Enphase to manufacture solar inverters in US, spurred by new tax credits

California-based Enphase will launch its first U.S.-based clean energy hardware manufacturing thanks to tax credits included in the Inflation Reduction Act.

Enphase leadership said this week that the not-yet-finalized tax credits, coupled with booming demand, made U.S. manufacturing the right move at this time. The company joins a growing list of clean energy companies that have announced expanded domestic production at least in part due to incentives in the landmark climate legislation.

Enphase is a leading supplier of inverters for residential and small commercial solar; inverters are the crucial equipment needed to convert solar panels’ direct current output into alternating current for use in the home or for exporting to the grid. Enphase bucked conventional wisdom by miniaturizing them so they can snap onto each rooftop panel, hence the term ​“microinverter.” It grew that business to a $40 billion market capitalization and also sells battery packs for home energy storage.

When the Inflation Reduction Act became law in August, it offered good news for Enphase on multiple levels. First, it increased and extended tax credits for solar installations, and more rooftop solar means more demand for microinverters. It also created a tax credit specifically for domestically produced microinverters at 11 cents per watt (AC) of microinverter capacity. That provides a new financial boost for domestic manufacturing, said Enphase spokesperson Andrew Newbold. He also noted that localizing production helps streamline supply chains.

“We’re trying to align where we’re manufacturing products with where demand is or where we see demand coming,” he said. ​“We’re bringing those jobs here for the products that we’re using here.”

Until now, Enphase hired contract manufacturers like Flex and Salcomp in locations across Mexico, India and China to make its products. This approach keeps capital investments low compared to building its own factories, Newbold said. ​“We can turn on and off lines at will without having stranded assets,” he noted. ​“We can diversify our manufacturing so we can get the best deals and make sure we’re serving the right markets.”

Enphase plans to launch U.S. manufacturing with one new partner and two partners that it already works with elsewhere in the world. They will collectively open four to six factory lines by the second half of 2023, in locations that have not yet been announced. That should produce between 3 million and 4.5 million microinverters per quarter.

That’s striking, given that Enphase produced 4.3 million microinverters worldwide in the third quarter of this year. Between the U.S. expansion and another planned in Romania to serve the European market, Enphase could effectively double its global microinverter production capacity in the coming year.

Enphase signed letters of intent with the prospective U.S. manufacturing partners, but the final details won’t be inked until the Treasury Department finishes clarifying the specifics of how the new tax credit will work.

“Once the…details have been finalized and the implementation is clear, the U.S. manufacturing could provide substantial benefits in terms of the production-based tax credit,” Enphase CEO Badri Kothandaraman said on an earnings call Tuesday.

Kothandaraman reported record quarterly revenue of $634.7 million, a 20 percent increase from the previous quarter. Revenue in Europe increased 70 percent as customers looked for an escape from soaring energy prices and constrained access to fossil fuels.

Five years ago, a struggling Enphase came perilously close to being kicked off the Nasdaq stock exchange. Investors T.J. Rodgers and John Doerr intervened to install the current leadership team, who then executed one of the more stunning turnarounds in cleantech history. The share price rose from less than a dollar in the summer of 2017 to nearly $300 as of this week. On Wednesday, Fortune named Enphase No. 6 on its 2022 ranking of fastest-growing companies.