SMA POWER ON Event: SMA CEO J. Reinert talks about the PV market, trends and Large Scale Solutions

I would think 2019 was actually a very good year for SMA. We were able to increase our delivered power from 8.5 gigawatt to roughly 11.5 gigawatts, so that's an increase of 35 percent, which actually stems to a big deal from the large scale business. So it's a very good increase and it corresponds to roughly seven or eight big power stations, so it's quite an amount of energy we put new into the net. And especially happy I'm also about the fact that we had order intake of more than one gigawatt for storage, and that's also mainly for large-scale applications. So it's for frequency regulation, arbitrage, etc., to really stabilize our nets around the world where a lot of PV has been installed already, or even sometimes fully without PV for just normal arbitrage or grid stabilization. But we were also very successful in the O&M business, so operational maintenance, where we were able to increase our fleet under our maintenance to nearly five gigawatt by adding another one gigawatt. And that was also in America actually, so very good success in America especially in large scale. But last but not least, I would definitely like to mention our focus on coming closer to the customer, being a better partner to our customers, and being able to really deliver software products that we add onto all these systems we have in the field of medium voltage, batteries, inverters. And we will be hearing quite a lot about that later on today also, so that would be a part that I think we have made biggest changes on actually during the year. If we look at the distribution around the world, then we do see that we could keep our number three position. The interesting part is that actually the big six players of the world when it comes to gigawatts of delivered power actually grew from roughly 60 to 73 percent, meaning there is a consolidation happening in the market still. And we're very happy that we could grow with it, so we actually grew quicker than the market due to the fact that the market grew by ten percent roughly, thereby keeping that position. And this graph you see here is on gigawatts, so if we would look at it at currency, then the players would be much closer to each other because then we would not have this big spread. Coming back to what you asked regarding the first part of this year, it started actually very, very good. So we were able to go to over four gigawatt in the first quarter, which would mean if we just continue like that, 16, 17 gigawatt across the year. And that was more than a doubling towards the first quarter of last year. But of course, as you can imagine, then corona came into the picture roughly in the beginning of quarter two. We saw order intake declining, projects being shifted. Luckily, it actually not postponed or stopped at all, but shifted. And we did see that in all segments of us: residential, commercial, utility. We did see this shift, so that quarter two will definitely be a little bit softer. The good thing is that we do see it come back now. We do see order intake increasing again on all segments actually, and that's very, very good, of course.

If we look at the total world market, then it's so that we were in 2018 roughly 100 gigawatt new installed inverter power across all segments across the world, but that's only PV inverter power. And this number would grow roughly to about 140 gigawatt in 2022, so roughly 10 gigawatt per annum up year on year. And this would mean that we in 2020, this year, would be roughly 120, that's our estimation. But due to corona, we probably expect it to go down to 100, so to the level of 2018, meaning we do have an 18% decline towards what we thought this year would have, and we do have a 10% decline towards last year, 2019. So there's definitely an impact upon that from corona, but also other impacts like Chinese market is very slow in the first part of this year, probably picking up in the second part. But if you look at the chart, then you will see China is a little bit lower than anticipated also, and that has not too much to do with corona actually. So but then we do see a continued good growth into 2021 and 2022, which roughly corresponds to also 18% from now to 2022, so good view ahead of us. The numbers are looking very good. And if I look at the next ten years, then you will see that we do see a growth towards roughly 300 gigawatt of newly installed PV power per year in 2030, which would mean roughly a uptake of 12% per year every year. And this is of course driven by many factors. Most of all, PV has become so cheap that it's the best form of electrical energy to employ actually if you have new demands in the country. But second of all comes in of course that there are other effects like green hydrogen, where we need green energy to supply the energy intensive hydrogen process, power to gas process. But also electric vehicles are helping a lot to push photovoltaics due to the fact that normally if home owners buy an electric vehicle, they become very soon very interested to also put a photovoltaic system on their roof. And the same is true for commercial buildings. So if I look at the trends in total, then we do have a picture of the three D's: decarbonization, digitalization, and decentralization. So of course, PV industry is a decentralized industry, so most of the time consumers become also producers, thereby prosumers. And we do have the fact that the energy generation is spread much more on the different roofs, of course, in big fields in utility scale applications, etc. And this leads of course to the decentralization as well as the decarbonization, as I will come back to in the next slide. But also even in the big power plants we have a lot of digitalization coming in. I think the people will hear a lot about this in the coming hours. And as I said earlier with the integration of storage, there's a rising demand for stable grids. So with a higher penetration of PV, it naturally comes to more integration of batteries, and then we stabilize the grid to have the power available in the evening hours on the one hand, but on the other hand also to really stabilize the grid. And this is all done in the utility scale area, and we are everywhere. We are active and these trends are really helping us.

