Raghu: I think we need to be careful of being caught up in gimmicks. I think anything that takes the industry away from being simple to install and more integrated is a mistake. And I think the industry needs to develop products that are far more consumer friendly—more plug-and-play. We feel very strongly about the AC Module because we think it takes it in that direction. The AC battery for the same reason. There are some very simple racking solutions I think are interesting. But I believe the industry will continue to grow if we stay focused on helping installers create profitable business and ensure that the consumer product has the reliability that would be expected.
Tom: There are some headwinds in the industry: we're seeing utilities be resistant to solar in some states. We have the Suniva trade case. What does this mean for growth in the coming years? And for Enphase?
Raghu: I think the foundation continues to look very strong. The dynamics that are making solar popular, which is that it's simply less expensive than utility energy, is getting better by the day. So we know that solar prices are coming down, and we also know that utility energy prices are going to go up. Those two, I think, are immutable facts. And as a result of that more and more states are becoming solar states—in that the cost of solar energy is now less expensive than utility energy.
Having said that, it does not mean that it’s going to be a simple and clean path. You note that there are some utilities that are more challenging than others. While we have to recognize that there will be roadblocks—and there will be utilities that will make it more difficult for solar—I think we have to look at that in context. Essentially, they can put up roadblocks for only so long because, in the end, the Public Utility Commission has to determine what is best for the public. Is it best for the public to be locked into a particular monopoly and pay more than they might with a solar system? That kind of inequity can only last so long. We saw that in Nevada, where the initial ruling about a year ago was decidedly anti-solar. But over time that decision was reversed, in large part because of public pressure.
And the public pressure will continue to increase because the cost of solar keeps going down, and the cost of utility energy keeps going up. Of course, we have to work very closely with utilities to make sure we create a more stable and safer grid. But the good news behind solar is—if you put all the rhetoric aside—that solar does, in fact, create a more stable and a safer grid. And we are adopting all kinds of technologies in our inverter to help maintain the grid by providing both visibility and control. So I think that there are going to be challenges that come up state by state, and municipality by municipality, but overall the trend is irreversible.
The Suniva trade case also represents a potential road bump. I don't know how it's going to end, and I think there's a lot of work going on on both sides of the case. We are clearly in favor of creating an equitable and competitive environment for modules. It is interesting that, in this case, the ITC is going to be reviewing the case with solar modules, while at the same time we know that cell phones, computers, TVs, all of these—the majority of those are being built offshore. Yet the same kind of attention isn't being placed on those products.
So we don't want to do anything that would create an unfair competitive advantage to US module manufacturers. But, at the same time, if there is no evidence of dumping, if there is no evidence of price collusion—and it's purely a result of the fact that some offshore manufacturers can produce modules at a lower cost—then I think we're doing a disservice to the consumer. And I think we're doing a tremendous disservice to the quarter-million people working in solar today to try and artificially create a price parity.
Tom: Can you talk a little bit about some of the important choices that Enphase has made in the past year, in terms of what you're focusing on?
Raghu: Sure. In a very price-competitive environment, which is what we are in, we had to make certain decisions as to our priorities, so we could reduce our operating expenses and very quickly get back into a profitable state. And that's all about deciding what not to do and picking your priorities. The genesis of our decisions were based on what we believe is the fundamental direction of the industry, which, as I mentioned before, is in the direction of simplicity and integration. So what we feel deserves the most amount of focus are things like the AC module. The simplest, and most integrated, solar can ever be is an AC module, where you basically don't know that there's an inverter there. And that simplicity isn't just at the installation level—it starts at purchasing. You’re purchasing one SKU. It's working capital management, because you're not sitting on multiple different products. Everything just became that much easier and simpler.
It's perhaps a bit ironic for an inverter manufacturer to say this: but what we want is for the inverter to disappear. We want the inverter to melt into the module itself. So that is a key focus. And in order to to do that, there are certain criteria that the inverter needs to have: heat dissipation; weight; size; there's the mechanics behind it; there's the business model behind it—which is dramatically different than what we've done in the past because we’re now selling to large module manufacturers and working with them, in the field, to support our customers.