There's one area where SolarEdge could expand its business, but it may be easier said than done.
Jun 5, 2020 at 11:36AM
One of the more remarkable rises in the solar industry over the past decade has been SolarEdge Technologies (NASDAQ:SEDG). The company has transformed from a nascent power optimizer manufacturer to a diversified solar energy supplier around the world.
Along the way, the company added products and improved finances to become one of the industry's most valuable companies. So, where will SolarEdge be five years from now?
Image source: Getty Images.
How SolarEdge got here
The first thing I think we should look at is how SolarEdge became so big and profitable.
SEDG Market Cap data by YCharts
The first thing SolarEdge did was build an industry leader in power optimizers, a product that goes on a solar panel and makes the direct current output more efficient before the current goes to the inverter and is converted to alternating current.
10 years ago, power optimizers were included in a relatively small percentage of solar installations, but they quickly became a standard, helped by adoption at SolarCity (now part of Tesla). What's important about the position of the power optimizer is that it can read how much output is coming from a solar panel, providing important data on the system. It can also shut down a solar panel, which was a required safety feature for residential solar panels in 2019 in some states.
As its power optimizer business grew, SolarEdge moved into solar inverters and eventually a battery/inverter combo that it's now selling. Inverters and batteries act as the brains of the solar installation, reading and controlling where the electricity goes. They're also the data hub, so SolarEdge provides monitoring solutions to installers.
The theme here is that SolarEdge is building the products that provide data and control to residential solar installers around the world. And if the solar panel and installation process become commoditized, which they have been over the last decade, SolarEdge will capture most of the value in solar installations. That's why the company is so profitable while most solar companies are struggling.
Where does SolarEdge go from here?
SolarEdge is currently dominating the valuable power optimizer to inverter segment of the solar hardware market, but its future will likely be driven by energy storage. Not only will energy storage be an extension of these two components, but they also have the potential to add a lot more value for homeowners and solar companies.
Stored energy is now being bid into energy markets through what's known as virtual power plants. Residential solar developpers such as SunPower, Sunrun, and Tesla are aggregating their energy storage installations into, effectively, power plants that can supply energy when needed. So, through control systems, they can charge an in-home energy storage system when electricity is inexpensive and discharge into the grid when electricity is expensive, adding value to all parties and creating a new source of cash flow long-term.
SolarEdge's challenge in the
energy storage market is that it doesn't control the installation
infrastructure. In the past, companies like Sunrun or SolarCity had no
problem using SolarEdge components, but today they want to control the
energy storage hardware themselves, which may limit SolarEdge's growth
potential in energy storage. But the company has succeeded in difficult
positions in the past, so I wouldn't count it out.
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