Welcome to the 2021 Enphase Investor Day. I'm Karen Sagot, Head of Investor Relations here at Enphase, and we are thrilled to be here in person with all of you that were able to make the trip to San Francisco, and appreciate all of those on webcast taking the time to be with us too. Before we get started, please, if you don't mind silencing your phones and laptops, we would really appreciate it. The other thing I need to tell you is the presentation that you're going to see here will be posted to our website at the conclusion of today's formal presentation. I must mention that statements made in today's presentation may contain forward-looking statements, and we assume no obligation to update them
Our actual results may differ materially from what we are presenting, so please take the time to read the disclaimer and refer to the risk factors included in our most recent 10-K and 10-Q filings with the SEC. I now have the distinct pleasure of introducing Badri Kothandaraman, President and Chief Executive Officer of Enphase. First, I hope you enjoy this short video as much as I do. Thank you.
It hasn't missed a day in 5 billion years. It shows up every morning right on time. In one hour it creates enough energy to power the lives of every human on Earth for a year. That's what you get when you're the sun's favorite planet. Not just enough energy, but more than enough. Clean, renewable energy that never runs out. Solar power is no longer an experiment. It's reliable and ready and more practical than ever. It's a new day for solar power, a day Enphase has been working toward from the start, pioneering solar and battery systems that let people make, use, save, and sell their power. Putting solar power within reach for more people than ever before, and there's plenty more where that came from. For example, in the last 60 seconds, the sun created enough energy to power the state of Texas for 10 years.
We can work with that.
All right. Can you all hear me?
Yep.
Let's get started. We have a busy agenda today. I'll talk about the overview of the company and strategy. We have one of our great installers, Cutler Bay, the CEO of Cutler Bay, Raul, is there. He's gonna come and say a few words. Raghu is going to talk about products and product innovation. After Raghu, Suleiman, the CEO of Swell, is gonna come and say a few words. Lisan Hung, our General Counsel, is gonna talk about ESG briefly. We will have our very own CFO, Eric Branderiz, come, you know, on stage and do the financial update. We'll then take questions. If things go right on schedule, we should be done with Q&A by about 12:30 P.M., and then we will break for lunch from 12:30 P.M. to 1:30 P.M.
The lunch is in the top floor. During the lunch, we have demos of a portable energy system we'd like you to see, so that'll keep you busy. From 1:30 to 3, we have various demos, you know, ranging from our digital platform, network operation center, diagrammatic home, and various product showcases that you see. Those will be manned, and you'll get to know further about our products. Let's get started. We're gonna be talking about our transformation from solar, you know, solar company to an energy technology company, and we're gonna be talking about great technology, you know, some of the products that we are working on and a big market. 2021 so far, let me do a quick recap. You know, 2021 has been pretty decent.
We're growing quite well, you know, approximately more than 75% compared to 2020. We expect to do $1.37 billion, you know, at the midpoint of guidance for Q4. We're very happy that we have over 900+ installers in our Enphase Installer Network. Installers are our lifeblood. When we started, we had about, you know, 400-odd, and then both in the U.S., the installer network has grown, plus in the international region. We're really, really proud of that. We made two acquisitions earlier this year. One was a design and proposal software company called Sofdesk. The other is a permitting services company called DIN. Both of them are doing exceptionally well. Every quarter they are breaking new records.
For example, the permitting services business does almost 30% of the entire North American residential solar business. We are gonna make these services even greater, and I'll talk a little bit about them. We have shipped over 39+ million microinverters to date, meaning as of the end of Q3, September 30. We are in about, you know, 1.7 million homes. I'll also talk about the power of the data that we have from these 1.7 million homes and how we are gonna improve customer experience from that. We started shipping batteries from Q3 2020, and we've been sequentially increasing our battery shipments. This quarter, Q4, we'll do between 90 and 100 MWh total for the year, including that midpoint of guidance would be 245 MWh. Pretty decent performance.
We are learning a lot as we introduce batteries because right now we are in the path of power. Lots of things ranging from commissioning to homeowner experience, we are learning every day and we are determined to be the best. 40% gross margin. We'll be at 40% gross margin for the year. It's possible due to disciplined pricing and cost. The macro situation, as you know, is a little bit tough. We had our own supply, you know, problems earlier this year, but those supply problems are by and large done, and now we are only dealing with the macro logistics issues, which is true for everybody. Despite that, we've been able to do 40% gross margin, so we are proud of that.
