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Solar Returns to IPO Market After a Long Hiatus

It's no surprise then that Enphase has talked more about international expansion becoming part of its growth story. This brings up the issue of competition with the heavyweights in the inverter market, Germany's SMA Solar and Power-One (PWER). Both companies have launched microinverters, and both are among the biggest market share holders in Europe. Enphase does have a first-mover advantage in microinverters, and the microinverter has not been the driving focus for these companies in the past, however, with the large-scale projects in the European markets and in the U.S. being de-emphasized by subsidy schemes there is reason to expect that the inverter heavyweights will be chasing even the "small fish."

Schuman said with the move by government to support smaller scale projects, all the major inverter players recognize this and there will be more competition in microinverters.

Enphase is a unit growth story and as a percentage of the overall solar market the microinverter niche remains tiny, so there is room to grow, however, it is also a more expensive option than a traditional inverter at a time when there is pricing pressure across solar and the need to bring down systems cost. Inverters are more insulated than modules and solar cells from the pricing pressures, however, even the inverter space faced a recent glut and has shown that it is not immune to the sector's constant risk of voaltile pricing swings.

Edwin Mok, solar analyst at Needham & Co. put it this way: "They are changing the way people are building solar systems and there is adoption and relative to the whole industry it is far from saturation. However, the microinverter costs a lot more on a per-watt basis than the central inverter and the challenge for any high cost company is that they constantly need to show value. Any solar system also using Enphase understands the benefit that comes with it, but as an investor you have to believe there is going to be a sea change in the market."

Pavel Molchanov, Raymond James analyst, added, "The market penetration right now of microinverters is a few percentage points of the global inverter market and there is good chance that number will grow into high single digits into the second half of the decade. But it's not a solution for utilities, mostly rooftop and small commercial projects, and the biggest issue is not the competition or margin pressure but simply can they achieve the kind of expanded market penetration they have in the last few years. For solar, the vast majority of the market remains outside of North America."

Schuman added the bottom line analysis, "They have shown they can grow but not that they can be profitable."

That's often the bottom line (literally) negative read when it comes to evaluating any clean energy IPO offering.

It's not at all uncommon for a renewable energy pure-play to debut as a public company in a pre-earnings phase. That's been the case for the most recent popular string of renewable energy IPOs in the biofuels niche, and has been the story of some of the more successful pure-play stories in the space, like Westport Innovations, albeit an alternative transportation company still reliant on a fossil fuel input, natural gas.

Notably, the pre-earnings profile had not been the case with the last solar IPOs, specifically, but those frothy days are behind the sector anyway, as even many in the top tier of solar companies are expecting a profitless 2012. So in a way, the fact that Enphase is still in the pre-earnings phase is a minor point in evaluating the risks and shows just how much the situation for solar has changed.

Enphase stands out in the solar market with a story that is unique, but where that story goes from here is not without a number of big risks. The 50% haircut in the IPO price range this week tells you that, fortunately, investors have pushed backed and let the underwriters know that the past growth is not enough to provide comfort.

-- Written by Eric Rosenbaum from New York.

>To contact the writer of this article, click here: Eric Rosenbaum.

>To follow the writer on Twitter, go to Eric Rosenbaum.

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