Item 1. Business
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1. Business
Introduction
We are
a leading provider of an optimized inverter solution that changed the way power is harvested and managed in photovoltaic (also known as
PV) systems. Our direct current (“DC”), optimized inverter system maximizes power generation while lowering the cost of energy
produced by the PV system for improved return on investment, or ROI. Additional benefits of the DC optimized inverter system include:
comprehensive and advanced safety features, improved design flexibility, efficient integration (DC coupled) with SolarEdge storage solutions,
and improved operation and maintenance, or O&M, with remote monitoring at the module-level. The typical SolarEdge DC optimized inverter
system consists of inverters, Power Optimizers, a communication device which enables access to a cloud-based Monitoring Platform and,
in many cases, a battery and additional smart energy management solutions and devices, such as EV chargers and load controllers. As part
of our hardware sales, we also provide the energy management software which controls, manages and optimizes the energy production, storage
and use of energy generated by our systems. Our solutions address a broad range of solar market segments, from residential solar installations
to commercial and small utility scale solar installations. Since we began commercial shipments in 2010, we have shipped approximately
52.6 gigawatts (“GW”) of our DC optimized inverter systems and our products have been installed in solar PV systems in over
140 countries.
Since
introducing the DC optimized inverter solution in 2010, SolarEdge has expanded its activity to other areas of smart energy technology,
both through organic growth and through acquisitions. By leveraging world-class engineering capabilities and with a relentless focus on
innovation, SolarEdge now offers energy solutions that include primarily the hardware technology used in residential, commercial, and
small scale utility PV systems and also product offerings in the areas of energy storage systems, or ESS, including manufacturing of lithium-ion
cells and batteries, smart trackers for solar panels, EV chargers, home and commercial energy management software, grid services and software
platforms and applications that enable development of virtual power plants, or VPPs.
We primarily
sell our products indirectly to thousands of solar installers through large distributors and electrical equipment wholesalers and directly
to large solar installers and engineering, procurement, and construction firms, or EPCs. Our customers include leading providers of solar
PV systems to residential and commercial end users, key solar distributors, and electrical equipment wholesalers.
As of
December 31, 2023, we have shipped in the aggregate approximately 125.1 million Power Optimizers and 5.6 million inverters. More than
3.7 million PV installations, many of which may include multiple inverters, are currently connected to and monitored through our cloud-based
Monitoring Platform.
The
SolarEdge Solution. The key advantages of our solution over a traditional string inverter PV system include:
•
Maximized
PV module power output. Our Power Optimizers provide module-level, or MPPT, and real-time adjustments of current and voltage to
the optimal working point of each individual PV module. This enables each PV module to continuously produce its maximum power potential
independent of other modules in the same string, thus minimizing module mismatch and partial shading losses. By performing these adjustments
at a very high rate, our Power Optimizers also solve the dynamic MPP losses associated with traditional inverters.
•
Optimized
architecture with economies of scale. Our system shifts certain functions of the traditional inverter to our Power Optimizers while
keeping the DC to AC function and grid interaction in our inverter. As a result, our inverter is smaller, more efficient and more reliable
than inverters used in traditional string inverter systems. The cost savings that we have achieved on the inverter enable our system to
be priced at a cost per watt that is comparable with traditional inverter systems of leading manufacturers. As a PV system grows in size,
our inverter benefits from economies of scale, making our technology viable for large commercial and small-scale utility applications.
•
Enhanced
system design flexibility. Unlike a traditional inverter system that requires each string to be the same length, use the same type
of PV modules and be positioned at the same angle toward the sun, our system allows significant design flexibility by enabling the installer
to place PV modules in uneven string lengths and on multiple roof facets. This design flexibility increases the amount of the available
roof that can be utilized for power production. As a result, our system is significantly less prone to wasted roof space resulting from
rooftop asymmetries and obstructions.
•
Reduced
balance of system (BoS) costs. Our DC optimized inverter system allows significantly longer strings to be connected to the same
inverter (as compared to a traditional inverter system). This reduces the cost of cabling, fuse boxes and other ancillary electric components.
These factors result in easier installations with shorter design times and a lower initial cost per watt, while enabling larger installations
per rooftop.
•
Continuous
monitoring and control to reduce operation and maintenance costs. Our cloud-based monitoring platform provides full data visibility
at the module level, string level, inverter level and system level. The data can be accessed remotely by any web-enabled device, allowing
comprehensive analysis, immediate fault detection and alerts. These monitoring features reduce O&M costs for the system owner by identifying
and locating faults, enabling remote testing and reducing field visits.
•
Enhanced
safety. We have incorporated module-level safety mechanisms in our system to protect installers, electricians and firefighters.
Each Power Optimizer is configured to reduce output to 1 volt unless the Power Optimizer receives a fail-safe signal from a functioning
inverter. As a result, if the inverter is shut down (e.g., for system maintenance, due to malfunction, in the event of a fire or otherwise),
the DC voltage throughout the system is reduced to a safe level. Our DC optimized inverters comply with the applicable safety requirements
of the regions in which they are sold, providing incremental cost savings to installers by eliminating the need for additional hardware
such as DC breakers, switches or fire-proof ducts required by traditional inverter systems. In the U.S., the SolarEdge SafeDC feature
is compliant with NEC 2014 & NEC 2017 Rapid Shutdown functionality, Section 690.12. SolarEdge inverters also have a built-in safety
feature designed to mitigate the effects of some arcing faults that may pose a risk of fire, in compliance with the UL1699B arc detection
standard. In addition, some of the SolarEdge Power Optimizers include a "sense connect capability" which is designed to monitor Power
Optimizers’ connectors, and identify improper connections and possible malfunctions for early detection and mitigation of arc risks.
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•
High
reliability. Solar PV systems are typically expected to operate for at least 25 years under harsh outdoor conditions. High reliability
is critical and is facilitated by systems and components that have low heat generation, solid and stable materials, and an absence of
moving parts. We have designed our system to meet these stringent requirements. Our Power Optimizers’ high switching frequency allows
the use of ceramic capacitors with a low, fixed rate of aging and a proven life expectancy in excess of 25 years. Further, we use automotive-grade,
application-specific integrated circuits (“ASICs”) that embed many of the required electronics. This reduces the number of
components and consequently the potential points of failure.
