As the PV market grows and develops, the cost and reliability of inverters becomes more important. The cost of an inverter represents about 10-15% of the total investment cost of a grid-connected system. Photovoltaic panels are relatively expensive to produce, and the market for them has been relatively small until recent years, so photovoltaic production has not achieved the economies of scale necessary for reduced costs. For the PV market to fully evolve and sustain itself, the demand will have to increase and the cost will have to come down.

A potential trend that could carry significant cost implications for the PV market is the influx of Asian companies. Currently, the photovoltaic industry is dominated by Japanese, European and US manufacturers. However, production is increasing in both China and Taiwan. Eleven companies have plans to increase their product capacities to 200MW or more. Three of these companies are from China or Taiwan, including electronics giant Delta. Increased production of PV components in China and Taiwan will most likely create downward pressure on prices, as both areas are noted for providing low-cost manufacturing.

The behavior of consumers suggests that they focus mainly on cost and tend to require short payback periods. In recent years, almost all the manufacturers of PV inverters have significantly improved their devices’ expected lifetimes. Manufacturers generally feel that designing inverters for longer than 15 years is not practical and, in general, is not necessary. Inverters usually need to be replaced every 5-10 years, whereas PV modules and other system components have a life of 25 years or more. Often, investment in a new inverter is required 3-5 times over the life of a PV system. Most manufacturers say that the more important issue for consumers is lower first cost. As a result, 5-10 year warranties have become the norm in the industry. Many manufacturers are currently considering extended warranties that would be available for an additional cost, but these warranties do not always cover the consumer’s pay-back period for the PV system.

Inconsistent national and state regulatory standards have hurt PV inverter manufacturers’ ability to grow in the past, limiting many to focus on regional markets. The situation is gradually improving, but in the United States, differences in requirements between states will likely continue to impede cost benefits associated with larger market volumes, at least for the next few years.

Provided by Linnea Brush, Senior Research Analyst, Darnell Group

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