioned in this are SolarEdge and Enphase. They're two of the big leaders in this. That's big step change, going to the module-level power electronics. Electric Code is calling for that change. Beginning it in about three weeks, January 1st, they're going to have to make this shift. They've already started to make it. What's happened is, SolarEdge and Enphase have started signing supply deals with the panel makers. They're working directly with the panel makers under long-term contracts, so they have some stability in knowing what they can project for the revenues. It gives them some competitive edge, some protection. It's a niche industry that I don't think you're going to see the panel makers try to move into.

Sciple: Yeah. It seems to be a little bit more consolidated than what we're seeing from the panel makers. Fewer players. When we're talking about these shifts in supply and demand, with a smaller number of operators, the potential for irrationalities may be a little bit less. And, again, as solar becomes a bigger segment, we're going to see more pushing into the storage business. Enphase is starting to roll that out. Tesla has some operations there with their Powerwall, which they partner with, we talked about a minute ago with installers with their Solar City part of their business. There's some big opportunities there.

I want to call out, on the MLPE stuff, it gets you a significant boost in efficiency. The Department of Energy said you can reduce energy losses just from partial shading of your solar panels by 20-35%. That's a significant bump up. Additionally, there's some safety factors. If an individual panel fails, it can start overheating, all these sorts of issues. You can cut off that individual panel while still getting some solar production from the rest of your operation. Really, some exciting stuff going on there. It's an interesting industry to follow.