•
DC
Coupling with Energy Storage. Our DC optimized inverter system allows solar energy to be directly stored in batteries without any
conversion, referred to as DC coupling, thereby eliminating energy losses that are associated with such conversions. This enables better
management of energy stored in the battery, hence improving efficiency, increasing savings for the end user and increasing the overall
return on investment, or, ROI. When coupled with a DC enabled EV charger, solar energy can directly charge the electric vehicle, without
any AC conversion applying similar energy retention due to less conversions.
•
Energy
Management. Our residential and commercial systems feature the SolarEdge ONE energy optimization system which manages solar energy,
battery storage, smart devices, and grid interaction. This smart energy management capability enables system owners to store solar energy
at cost-effective times, and also control the timing of their PV energy consumption in order to increase their energy independence, take
advantage of lower time-of-use rates, reduce electricity bills, and improve overall system ROI.
•
Distributed
Energy Generation. As the electric grid transitions from centralized power stations to a network of distributed, renewable energy
sources, our inverter can serve as a local control system that can manage the energy resources underlying such a distributed network.
Our inverters can be used to create a distributed and interactive grid that can help support grid stability. One such example is inverter-enabled
charging and discharging of batteries as part of a Virtual Power Plant or VPP, to help manage the load on the grid and support grid stability.
Our
Product Offering
Our primary segment is
our solar business, which includes the following products:
SolarEdge
Power Optimizer. Our Power Optimizer which forms an integral part of our DC optimized inverter system is a highly reliable and
efficient DC-to-DC converter which is connected by installers to each PV module or embedded by PV module manufacturers into their modules
as part of the manufacturing process. Our Power Optimizer increases energy output from the PV module to which it is connected by continuously
tracking the Maximum Power Point or MPP of each module and controlling its production point. The Power Optimizer’s ability to track
the MPP of each PV module and its ability to increase or decrease its output voltage enables the inverter’s input voltage to remain
fixed under a large variety of string configurations. This feature enhances the flexibility in PV system designs, enabling use of different
string lengths in a single PV system connected to the same inverter, use of PV modules situated on multiple orientations connected to
the same inverter, and using varied PV module types in the same string. In addition, our Power Optimizers monitor the performance of each
PV module and communicate this data to our inverter using our proprietary power line communication. In turn, the inverter transmits this
information to our monitoring server. Each Power Optimizer is equipped with our proprietary safety mechanism which automatically reduces
the output voltage of each PV module to 1 volt unless the Power Optimizer receives a fail-safe signal from a functioning inverter. As
a result, if the inverter is shut down (e.g., for system maintenance, due to malfunction, in the event of a fire or otherwise), the system
is designed to reduce the DC voltage to a safe level.
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Our
Power Optimizers are designed to withstand high temperatures and harsh environmental conditions and contain multiple bypass features that
localize failures and enable continued system operation in the vast majority of cases of Power Optimizer failure. Our Power Optimizers
are compatible with most modules on the market today and carry a 25-year product warranty. During the year ended December 31, 2023, the
year ended December 31, 2022 and the year ended December 31, 2021, revenues derived from the sale of Power Optimizers represented 30.3%,
36.5% and 42.2% of total revenues, respectively.
SolarEdge
Inverter. Our DC-to-AC inverters which form an integral part of our DC optimized inverter systems, contain sophisticated digital
control technology with efficient power conversion architecture resulting in superior solar power harvesting and high reliability, and
are designed to work exclusively with our DC Power Optimizers. A proprietary power line communication receiver is integrated into each
inverter, receiving data from our Power Optimizers, storing this data and transmitting it to our monitoring server when an internet connection
exists. Since each string which is equipped with our Power Optimizers provides fixed input voltage to our inverter, the inverter is able
to operate at its highest efficient at all times and therefore is more cost effective, energy efficient and reliable.
Like
our Power Optimizers, our inverters are designed to withstand harsh environmental conditions. We currently offer single-phase inverters
designed to address the residential market (3 kilowatt (“kW”) to 11.4 kW) three-phase inverters designed to address the residential
and commercial markets (4 kW to 120 kW), and three-phase inverters designed to address the ground mount market (300kW to 330kW). In 2023,
SolarEdge released the 330kW inverter coupled with new H-Series Power Optimizers for distributed and centralized inverter configurations.
This inverter is designed for small-scale utility installations, agriculture or Agri-PV sites that harvest crops and solar energy on the
same farmland, and Community Solar installations which bring smart energy savings to households, businesses and public organizations.
Storage
Solutions. The SolarEdge Home Battery 400V, our DC-coupled, 10kWh, single phase battery integrates with our SolarEdge Home Hub
family of inverters. When connected with our SolarEdge Home Backup Interface (BUI), the SolarEdge Home Battery provides homeowners the
ability to power their homes even when the grid is off for anywhere from several hours to many days, depending on use of loads and available
sunlight during the outage. The battery also works in tandem with the SolarEdge ONE energy optimization system to optimize the use of
solar energy in places with different types of import and export tariffs scenarios (such as time of use, or TOU and dynamic rates).
With
the SolarEdge backup solution, power is stored in a battery and can be used during a power outage to power essential devices such as refrigerators,
communication devices, lighting, and AC outlets for anywhere from several hours to many days, depending on use of loads and available
sunlight during the outage.
EV
Chargers. SolarEdge sells EV chargers for residential applications which allow the homeowner to redirect excess PV energy to power
their electric vehicles. This enables consumer to increase their self-consumption of clean energy. The SolarEdge ONE smart energy optimization
system can be programmed to automatically charge the vehicle using the most advantageous and economical times and rates.
Smart
Energy Products. As the solar energy industry has evolved, SolarEdge has developed innovative solutions to further enhance smart
energy technology, including inverters that include compatibility with batteries for increased self-consumption for backup, backup interfaces
devices, smart meters, smart energy management devices (sockets, hot water controllers, wireless relay) and smart PV modules. This product
expansion has enabled us to increase average the revenue per installation, or ARPI.
Smart
Trackers. Our SolarGik smart PV tracker is optimized for installations on constrained and sloped terrains, eliminating the need
for costly grading and construction. Our trackers come with advanced software that is designed to optimize production, predict weather
changes, maximize bifacial gains and respond to remote commands. The tracker solutions are light weight, which allows them to be installed
not only in regular ground mount projects, but also on rooftops, greenhouses, carports and agricultural fields.
