Innovation and the Solar Industry Seen Through a Wider Lens
Innovation is often seen as the way to the future for solar energy. Everybody sees the value of solar panels on rooftops or in fields, but they also see the huge price tag attached to solar energy. Prices have dropped substantially in the past couple of years, mainly because of the Chinese entry and domination of the solar panel industry (and some will say unfair dumping of cheap modules onto the U.S. market). But that still leaves the question of the extent to which innovation plays a role in the developing solar industry. The Wide Lens, a recent book by Dartmouth professor Ron Adner, should be required reading for up and coming solar equipment manufacturers.
The U.S. Department of Energy is investing a lot of money not so much on creating a new technology, but on how better to use and deploy the technology that is already available. The DOE SunShot Initiative aims to make solar energy cost competitive with other forms of energy by the end of the decade. The goal of the program is to reduce “the installed cost of solar energy systems by about 75%,” that will “drive widespread, large-scale adoption of this renewable energy technology and restore U.S. leadership in the global clean energy race.” The emphasis is on how to reduce cost of installing current technology not to come up with a new breakthrough technology.
If you need a primer on the various technologies that are used in producing solar energy, then you should read SolarTown’s learning article on solar photovoltaic technologies. What you will find there is that the leading technology and what most people associate with the solar industry is crystalline silicon (c-Si). The most visible face of the solar energy industry is that blue or black crystalline solar module you place on your roof to produce electricity for your home. The basic technology has not substantially changed in 25 years.
It is rather like the airline industry. Thirty years ago, you could get on a plane and cross the U.S. in five hours and now, guess what; you can get on a plane and cross the country in five hours. Ticketing is faster now; the only e-tickets used in those days were to get onto certain rides at Disneyland. Baggage handling is expedited (except when the handlers go through your luggage). But the basic technology has not changed.
And the basic technology for the solar industry has not changed either. There have been and continue to be attacks on the dominance of crystalline modules from such upstarts as thin film. Thin film manufacturers compete favorably on price, and they easily trot out their studies showing better performance in hot climates or in picking up ambient light, but these subtleties have been overtaken by the sharp drop in crystalline solar panels and thin film is hanging on by a thread. The more efficient crystalline technology still continues to dominate.
The focus on innovation in the solar industry is not on the basic technology, but on efficiency or balance of system components, such as solar racking systems and solar inverters. Take a look on some of the SunShot awardees, like to Georgia Tech that was awarded almost $3 million to develop reengineered, whole-system designs to include module mounting, integration, materials, and wire management. The major area of innovation in the solar industry has been with the solar inverters, basically that component of your solar energy system that converts direct current (DC) created at the panel to alternating current (AC) that you need to power your refrigerator on the inside of your house. Until recently, the only viable option was a central inverter otherwise known as a string inverter that would take the DC from all of the solar panels on your home and convert them through one inverter. Then came the commercial introduction of the micro inverter, which converts the electricity right at the panel level. If you have 20 panels, you would have 20 micro inverters (some micro inverters service two modules, but that is not important).
Although there are several companies that are competing for the micro inverter market, and many more companies who would like to compete for the micro inverter market, the dominant market leader is Enphase. The micro inverter was such a good idea that one of its major critics, Samlex, a major manufacturer of central inverters, has now come out with its own micro inverter. In the meantime, Enphase has gone public and has introduced generation after generation of new micro inverter products.
What will win the day and which of these firms will be around in five years? Having the best product is only a small piece of the puzzle. If you were able to use your e-ticket at Disneyland, you no doubt will remember the superior videotape format known as Betamax, which succumbed to the inferior product of VHS.
If you are trying to innovate in the solar industry as in any industry, then you have to look at the entire ecosystem, says Adner. You can read the introduction and first chapter of The Wide Lens: A New Strategy for Innovation online for free on his website. Adner takes examples from multifarious industries to offer insights into “great innovations that succeed and great innovations that fail.” Looking retrospectively, you can say, of course, that was obvious, how could such and such CEO have been so lame. My college professor liked to call it the light of retrospective illumination.
Where does that leave fast-moving companies in the solar industry like Enphase? Enphase has built a very good company, outpacing its micro inverter competitors with a good product and excellent marketing. Does that mean that you should go out and buy Enphase stock? Adner argues that innovation is not “the solution for everything.” In Adner’s view, “success also depend[s] on partners who themselves would need to innovate and agree to adapt in order for their efforts to succeed.” The value proposition depends on creating a complement of partners “who must work together in order to transform a winning idea to a market success”—what Adner calls an ecosystem.
Under Adner’s formulation, innovating in the fast-changing solar industry means that innovating companies have to consider the entire ecosystem “by broadening their lens to develop a clearer view of their full set of dependencies.” Those solar industry companies that will survive in five years must depend on “ecosystem reconfiguration” that is at “the heart of every new value proposition that breaks from the existing industry mold.”
Enphase is not sitting on its laurels, charging ahead with new generations of its products. My sense is that Enphase’s strategy is to outpace the competition with its innovation and introduction of new and exciting products. The products that it is introducing may be technologically “better” but since they make their previous generations of micro inverters obsolete in just a matter of a year or two, I am not sure that they are considering all members of their ecosystem. With the introduction of every generation, spare parts for existing micro inverters become that much harder to source. Installers must learn how to use the new equipment, and when a competing product arrives, there will be no incentive to stick with an Enphase product.
Anyone innovating in the fast paced solar industry must survey the complicated ecosystem that has developed with shifting allegiances and strategies. My suggestion is that anyone in this space should read Adner’s book to do what Adner advises, to “choose and manage initiatives in a smarter and more effective way.”