One very important factor is of course also sustainability. So important that we're going to have a session about that later on today. What does sustainability mean for SMA? Sustainability is extremely important for us because I would like to compare it to the car industry. If you have an electric vehicle and you fuel it from brown coal or from other means of old energy, then you will actually not have a sustainable car and it's not a clean car at all. Actually, it's just not producing the exhaust fumes where you use it. But the same is true for the PV industry. If you have an inverter that only lasts for five years, and even the quality might be good, but if the lifetime is not good — quality and lifetime are not the same — then of course it will just have recuperated its primary energy resources from the world and it does not really help us a lot if it's short lifetime on inverters or any other equipment, transformers, switchgear, etc. So it really needs to be designed for at least 20 years. It needs to be so that you can just exchange certain parts. But it's not ending there. You would really need to make sure you're recycling all the electronics and the metal and aluminium etc. And we do a lot of that. So if you look at the facts here, in the last year roughly we reduced the environmental impact by 10.5 billion euros by using our inverters only, our inverters in one year. And this corresponds to roughly 60 million tons of CO2 saved around the world in one year. But we go much beyond that. So we are measuring, for example, the power we need to produce one kilowatt of inverter power. So the electrical power we use in the factory to produce one kilowatt of inverter power to be shipped to our customers. And over the last four years, we could go down with the power we use for each kilowatt by 63 percent. So really making sure we are increasing the size of the inverters we are making, making sure that we implement methods in our fab and in our manufacturing that is not so energy intensive, etc. But we also make sure we, of course, use our own green power. So on our roofs here in the factory in Germany, we can supply roughly 38% of the energy we use from our own PV system, and the remaining 62% is also from green energy in the surrounding here of Kassel. So these are some things we definitely work with and want to make SMA more and more sustainable because the PV industry is not sustainable by itself. And you will see if you look at the CSR reports of our company and different companies, you will see a big difference. Some actually only have shareholder value and only the result in mind, which is fine, which also belongs into corporate social responsibility and sustainability. But we do want to have a good combination of sustainability as well as shareholder value. Absolutely. So if you are interested in sustainability, I highly recommend you watch our session on sustainability with the sustainability manager here at SMA later on today. It's a great session, has a lot of insights, and we'll touch on what you just mentioned.

I can't answer it yes or no, I must say. Just want to highlight that again: quality and lifetime are two different issues. So in quality, we make a lot of effort with our type testing of the inverters in big labs. Right now we are building a new lab of 6 million euro for electromagnetic compatibility. So all these things are going into the design, but especially we design with design reserves which actually cost a little bit of money to make sure that due to the degradation of the components inside each inverter, we do have a longer lifetime. And that is really something that goes into the opex of the entire plant, so that's very important. Quality of course just as well important. And maybe three points: what are SMA's long-term storage goals? Storage will just increase and increase. I mean, in each segment, residential, commercial, or large scale, we will see attach rates of over 50 percent in most of the countries very soon. So in the next years it will be so that most of the PV plants will have co-located storage. And we will probably see around the world everywhere that we are thinking storage and inverter for PV production at the same time, and maybe even in one design and one unit. And that's actually what we are designing right now for the years to come.

Yeah, I can assure you it's not lying in our fixed cost structure, for example. We are very lean in the company. It is actually coming back to the design of the inverter. So as I said, quality and lifetime, two different things. If we look at lifetime in our design, we really put in design reserves. It's with all exothermic processes, it's so that you roughly lose half of your lifetime of a component by each 10°C in elevation and temperature ambient temperature of that component. So for example, if you look into our inverters and into those of our competition, you will see maybe the same make of components, but if you look at for example the DC capacitance inside the inverter or the IGBTs or anything else, you will see that we have a little bit higher reserves, we have more capacitance, we have a little bit bigger IGBTs in there, etc. This is adding design reserves as we call it, which will be diminished over the lifetime due to the degradation of the components. And this actually costs money, so we actually put in the money so that you have a longer lifetime. Apart from that, as Boris already mentioned, of course we are there with the service fleet to always be there even if a country goes down, which we have seen in several cases, we will stay in that country and not just leave. So these are the things that we are giving you as a payment for maybe an extra cost at the beginning.

The second one, which is very easy and fast to do. The storage and PV inverter, we have something like that in place already as I mentioned. We have introduced an inverter which could operate as a PV inverter and convert it into a storage inverter by just adding external devices like a DC-DC converter and of course the battery, but the inverter itself is already storage ready. And that's available. Happy to serve it. And yeah, I think the other aspects will be covered during the day.

So happy to reduce the complexity in your projects and to take risks and to take full responsibility for the part that we can cover. So happy to do so, and I think we have proven that we are able to do that, and we are here.