Smart
Energy Management. We have developed smart energy management software and capabilities that are offered with our hardware solutions
and enable system owners to store solar energy at cost-effective times, and also control the timing of their PV energy consumption in
order to increase their energy independence, take advantage of lower time-of-use rates, reduce electricity bills, and improve overall
system ROI.
In 2023,
we launched the SolarEdge Home smart energy ecosystem which enables homeowners to control and optimize their energy production, consumption
and storage with mySolarEdge app. SolarEdge Home manages the home’s production and usage 24 hours a day, 7 days a week through the
SolarEdge ONE energy optimization system which analyzes a variety of external and internal data to minimize electricity costs and maximize
savings. In addition to SolarEdge Power Optimizers, inverters and batteries, SolarEdge Home has capabilities enabling integration with
SolarEdge Home batteries, EV chargers, load controls and third party devices, to monitor and optimize the home energy production and usage.
The features are thus far available in the United States, in Germany and are being released elsewhere around the world over time.
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In
addition, in April 2023, we completed the acquisition of all outstanding shares of Hark Systems Ltd. ("Hark"), a UK-based energy IoT company
for the commercial and industrial ("C&I") sector. Hark's platform is designed to enable commercial and industrial customers expanded
capabilities in energy management and connectivity, including identification of potential energy savings, detection of anomalies in assets’
energy consumption, and optimization of energy usage and carbon emissions through load orchestration and storage control.
SolarEdge
Software Solutions. We offer a variety of professional software tools to support the complete PV planning, installation, monitoring
and maintenance processes of our DC optimized inverter solutions:
Monitoring
Platform . The SolarEdge monitoring platform is a cloud-based monitoring platform which collects power, voltage, current and system
data sent from SolarEdge inverters and Power Optimizers and allows users to view the data for their SolarEdge site/s at the module level,
string level, inverter level and system level from most browsers and from most smart phones and tablets. The monitoring software continuously
analyzes data and flags potential problems. The monitoring software includes features which are used on a routine basis by integrators,
installers, maintenance staff, and system owners to improve a solar PV system’s performance.
MySolarEdge
app . The mySolarEdge application enables system owners to track their real-time system production and household energy consumption,
view their inverter and battery status for quick troubleshooting, and control the battery's back-up capabilities, all from their mobile
phones.
Designer
platform . Our designer platform is a proprietary web-based tool that helps solar professionals plan, build and validate residential
and commercial systems from inception to installation.
Mapper
application . The mapper application provides SolarEdge installers with an efficient, streamlined process for registering the physical
layout of new PV sites installed with SolarEdge DC optimized inverter systems in the SolarEdge Monitoring Platform. Installers can use
the Mapper application to scan SolarEdge Power Optimizer and SolarEdge inverter barcodes, creating a virtual map of the PV site in the
monitoring platform which can later help facilitate remote diagnostics thereby enabling enhanced customer support and reducing maintenance
costs for installers and SolarEdge system owners.
SetApp
application. The SetApp application is used to activate and configure SolarEdge inverters
during commissioning directly through a smartphone, in order to simplify and expedite installations.
Grid
Services. As PV and storage continue to proliferate around the world, energy production is transitioning from a centralized system
to a distributed network model, where energy is produced close to the location in which it is consumed and stored. This model creates
an opportunity for new interconnected and decentralized energy networks offering improved grid reliability and stability, new energy service
and reduction of grid infrastructure costs. SolarEdge grid services deliver near real-time aggregative control and data reporting, enabling
the pooling of distributed energy resources - photovoltaic systems, battery storage and electric vehicle chargers — in the cloud
for the creation of virtual power plants (VPP). The SolarEdge grid services and VPP solution provide management platforms to enable near
real-time, aggregated control of available energy resources to meet ever-changing supply needs and demand. Our distributed energy resources
management system or DERMS application and application program interfaces (APIs) are used by utilities for countering peak demand events
and participating in various electricity markets. In 2023, SolarEdge continued to sell grid services in the U.S., Europe and Australia,
including services provided to independent system operators, energy retailers, national installers and others.
Products
from Non-Solar businesses. The SolarEdge Energy Storage segment provides energy storage solutions which include battery cells,
modules, racks and containerized battery systems (BESS). The proprietary technology of our cells and batteries is manufactured and assembled
in our own facilities in South Korea, which have production capacity of 2GWh.
Our
lithium-ion technology packs high energy density into small footprints and supports high c-rate power throughputs, without compromising
the calendar and cycle life of the battery.
SolarEdge’s
ESS solutions are used in different fields, such as stationary energy storage (EV charging, utility, commercial or industrial), energy
storage in transportation (trains, trams and marine-based transportation), different engineering, procurement and construction projects
in the grid and C&I energy space, and more.
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Product
Roadmap
Our
products in the solar segment reflect the innovation focus and capabilities of our technology departments as well as the importance we
place on creating value for our customers. Our core solar product roadmap is divided into five categories: Power Optimizers, inverters,
software which supports our DC optimized inverter systems, batteries for PV applications, and smart energy management.
Power
Optimizers. We currently sell our third and fourth generations of Power Optimizers (P-Series and S-Series, respectively) which
were designed for fully automated assembly and are based on our third and fourth generation ASICs, respectively. We have launched H1300,
a Gen 4 based power optimizer, as a part of the SolarEdge 330kW inverter solution. This is our first optimizer equipped with high frequency
DC power line communications technology which allows communication with larger numbers of optimizers for ground mount applications as
well as improved remote software upgrade capabilities, allowing larger installations to support Ground Mount applications, as well as
improved remote upgrade. We are in the process of launching our fifth generation S1400 Series Power Optimizers. A key element of our reliability
strategy, and a significant differentiator relative to our competitors, is our use of proprietary ASICs to control, among other things,
our Power Optimizer’s power conversion, safety features, and PV module monitoring. Instead of using large numbers of discrete components,
our Power Optimizer uses a single proprietary ASIC, thus reducing the total number of components in an electrical circuit and thereby
improving reliability.
