3 Reasons Why Chinese Solar Inverters Are Half the Cost ...

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Module producers aren't the only ones feeling intense pressure in the solar market. Inverter companies are also facing a looming shakeout as they deal with continued shifts in global demand and strong downward pricing trends.

According to a forecast from GTM Research, inverter prices will fall 10 percent annually over the next few years, from $0.22 a watt in to $0.14 per watt in . As some companies struggle to keep their costs in line with pricing, consolidation and bankruptcies will increase in before leveling out in the proceeding years. Indeed, the consolidation is already underway.

Given those forces, the chart below from GTM Research's Global PV Inverter Landscape report offers an interesting look at cost differences for inverters in different markets. It shows that a Chinese 500-kilowatt inverter costs a little over half of what a 500-kilowatt American inverter costs.

Why such a large gap? GTM Research senior analyst MJ Shiao provided three reasons why large inverters made in China are so much less costly than ones made in the U.S.

1. Containment. Central inverters in America are usually located outdoors. But central inverters in China are often housed in containers next to ground-mounted systems. As a result, Chinese products have substantially lower costs associated with weather, cleaning and cooling.

"Indoor-rated models will be cheaper than outdoor models in the U.S., but there can be concerns with finding a space inside a building. In the case of a large ground mount, developers must weigh the cost or trouble of building sheds against paying a couple of cents extra for an outdoor-rated inverter," said Shiao.

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2. Supply chain. Unsurprisingly, the cost of procuring materials and components in China is much lower than in America. But this doesn't mean that Chinese producers are necessarily using lower-quality products, said Shiao. Leading Chinese companies are also utilizing some of the same suppliers as European manufacturers for major components like power modules.

However, the difference in procurement costs is bringing leading inverter companies to Asia. "This is the reason why you see firms like Advanced Energy and Schneider Electric manufacturing sub-assemblies out of China and India respectively. It's also one of the key reasons SMA decided to invest in Zeversolar earlier this year," said Shiao.

3. Testing. More stringent testing requirements also add utility-integration and labor costs for U.S. companies. China's testing standards are much less strict than America's -- a factor that keeps costs lower, but can also make things more difficult for developers if quality suffers. Solar panel manufacturers are finding that out the hard way today.

"The additional costs in terms of certification and testing to various grid support policies between different utilities throughout the U.S. leads to higher costs for U.S. manufacturing," said Shiao.

These factors are putting pressure on higher-cost firms outside of China and eroding the market share of leading manufacturers. However, truly challenging incumbents like SMA, Power-One and Schneider Electric will be difficult for low-cost competitors to surpass if they can't prove their reliability and bankability.

For a breakdown of how the global inverter market will shake out through , read Shiao's report, The Global PV Inverter Landscape .

Larry Truong, Director of Business Development for Power-One Renewable Energy, on how to drive down inverter costs: 

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