Solar inverter prices have been on the rise, with crucial components such as semiconductor chips in short supply globally, and compounding this challenge is the acute shortage in the supply chain of Insulated Gate Bipolar Transistors (IGBTs), another essential inverter component.

According to Mercom India Research’s recently released Q1 2023 India Solar Market Quarterly Update, inverter costs increased by over 10% quarter-over-quarter as manufacturers struggled to meet the demand due to the limited availability of IGBT and other semiconductors, crucial components for inverter manufacturing.

The Indian solar sector and EVs heavily rely on the inverter component supply from Chinese manufacturers, who in turn depend on the Taiwanese chip industry for the supply of crucial components.

The recent geopolitical developments have impacted the supply chain, and the rise in demand from the global EV and solar sector has tightened inverter supplies.

“The global chip shortage, starting from the second half of 2020, has had a significant impact on inverter production since chips are crucial components in their manufacturing,” stated the spokesperson from Sineng. “Adding to this challenge, there is also an acute shortage in the supply of IGBTs. While China’s solar industry holds a dominant share of the world’s production capacity, it heavily relies on IGBT imports from overseas manufacturers.”

The shortage of PCBs and IGBTs has disrupted supply chains, leading to potential production delays and delivery constraints. This, in turn, could impact the cost of solar projects.

“The current chip supply shortage can be primarily attributed to the ongoing issues between China and Taiwan. To mitigate the impact, we explored the use of European semiconductors, but unfortunately, the quality did not match that of their Taiwanese counterparts,” another inverter manufacturer said.

He added,” This situation has shed light on the over-dependence on a single supplier, emphasizing the need for the industry to proactively develop and diversify the supplier base across different regions. By cultivating additional suppliers in various locations, we can strive to avoid similar scenarios in the future and ensure a more resilient and robust supply chain.”

Supply Chain Diversification to Meet the Demand

Despite these challenges, most inverter manufacturers have managed to meet the demand for their products. The manufacturers Mercom spoke to said that they were able to fulfill their orders as they had long-term relations with the chip suppliers and took proactive measures to secure stable supplies.

“The chip supply for inverters faced significant constraints during the first half of last year, causing difficulties across the manufacturing sector,” explained a spokesperson from Growatt, a prominent inverter manufacturer. “However, as we entered the second half of the year, the chip supply situation gradually stabilized, and there has been no shortage of chips throughout this year. To further ensure a steady supply, we have entered into a priority supply agreement with Onsemi, a reputable chip manufacturer.”

China’s chip industry has made remarkable strides in recent years, providing high-quality chips for various applications. “As part of our efforts to diversify and strengthen our supply chain, we are planning to incorporate domestic chips in our low-power products,” reveals the spokesperson from Growatt. “This strategic decision aligns with the advancements in China’s chip manufacturing capabilities and will enhance our overall product portfolio.”

Another prominent inverter manufacturer Mercom spoke to voiced the same opinion and said, “During the first half of the previous year, the availability of chips faced notable constraints; however, in the latter half, the supply gradually stabilized, returning to normal levels. This year, there has been a consistent and ample supply of chips without any shortages. We have signed an exclusive supply agreement with a prominent global chip supplier to ensure a steady and reliable chip supply.”

Though the supply chain issues have been easing, the inverter prices have increased, according to the inverter manufacturer. The manufacturer Mercom spoke to said, “The prices of inverters have seen a significant increase for several reasons. Firstly, inflation in China, a major manufacturing hub for inverters, has played a crucial role. The rising cost of labor, raw materials, and overall production expenses in China has led to higher manufacturing costs, subsequently impacting the pricing of inverters. Secondly, the increased prices of raw materials used in the production of inverters have also contributed to the overall cost.”

They also stated that the marginal difference between supply and demand has contributed to the increase in price.

The global chip shortage has presented significant challenges for the inverter manufacturing industry, impacting the availability of crucial components such as chips and IGBTs.

The supply chain diversification and the new capacities for chip manufacturing have been able to float the industry through the shortage for now.

Manufacturers are now proactively addressing the challenges by diversifying suppliers, establishing partnerships, and exploring domestic chip manufacturing capabilities. With continuous efforts, the inverter manufacturing sector aims to restore the supply-demand balance, ensuring a steady and reliable flow of components.

As the renewables industry continues to expand, collaboration between manufacturers, chip suppliers, and policymakers becomes crucial to overcome these challenges and support the sustainable growth of the solar energy sector.