Each
new ASIC generation reduces the number of components required for any given functionality, adds more functions to the Power Optimizer,
and meaningfully improves the efficiency of the Power Optimizer. The efficiency improvement reduces the energy losses which in turn reduces
the amount of heat dissipation. This enables design of a more cost-effective and usually smaller enclosure and also keeps the electronics
cooler, thereby improving the Power Optimizer’s reliability. Our research and development teams continuously work on further improving
our ASICs and releasing new generations of this improved technology.
Inverters .
Our inverter roadmap includes both new products as well as additional capabilities for existing inverters. Our inverter roadmap is intended
to serve four purposes: (i) expand addressable markets by developing new and larger inverters designed specifically for larger commercial
installations and utility-scale projects; (ii) improve the electronics to increase the total power throughput while minimally changing
the existing enclosure, thereby reducing the actual cost per watt and increasing economies of scale; (iii) improve ease of installation
by integrating additional functionality required in certain installations in order to reduce costs of additional hardware and subcontractors’
labor costs; and (iv) improve the residential inverter's functionality to serve as a hub for home energy management, integrating, controlling
and optimizing the main home energy sources and loads.
Software.
We continue to expand our software offering with the introduction of new tools and features. This includes both professional web-based
software and system owner applications such as fleet management, the site designer tool, the mySolarEdge consumer applications, all of
which are offered to our install base as complimentary to the sales of our hardware solutions.
Our cloud-based Monitoring
Platform is continuously growing by the amount of data aggregated. We are continuously developing tools to accommodate our growth and
further enhance our service offering. We plan to continue developing algorithms that detect and pinpoint problems that can affect power
production in field systems. We further plan to add more capabilities through our public API to allow users to build and integrate our
system into their own systems and build and share useful applications based on monitoring data gathered by our software.
Batteries
for PV applications. Our residential storage solution, launched in 2021, is designed
to integrate with our single-phase and three-phase inverters to provide optimal energy management, maximum efficiency, longer backup times
and ease of use for the homeowners. We expect to continue to expand our storage solutions to cover more applications, improve battery
management, efficiency and integration with energy management systems.
Smart
Energy Management. We are developing new features and capabilities for the smart energy
management solutions, which are constantly evolving, such as our SolarEdge Home Local Controller, which will enable the homeowner to run
and manage their most energy-intensive devices on excess solar energy. We are also introducing smart energy management and fleet management
to the commercial segment. We also plan on expanding the availability of our smart energy products, including smart energy management
devices, to new geographies and use cases.
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New
Products or Product Categories. We continuously evaluate opportunities to expand our product offerings and services to our customers.
We may from time to time develop new products or services that are a natural extension of our existing business, or may engage in acquisitions
of businesses or product lines with the potential to strengthen our market position, enable us to enter attractive markets, expand our
technological capabilities, or provide synergistic opportunities.
Sales
and Marketing Strategy
Our
solar business strategy is to focus on penetrating new geographic regions and increasing our market share. More specifically, we focus
on markets where electricity prices, irradiance and government policies make solar PV installations economically viable. Our solar products
have been installed in over 140 countries.
We target
our sales and marketing efforts to the largest distributors, electrical equipment wholesalers, EPC contractors and installers in each
of the countries where we operate. Our products are carried and actively sold by most of the top solar PV distributors as well as the
largest electrical distribution companies. As of December 31, 2023, based on the number of installer accounts on our monitoring portal,
over 65,000 installers around the world have installed SolarEdge solar PV systems.
Additionally,
as further detailed below, we have a number of programs focused on educating installers and other industry professionals about our technology,
and we use a combination of road shows, webinars, and partner trainings to educate them how best to design, sell, and implement our technology
in their projects.
Our
Customers
We derive
a significant portion of our revenues from key solar distributors, electrical equipment wholesalers and large installers in the U.S. and
worldwide. In 2023, two of our customers, Memodo GmbH and Krannich Solar GmbH & Co. KG, represented 24.0% of our revenues. None of
our other customers accounted for more than ten percent of our revenues in the year ended December 31, 2023.
Training
and Customer Support
We offer
our installer base a comprehensive package of customer support and training services which include pre-sales support, ongoing trainings,
and technical support before, during, and after installation. We also provide customized support programs to large installers and distributors
to help prioritize and track support issues, thereby enabling short cycle times for issue resolution.
In 2023,
we revamped our first level certification, SolarEdge Fundamentals Training, a comprehensive training course for installers, with up-to-date
installation methodologies and practices. During 2023, our training portal (Edge Academy) hosted over 222,000 learners.
Additionally,
in 2023, we enhanced our installer’s performance enablement by adding over 50 product-specific courses, as well as increasing accessibility
by creating a professional installation toolkit. During 2023, over 19,000 installers completed our certification programs.
In addition
to the above, we support our commercial system customers with design consulting throughout their sales process and installation.
Our
technical support organization includes local expert teams, tech centers, an online service portal and live chat service. Our toll-free
call and live chat centers are open Monday through Friday at least from 9:00 a.m. to 6:00 p.m. in every region in which we sell our products.
In addition, customers can open and track support cases 24/7 utilizing our online portal. All support cases are monitored via a customer
relationship management system in order to provide service, track closure of all customer issues and further improve our customer service.
Our call centers have access to our cloud-based monitoring platform database, which enables real-time remote diagnostics.
Customer
service and satisfaction continues to be a key component of our business offering and we consider it integral to our continued success.
We maintain high levels of customer engagement through our call centers in California, Australia, Japan, Israel, India, Bulgaria, Brazil,
Taiwan, Thailand, South Africa, Philippines and Poland. In addition to our call centers, we have field service engineers located in the
geographies where we are active, and support our customers with commissioning of large projects, introduction of new technologies and
features and on-the-job training of new installers. As of December 31, 2023, our customer support and training organization consisted
of 659 employees worldwide.
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Our
Technology
We have
drawn on our expertise in the fields of power electronics, magnetic design, mechanical and heat dissipation, control loops and algorithms,
power line communications and lithium-ion battery technology to design and develop what we believe to be the most advanced commercial
solutions for harvesting power from solar PV, storage and energy management solutions for residential and commercial applications. These
technologies are explained in more detail below.
As part
of our growth strategy, we have acquired companies that have technologies that can leverage our expertise in power electronics and power
optimization. By combining acquired resources with our current research and development teams, we are expanding our activities into other
areas such as energy IoT and energy storage systems.
