'Logistics nightmare' hits battery storage rollout: Enphase CEO

Global shipping bottlenecks and soaring freight rates have created a "logistics nightmare" that is complicating the rollout of lithium-ion battery storage systems, according to Enphase Energy President and CEO Badri Kothandaraman.

Still, the Petaluma, California-based company, known primarily for its solar panel power electronics, has navigated the backups and markups to launch a new residential energy storage business during the coronavirus pandemic. That included a 53% quarterly jump in shipments of its battery storage package to roughly 100 MWh in the final three months of 2021.

Enphase expects to further boost battery system shipments to between 110 MWh and 120 MWh in the first quarter of 2022, but the port congestion has caused long lead times for customers and necessitated a modest price bump to be introduced next month.

"It's hard but the challenges are true for everybody," Kothandaraman said in a Feb. 8 interview following the company's fourth-quarter 2021 earnings release. "The logistics challenge that we have today is nothing unique to Enphase."

Other companies involved in renewable energy, energy storage and electric vehicles, including AES Clean Energy Development and Tesla, have also cited the logistical logjam as a major limitation.

Such difficulties come as homeowners and businesses look increasingly to battery storage to provide electricity when grid power fails, such as during more frequent wildfires in the western US. Grid operators like the California ISO and the Electric Reliability Council of Texas are also seeking fast-response resources to help transmission systems ride through heat waves and cold snaps.

"You cannot air-ship batteries ... It will not make economic sense," Kothandaraman said. "And if it has to be on a boat, then that is a logistics nightmare. We've got a problem. That's why our time on batteries is 14 to 16 weeks."

'Laser-focused' on costs

However, Enphase has seen some supply-chain headaches abate, including the availability of semiconductor chips and battery cells.

"But that doesn't mean that the vendors are giving us price reductions," the CEO said. "On the contrary, because of inflation, pricing is going up from our vendors."

The company is "laser-focused" on removing cost where it can, but the increases have reached a point where Enphase has to pass some of the costs on to installers and eventually to end consumers, he said.

"I don't think it's going to cause any problem with demand because ... everybody is going to be doing this," Kothandaraman said. "There's no choice right now."

Enphase still managed to beat analysts' profit expectations in the fourth quarter of 2021, reporting on Feb. 8 adjusted net earnings of 73 cents per share -- nearly 24% higher than the S&P Capital IQ consensus. The company generated record quarterly revenue of $412.7 million in the period, up about 56% from a year earlier. It expects revenues of $420 million to $440 million in the first quarter.

In a Feb. 9 note to clients, analysts at Roth Capital Partners said they expect continued strength from Enphase based on strong demand for its products in the US and Europe. "Look for an upside earnings revisions cycle to carry the stock ahead supported by better-than-expected volumes and better storage pricing to support margins," the analysts said.

Supply-chain pressures, trade uncertainties and a proposed major cut in payments for rooftop solar generation in California have driven down the stocks of Enphase and other residential solar companies. Through Feb. 8, Enphase's Nasdaq-listed stock was down roughly 21% in 2022.

Foundation for virtual power plants

Enphase is diversifying into new business areas, leveraging its battery business and software expertise to partner with utilities and third-party aggregators to offer grid services from clusters of residential locations.

Sometimes referred to as virtual power plants, such aggregations are gathering momentum on implementation of the Federal Energy Regulatory Commission's landmark order in September 2020 to open wholesale power markets to competition from behind-the-meter resources.

For now, that business remains small as utilities and grid operators, as well as technology hardware and software suppliers, test out a new approach to providing power system reliability by combining thousands of remote-controlled small-scale resources. But Enphase is positioning itself to make more use of its battery business, as well as its recently acquired EV charging company ClipperCreek, by offering grid services, according to Kothandaraman.

Through ClipperCreek, Enphase wants to introduce bi-directional charging to participate in vehicle-to-home and vehicle-to-grid applications.

"It's a long-term play because most of the utilities ... are only dabbling in grid services at this point," the CEO said of virtual power plants.

Ultimately, however, he believes the approach can help to replace natural gas-fired peaker plants while saving money.

"And that's important for the utilities; they need to realize that in practice," Kothandaraman said.