Why I am Bullish on the Residential Solar Industry and Enphase Energy

In today’s article, I am going to outline why I am bullish on the residential solar industry in general and particularly in Enphase Energy.

Why I’m Bullish on the Residential Solar Industry

1. Energy Prices are Rising

   In the United States and in countries around the world, energy prices are on the rise. In the United States, prices for electricity jumped over 14% in 2022 while in the United Kingdom electricity prices were up by over 66%. The surge in electricity prices will have more and more consumers looking for ways to save on electricity, and one of the chief ways to do this is by installing solar panels and battery backup.

2. Blackouts

   Consumers may increasingly turn to solar in order to have more reliable power. In some areas, blackouts are becoming more common. Look at California as a prime example. During times of peak electricity demand in the summer, California has struggled to meet the needs of consumers. California has had to turn to introducing blackouts in order to cope, and consumers without an alternative source of power have been left without electricity at their homes and businesses. In order to be less reliant on the public power grid, consumers are starting to look for ways to power their homes and businesses during blackouts, such as with solar panels and battery backup.

3. Greater Environmental Awareness

   More and more people are concerned about the environment. This trend is particularly pronounced among young people. In an effort to go green, more consumers are looking to reduce their carbon footprint. One of the options some are choosing is to install solar panels.

4. Government Support

   Similar to reason three above, governments around the world are looking to implement policies to reduce carbon emissions. Thus, it seems more likely than before that governments around the world will offer more and more incentives for individuals to install solar panels.

5. Electric vehicles are growing in prevalence. As more consumers buy EVs, consumers will have an added incentive to install solar systems and battery backup in order to be able charge their EVs via electricity generated by their own solar system rather than having to pay to use electricity from the grid.

Why I’m Bullish on Enphase Energy

1. Leadership

   In my opinion, Enphase Energy has excellent leadership. Badri Kothandaraman has been CEO of Enphase Energy since April of 2017, and since he took over, results have been impressive. Enphase had revenue of $322.6 million in 2016 before he took over. Last year, in 2022, Enphase’s revenue was over $2.3 billion. Beyond the impressive financial results, Kothandaraman seems to be very focused on making sure Enphase succeeds in the long term rather than trying to maximize short term profits.

2. Innovation

   Enphase is a very innovative company that keeps trying to improve their products. For example, Enphase’s latest microinverters, the IQ8 Series, can provide power without a battery even during a power outage in the grid. This is unlike most inverters which require a battery to generate power when the grid is experiencing a power outage. Enphase’s commitment to continuously innovating and improving their products gives me confidence that Enphase will be able to not just maintain their position but also take market share.

3. Ecosystem

   Enphase is expanding beyond just selling microinverters. Enphase is turning into a provider of a suite of products that allow consumers to more efficiently manage power usage in their homes. Enphase currently offers batteries as well as EV chargers. Enphase will soon be offering the ability for users to manage select appliances so that they operate when it is most efficient to do so, for example during the hours when the homeowner’s solar system is generating the most power. By expanding beyond microinverters, Enphase is increasing the value proposition for choosing their microinverters and is creating more cross-selling opportunities. I expect Enphase to continue to expand their product line.

4. Great Products

   In my opinion, Enphase offers industry leading microinverters. Microinverters offer numerous advantages compared to string inverters. Microinverters are typically better at operating in partial sunlight, which can be a significant advantage for some homeowners. Additionally, microinverters can be more resilient than string inverters since the entire solar system is not dependent on a single inverter. I also view Enphase’s batteries and EV chargers as being very competitive. I believe that the quality of the products that Enphase offers will help it to continue to attract customers.

5. Installers

   Enphase seems to put an emphasis on ensuring that they offer a very enticing proposition for solar installers. For example, Enphase continues to update their software for installers so that installers can better and more easily design solar systems for clients. Since installers can have a significant influence on the choices consumers make when deciding to purchase a solar system, Enphase is smart to prioritize their relationship with installers. A dedicated base of installers is a significant advantage for Enphase in the United States.

6. International

   In the first quarter of 2023, Enphase derived 65% of their revenue from the United States and 35% from international markets. However, their international sales are growing faster. Enphase has started making international markets a bigger priority than previously, and I am optimistic that Enphase can continue to grow internationally at very healthy rates.

Conclusion

There are many reasons why I am bullish on the solar industry and particularly on Enphase Energy. I don’t expect that the solar industry will have a perfectly linear ascent. There are many factors impacting the solar industry, some of which are headwinds while others are tailwinds. At times, I expect the headwinds to gain strength while at other times I expect the tailwinds will be more prominent. Nonetheless, it is my belief that over the next decade plus, the solar industry will grow significantly, and it is also my belief that Enphase Energy will be one of the primary beneficiaries of the growth of the solar industry.

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