Power
Optimizers
Our
Power Optimizers are DC/DC step up/step down (buck boost) converters designed and developed to operate in harsh outdoor environments at
very high conversion efficiency. Our Power Optimizers include proprietary power electronics and control loops customized to efficiently
convert power from the PV module to the inverter.
A key
factor in the performance of our Power Optimizer is determined by the digital control algorithms and closed-loop control mechanism. The
Power Optimizer’s control is built into our advanced ASIC which is responsible for all critical digital control functions of the
power optimizer, including detailed power analysis, digital real-time control of the power conversion subsystem, power line communications
and networking. Since each Power Optimizer handles the power and voltage of either a single or two modules, we are able to reach a high
degree of semiconductor integration by leveraging low-cost silicon in standard semiconductor packages. As a result, much of the Power
Optimizer functionality can be integrated into a standard ASIC instead of requiring discrete electronic components, resulting in lower
costs and higher reliability.
The
ASIC performs the critical power analysis and power conversion control functions of the Power Optimizer. The power analysis functions
process the state and working parameters at the Power Optimizer’s input and output and, together with advanced digital control and
state machine logic, control the power conversion function. In addition, our digital control system uses technology that allows the solar
PV installation to anticipate and adapt to changing operating conditions, and to protect itself against system anomalies.
Each
Power Optimizer in the array is connected to the inverter by a power line communications networking link. Our power line communications
link uses a proprietary networking technology that we developed, utilizing the existing DC wiring between the Power Optimizers and the
inverter to transmit and receive data between these devices using scalable technology supporting a wide range of installation sizes, from
small residential to large commercial installations.
Inverters
Most
of our inverters are designed for single-stage DC/AC conversion. Using our inverter in combination with the Power Optimizers allows the
inverter control loop to maintain a regulated DC voltage level at its input, thereby enabling the inclusion of long, uneven, and multi-faceted
strings of solar modules while also enabling custom, cost efficient, and reliable inverter design and component selection. All of the
power components, as well as the main magnetic components for our inverters, can then be optimized for DC/AC inversion at high efficiency.
Our
inverters’ digital control algorithms are implemented using programmable digital signal processors which allow for flexibility and
adaptation of control loops for various grids and for the requirements and standards of different grid operators across geographies. We
have already implemented the control mechanisms necessary to support advanced grid codes and standards that are required to support high
penetration of solar energy into utility grids. We continue to develop and manufacture our own DSP (ASIC) in our inverters which enables
us to improve the performance of our control loops, increase our cost savings and be less dependent on third party suppliers in our manufacturing
process. The DSP (ASIC) performs the critical power analysis and power conversion control functions of the inverter. The power analysis
functions process the state and working parameters at the power inverter’s input and output, and together with advanced digital
control and state machine logic controls the power conversion function. In addition, our digital control system uses technology that allows
the inverter to anticipate and adapt to changing operating conditions, and to protect itself against system anomalies as well as comply
with applicable regulations in the different regions in which we operate.
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Our
DSP (ASIC) is also in charge of the power line communications ("PLC") networking link towards the optimizers. Our PLC uses a proprietary
networking technology that we developed, utilizing the existing DC wiring between the Power Optimizers and the inverter to transmit and
receive data between these devices.
We have
developed and continue to develop in-house design and manufacturing capabilities for several major passive components, such as magnetic
components, in order to decrease dependence on suppliers, improve component performance, reduce costs and have better control over our
production processes.
Batteries
for PV applications
In 2021,
we released our first lithium-ion residential batteries for sale in the U.S. and Europe through our solar distribution channels. Our batteries
are composed of lithium cells, a battery management system, or BMS, bi-directional DC/DC high efficiency converter that allows charge
and discharge of the battery, as well as user interface. Our DC/DC converter uses digital control algorithms, which are implemented using
a programmable digital signal processor. Our power products, inverter, Power Optimizers and battery are connected to the same DC bus,
allowing the battery to be directly charged by the DC current generated by the Power Optimizers and bypassing the AC conversion, thereby
reducing the rounding efficiency of PV generated power towards the AC loads.
Our
DC-coupled battery is designed to connect with our inverters, allowing up to three batteries per inverter. Our batteries can be connected
to our cloud‑based monitoring platform, reporting information on the battery status, solar production, and self-consumption data.
Manufacturing
We have
designed our manufacturing processes to produce high quality products at competitive costs. The strategy is threefold: outsource, automate,
and localize. We currently contract to have our solar products manufactured by two of the world’s leading global electronics manufacturing
service providers, Jabil Circuit, Inc. (“Jabil”) and Flex Ltd. (“Flex”). By using contract manufacturers, we are
able to access advanced manufacturing equipment, processes, skills and capacity on a relatively “asset light” budget while
remaining flexible in our manufacturing operations and are able to enjoy the CM’s global reach and access to different manufacturing
regions. Our contract manufacturers are responsible for funding some of the the capital expenses incurred in connection with the manufacture
of our products, except with regard to some of the automated optimizer assembly lines, our proprietary end-of-line testing equipment and
other specific manufacturing equipment utilized in assembling our products or sub-components which are financed and owned by the Company.
We expect to continue this funding arrangement in the future, with respect to any expansions to such existing lines save for circumstances
where the direct purchase by us of non-specific manufacturing equipment will result in a substantial reduction in costs in which case
we will consider financing such non-specific manufacturing equipment ourselves. Further, contracting with global providers, such as Jabil
and Flex, gives us added flexibility to enjoy such manufacturers' global reach and access to different regions such as China and Vietnam,
where we are able to manufacture closer to target markets in Asia, as well as Hungary, closer to target markets in Europe, in each case,
potentially increasing responsiveness to customers while reducing costs and delivery times. In light of recent Inflation Reduction Act
legislation in the United States which incentivizes the local manufacturing of renewable energy products by providing benefits to installers
for the purchase and installation of US-manufactured products, as well as by incentivizing manufacturers of such products domestically,
we have begun manufacturing inverters in Texas and are currently establishing additional manufacturing capabilities in Florida for optimizers
and inverters. With the ramp-up of these new sites and due to a decrease in demand for our products, we have reduced capacity in our manufacturing
site in China and discontinued manufacturing of our products in Mexico.
In the
third quarter of 2020, we began commercial shipments from our own manufacturing facility in the North of Israel, “Sella 1". The
proximity of Sella 1 to our R&D team and labs enables us to accelerate new product development cycles as well as define equipment
and manufacturing processes of newly developed products which can then be adopted by our contract manufacturers worldwide.
During
2023, we expanded the manufacturing portfolio available for manufacturing in Sella 1.
In May
2022, we opened our own manufacturing facility, “Sella 2”, a 2GWh Li-Ion cell factory in Korea. “Sella 2” began
producing and shipping cells at the end of 2022 and is expected to gradually increase manufacturing capacity during 2024, slightly behind
the original plan. We also have an additional smaller lithium-ion cells and batteries facility in South Korea that has the capacity to
manufacture up to 150 MWh per annum.
We have
developed propriety automated assembly lines for the manufacturing of our power optimizers. These assembly lines, currently operating
in all of our manufacturing facilities, enable the manufacturing of more than 6,000 optimizers per manufacturing line per day. We invest
resources in additional automated assembly lines as well as in automated machinery for subassembly and self-manufacturing of certain components
used in our products, and we own and are responsible for funding all of the capital expenses related thereto. The current and expected
capital expenses associated with these automated assembly lines and other machinery is funded out of our cash flows.
8
We source
our raw materials through various component manufacturers and invest resources in continued cost-reduction efforts as well as verifying
second and third sources so as to limit dependence on sole suppliers.
In light
of the Company’s decision to discontinue its LCV e-Mobility activity, we began ramping down manufacturing of e-Mobility components
in our facility in Umbertide, Italy, towards the end of 2023. We are still using this facility for Automation Machines, refurbishment
of batteries and support of the e-Mobility project.
Reliability
and Quality Control
Our
Power Optimizers are connected to each PV module by installers, and are designed to be as reliable as the PV module itself and capable
of withstanding the same operating and environmental conditions.
Our
reliability methodology includes a multi-level plan with design analysis, sub-system testing of critical components by Accelerated Life
Testing, and integrative testing of design prototypes by Highly Accelerated Life Testing and large sample groups. As part of our reliability
efforts, we subject components to industry standard conditions and tests including in accelerated life chambers that simulate burn-in,
thermal cycling, damp-heat, and other stresses. We also conduct out of box audits (OBA) on our finished products. In addition, online
reliability tests (ORT) are conducted on our optimizers and we test complete products in stress tests and in the field. Our rigorous testing
processes have helped us to develop highly reliable products.
In order
to verify the quality of each of our products when it leaves the manufacturing plant, each component, sub-assembly, and final product
are tested multiple times during production. These tests include Automatic Optical Inspection, In-Circuit Testing, Board-Functional Testing,
Safety Testing, and Integrative Stress Testing. We employ a serial number-driven manufacturing process auditing and traceability system
that allows us to control production line activities, verify correct manufacturing processes and to achieve item-specific traceability.
As a
part of our quality and reliability approach, failed products from the field are returned and subjected to root cause analysis, the results
of which are used to improve our product and manufacturing processes and design and further reduce our field failure rate.
Certifications
Our
products and systems comply with the applicable regulatory requirements of the jurisdictions in which they are sold as well as all other
major markets around the world. These include safety regulations, electromagnetic compatibility standards and grid compliance.
Research
and Development
We devote
substantial resources to research and development with the objective of developing new products and systems, adding new features and reducing
unit costs of our products and systems. Our development strategy is to identify software and hardware features, products, and systems
that reduce the cost and improve the effectiveness of our solutions for our customers. We measure the effectiveness of our research and
development by metrics including product unit cost, efficiency, reliability, power output, and ease of use.
We have
a strong research and development team with wide ranging experience in power electronics, semiconductors, power line communications and
networking, chemical, mechanical and software engineering. In addition, many members of our research and development team have expertise
in solar technologies. As of December 31, 2023 our research and development organization had a headcount of 1,525 employees.
9
Intellectual
Property
The
success of our business depends, in part, on our ability to maintain and protect our proprietary technologies, information, processes,
and know-how. We rely primarily on patent, trademark, copyright and trade secrets laws in the U.S. and similar laws in other countries,
confidentiality agreements and procedures and other contractual arrangements to protect our technology. As of December 31, 2023, SolarEdge
had 602 issued patents worldwide and 528 patent applications pending for examination. A majority of our patents relate to DC power optimization
and DC to AC conversion for alternative energy power systems, power system monitoring and control, battery technology and management systems.
Our issued patents are scheduled to expire between 2024 and 2042.
We continually
assess opportunities to seek patent protection for those aspects of our technology, designs, and methodologies and processes that we believe
provide significant competitive advantages.
We rely
on trade secret protection and confidentiality agreements to safeguard our interests with respect to proprietary know-how that is not
patentable and processes for which patents are difficult to enforce. We believe that many elements of our manufacturing processes involve
proprietary know-how, technology, or data that are not covered by patents or patent applications, including technical processes, test
equipment designs, algorithms, and procedures.
All
of our research and development personnel are required to enter into confidentiality and proprietary information agreements with us. These
agreements address intellectual property protection issues and require our employees to assign to us all of the inventions, designs, and
technologies they develop during the course of employment with us.
Our
customers and business partners are required to enter into confidentiality agreements before we disclose any sensitive aspects of our
technology or business plans.
Competition
The
markets for our solar products are competitive, and we compete with manufacturers of traditional inverters, as well as manufacturers of
other MLPE systems. The principal areas in which we compete with other companies include:
•
product and system performance and features;
•
total cost of ownership (TCO);
•
reliability and duration of product warranty;
•
customer service and support;
•
breadth of product line;
•
local sales and distribution capabilities;
•
compliance with applicable certifications and
grid codes;
•
size and financial stability of operations; and
•
size of installed base.
Recent
market trends show an increased focus on safety features in rooftop installations, and the emergence of standards that are evolving to
address such concerns. In particular, the arc fault detection and interruption (AFDI) and rapid shutdown (RSD) standards in the US market,
have led to the introduction of module-level rapid-shutdown devices from our competitors. We believe the existence of rapid shutdown capabilities
built into our Power Optimizers positions us well in this regard, and serves as a competitive advantage. Additionally, we have seen PV
module manufacturers introduce larger PV modules with higher power levels reaching over 600W. This market trend, which comes as a result
of PV cell manufacturers introducing larger cell sizes such as M10 and M12 as well as different module build configurations, leads to
market interest in higher power rating Power Optimizers, micro inverters, and other MLPE devices. The increasing demand for storage and
battery solutions is an additional noteworthy market trend which is expected to increase the attachment rate of storage to PV installations
in the coming years.
10
Our
DC optimized inverter system competes principally with products from traditional inverter manufacturers, such as SMA Solar Technology
AG, Sungrow Power Supply Co., Ltd. and Huawei Technologies Co. Ltd. as well as from other Chinese inverter manufacturers. In the North
American residential market, we compete with traditional inverter manufacturers such as Tesla Motors Inc., as well as microinverter manufacturers
such as Enphase Energy, Inc. In addition, there are several new entrants to the MLPE market, including low-cost Asian manufacturers. We
believe that our DC optimized inverter system offers significant technology and cost advantages that reflect a competitive differentiation
over traditional inverter systems and microinverter technologies.
The
markets for our Energy Storage division products are competitive as well. The competition ranges from other cell manufacturers, both of
Nickel Manganese Cobalt (NMC) and of Lithium Iron Phosphate (LFP), which are also vertically integrated and provide a partial or complete
storage system as well as from integrators that are acquiring cells from different vendors and assemble their own storage system. Our
competitors include global manufacturers such as LG Energy Solutions, Samsung SDI, CATL, BYD etc.
Our
residential lithium-ion batteries for PV applications compete with global manufacturers of both lithium-ion and other residential battery
storage solutions such as Tesla, LG Energy solutions, BYD and Enphase Energy.
Government
Incentives
U.S.
federal, state, and local government bodies as well as non-U.S. government bodies, provide incentives to owners, end users, distributors,
and manufacturers of solar PV systems to promote solar electricity in the form of rebates, tax credits, lower VAT rate and other financial
incentives such as system performance payments, payments for renewable energy credits associated with renewable energy generation, and
exclusion of solar PV systems from property tax assessments. The market for on grid applications, where solar power is used to supplement
a customer’s electricity purchased from the utility network or sold to a utility under tariff, often depends in large part on the
availability and size of these government subsidies and economic incentives, which vary from time to time by geographic market.
In August
2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the “IRA”), which contains several provisions intended
to accelerate U.S. manufacturing and adoption of clean energy such as solar, wind, hydrogen and electric vehicles and therefore is expected
to impact our business and operations. Some of the applicable provisions in IRA that are expected to positively impact the market for
renewable energy include the extension of the investment tax credit (“ITC”) and the Production Tax Credit (“PTC") through
2034. The IRA also further incentivizes residential and commercial solar customers and developers through the inclusion of a tax credit
for qualifying energy projects of up to 30%. These provisions of the law are new and regulations and guidance concerning their implementation
are gradually being published by the U.S. Treasury Department. We continue to monitor the benefits that may be available to us. Section
45X of the IRA offers advanced manufacturing production tax credits, that incentivize the production of eligible components within the
United States. To that end, we have established manufacturing capabilities in the United States in 2023 and announced additional capacity
expected during 2024.
To the
extent that tax benefits or credits may be available to competing technology and not to our technology, our business could be adversely
disadvantaged.
Trade
Regulation and Import Tariffs
Our
business activities are subject to numerous laws and regulations in the jurisdictions in which we operate. Particularly, our exports and
imports are subject to complex trade and customs laws, tax requirements and tariffs set by governments through mutual agreements or unilateral
actions. Countries duties, tariffs or other restrictions on our imports or adversely modify existing restrictions. Changes in tax policies
or trade regulations, the disallowance of tax deductions on imported merchandise, or the imposition of new tariffs on imported products,
could have an adverse effect on our business and results of operations.
Escalating
trade tensions between the United States and China have led to increased tariffs and trade restrictions, including tariffs applicable
to some of our products. As of June 2019, the U.S. trade representative (“USTR”) imposed import tariffs of 25% on a long list
of products imported from China, including inverters and power optimizers. On January 15, 2020, the United States and China entered into
an initial trade deal, which preserves the initial tariffs from 2018 and indicates additional sanctions may be imposed if China breaches
the terms of the deal.
11
In order
to mitigate the negative effect of increased tariffs, we increased our manufacturing capabilities at our Vietnam manufacturing facility.
We reached full manufacturing capacity in our manufacturing facility in Israel, Sella 1 . In addition, as mentioned above, we established
manufacturing capabilities in the United States. For the year ended December 31, 2023, the majority of our products being imported to
the U.S. were manufactured in Mexico, Vietnam, Israel and Hungary and were therefore not subject to the aforementioned tariffs.
Seasonality
The
solar energy market is subject to seasonal and quarterly fluctuations affected by weather. For example, during the winter months in Europe
and the northeastern U.S. where the climate is particularly cold and snowy, it is typical to see a decline in PV installations and this
decline can impact the timing of orders for our products.
Sustainable,
Responsible and Transparent Business Practices
During
2023, we continued making progress in our Environmental, Social and Governance ("ESG") performance and disclosure. Our ESG practices are
guided by our social purpose: “To power the future of energy so we can all enjoy better living and a cleaner, greener future”
and our social mission: “Shaping the future of sustainable energy production, energy storage and e-mobility through innovation”.
We have crafted a comprehensive sustainability strategy with 2025 targets in several areas. Our fifth annual Sustainability Report, published
in 2023, was prepared in alignment with leading global sustainability disclosure standards, GRI (Global Reporting Initiative) and SASB
(Sustainability Accounting Standards Board). Our sustainability strategy includes the following pillars:
•
Powering Clean
Energy : Accelerating the uptake of clean energy, delivering new smart energy, innovative solutions and improving the lifecycle
impacts of our products. As a business founded upon the acceleration of clean energy, we strive to reduce our climate impact by minimizing
GHG (greenhouse gas) emissions and transitioning to renewable electricity usage in our facilities. We have completed a lifecycle analysis
for three of our key products, examining the carbon footprint of all product life stages and following the examination of the results
of such analysis were able to highlight possible reduction opportunities. We have taken significant efforts to reduce energy and resource
consumption in our sites, reducing related GHG emissions. We continue to act to recycle our e-waste. We also act to minimize landfill
for all waste types, and in 2022, a total of 88% of all waste at our owned and operated sites was either recycled or recovered to energy
(2023 figures are currently in examination and will be published in our upcoming sustainability report).
•
Powering People:
Maintaining leading responsible employment practices, upholding human rights and investing in communities. In 2023, we continued to expand
our workforce to support SolarEdge’s business growth, and maintained responsible employment practices, including an enhanced focus
on safety and on employee growth and development. We set quantitative targets and formulated multi-year programs to enhance gender equality
in accordance with equal opportunities laws within our workforce and to strengthen its inclusiveness, including by reaching over 150 women
in management roles. (see further details in "Human Capital" below). Also in 2023, we continued to enhance our community engagement program.
Our updated program focuses on the advancement of renewable energy for environmental community value, encouraging STEM education and youth
innovation and strengthening diverse populations. A prominent example is our long-term educational program, EDGEUcate, aimed to raise
awareness and educate children from a young age on sustainable practices and the role of solar energy on the global efforts of decarbonization.
•
Powering
Business: Maintaining and reinforcing ethical conduct throughout our value chain, advancing climate resilience, improving the efficiency
of our resource consumption and ethical sourcing of raw materials and components. Our supplier code of conduct ("SCoC"), includes provisions
regarding, among others, ethics, safety, environmental protection, human rights, and fair employment. As of December 31, 2023, over 280
key suppliers have signed their acknowledgment of the SCoC terms. To date, we also conducted on-site audits of four contract manufacturers
and three major raw material suppliers in connection with their compliance with the SCoC requirements, and are aiming to further expand
these efforts in 2024. In addition, our conflict-minerals practices involve engaging our suppliers to evaluate the traceability of their
upstream sources.
We believe
that our sustainability strategy aligns directly with 10 United Nations Sustainable Development Goals (SDGs), and our products and activities
are most critical to achievement of SDG #7, Affordable Clean Energy.
12
Human
Capital
We believe
our success depends on our ability to attract and retain outstanding employees at all levels of our business. As of December 31, 2023,
we had 5,633 employees (full time and part time). Of these employees, 1,525 were engaged in research and development, 689 in sales and
marketing, 2,857 in operations, production, Q&R, and support, and 562 in general and administrative capacities. Of our employees,
3,160 were based in Israel, 746 were based in Europe, 725 were based in Korea, 326 were based in the U.S and 676 were based in the remaining
countries in which we operate including China, Vietnam, India, Mexico, Australia and others.
Except
for our SolarEdge Automation Machines employees and the employees of SolarEdge e-Mobility, none of our employees are represented by a
labor union. We have not experienced any employment-related work stoppages, and we consider relations with our employees to be good.
Recruitment:
As a rapidly growing business, we rely on the success of our recruitment efforts to attract and retain technically skilled people who
can support our ongoing innovation and expansion. We aim to be inclusive in our hiring practices, focusing on the best talent for the
role, welcoming all genders, nationalities, ethnicities, abilities and other dimensions of diversity.
Employee
benefits: We aim to provide our employees with competitive salary and benefits that enable them to achieve a good quality of life
and plan for the future. Our benefits differ according to local norms and market preferences, but typically include all salary and social
benefits required by local law (including retirement saving programs, paid vacation and sick leave) and many additional benefits that
go beyond legal requirements in local markets.
Leadership,
Training and Development: We aim to provide our employees with advanced professional and development skills, so that they can perform
effectively in their roles and build their capabilities and career prospects for the future. We maintain a leadership program for managers
and team leaders and deliver advanced professional training for sales, research and development and other functional teams as part of
our extensive training program each year. Furthermore, we partner with local educational resources to offer formal learning programs on
a variety of subjects for the personal development and advancement of our workforce.
Diversity,
Equity and Inclusion: We are striving to increase opportunities for women in executive and management positions as part of our
mission to promote gender parity and equal pay in accordance with equal opportunity laws.
We are
taking active steps to increase the diversity of our workforce and promote inclusiveness among our employee base. We have been providing
training and promoting education to create awareness and encourage inclusive practices across our global workplaces. For example, we have
conducted foundational diversity and inclusion training for both managers and employees, training on the inclusion of people with disabilities
in the workplace, as well as hosting workshops, lectures, and webinars on various topics such as valuing diversity and fostering respectful
and positive interactions. Additionally, as part of our commitment to enhance gender equality within our workforce, we maintained partnerships
with NGOs to enhance our pool of female candidates for tech roles and to encourage more women to take up tech-related careers. We conducted
an annual analysis of our gender pay gap to identify and work on closing any gaps, and we launched a global internal Women's Day campaign
called "Towards Gender Equality." The campaign included lectures by women in executive roles from SolarEdge and other global businesses
to empower and inspire women. We also helped foster mentoring relationships among our female employees and managers across various professional
fields and geographical regions within SolarEdge. Over 50 women from sites around the globe have successfully completed these programs
in 2023.
Workplace
safety and health: We believe that all accidents and injuries at work are preventable and we strive to achieve a zero-injury culture
across our offices and operations. Our safety practices are designed to comply with applicable occupational health and safety regulations
and are certified to Occupational Health and Safety Quality Management Standard ISO 45001:2018. Our safety practices include: nominated
safety officers at each of our manufacturing or R&D sites, mandatory annual safety training for all employees, mandatory job-specific
training for all employees in relevant roles (e.g., for those working in high-voltage labs), comprehensive safety, fire, and emergency
drill programs so that our employees are well-versed with emergency procedures and root-cause assessments of incidents and corrective
actions.
Corporate
Information
We were
incorporated in Delaware in 2006. Our principal executive offices are located at 1 HaMada Street, Herziliya Pituach 4673335, Israel and
our telephone number at this address is 972 (9) 957-6620. Our website is www.solaredge.com .
13
We file
annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (the “SEC”),
pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”). Our reports, proxy statements and other documents filed
electronically with the SEC are available at the website maintained by the SEC at www.sec.gov .
We use
the Investor Relations portion of our website at www.solaredge.com , as a routine channel of distribution
of important information such as press releases, analyst presentations, corporate governance practices and corporate responsibility information,
financial information including our annual, quarterly, and current reports, our proxy statements, and, if applicable, amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically
file such reports with, or furnish them to, the SEC. All such postings and filings are available on our Investor Relations website free
of charge.
Information
contained on our website is not incorporated by reference into this Annual Report, and you should not
consider information
contained on our website as part of this Annual Report.