In terms of challenges, I talked about supply chain and logistics. You know, I always want a new product faster. I'm never happy with new products. We are looking at every opportunity to learn from failures, every opportunity to learn from delays on our new products and make things better. Because new products are you know the core of our company is based on new products. And if we do not get them out in time, we you know we will suffer eventually in the long term. That's something that's always in my radar screen, and I'm never happy with that execution. We are gonna get better and better and better there. Core competencies. You have seen me talk about our core competencies. Three things. These are the competencies that the company was founded upon. When Raghu and Martin. Martin is here.
Martin, raise your hand. He's the founder. He is the joint founder of the company, along with Raghu. Raghu, raise your hand. When these guys started the company, 2006, they did it based upon core competencies. A semiconductor-based architecture, a software-defined IoT system, and distributed architecture. Thinking, you know, always distributed architecture, bottoms up, you know, with hierarchical control. That's Ensemble, which is relatively new, which I will discuss soon. Let's see what semiconductor in architecture means. I'm a semiconductor guy. I worked in the chip business from 1995 till 2016, 21 years. I know a lot about making chips. I designed chips and I ran business units, you know, chip businesses. What we do is state-of-the-art.
What we do is using digital, you know, high-speed digital switching in order to control the rest of the inverter. It's software-defined power. If we are able to do that, it's a massive differentiator for us. We just introduced IQ8, and IQ8Has got the chip in it called a Swift, which we designed a couple of years ago. That has got grid-forming capability. An IQ8 is a software-defined microgrid-forming microinverter. It can form a microgrid in the absence of the grid, in the presence of sunlight. That's what this chip helps us to do. It's a, you know, blazing fast speeds. It helps the IQ8 to respond 1,000 times faster than IQ7. Why is that important? Because there is a lot of changes in the grid conditions. It's dynamic.
You know, very often, if you're an installer, you know that the ratio of solar on the roof and storage needs to, you know, they are actually constrained right now. That ratio is constrained. In other words, if you have a lot of solar, you also need to have a lot of batteries. IQ8 removes all of those constraints. Because IQ8 is super fast in responding, you can have lots of solar on the roof with less batteries. It's a big deal. It gives customers a lot of flexibility. They can have any configuration they want. That's possible with the help of the, you know, semiconductor architecture that we have. Of course, you know, from a. You know, cost is extremely important for us. The only way we can achieve cost is by integration. Integration is possible with the semiconductor-based approach.
Not only we do the digital ASIC, that's the brain of the microinverter, we also do a couple of analog ASICs in IQ7, and we are planning to beef that up even more as we go to IQ9. These help us achieve massive integration, which means size, it's smaller, cost is lesser, the number of components is lesser. You'll hear Raghu talking about GaN, you know, gallium nitride. Gallium nitride is a wide bandgap semiconductor. Gallium nitride helps you to pack more watts in the same area. Watts per cubic inch is the right metric for gallium nitride. You know, we are gonna use gallium nitride in IQ9. Lots of innovation coming. Software. You know, software is we have three levels of controls in our devices.
One is, obviously, we want the devices to be or what we call as DERs, the distributed energy resources. We want them to make most of the decisions autonomously without communication, and that's how we design those devices. That's called primary control. We have an on-site controller to orchestrate those resources. That's called secondary control. We have cloud control. For example, you know, a customer says, "I want to have a storm alert setting," which is when the National Weather Service, you know, recognizes a storm, it sends a signal to our cloud, and then we put the batteries on to full backup mode. That's a cloud setting. That's called a tertiary control. We have three levels of control. Incredibly powerful architecture.
We let the resources make decisions most of the times without communication, but we do have optimal communication when necessary. For example, you know, this helps us to actually achieve seamless transfer between grid-forming and grid-following resources. Let's take an example of a generator. You have the grid, you have a generator, you have a battery. You know, take that example. The grid goes out. Now the battery is on. The battery enters grid-forming mode seamlessly, and there is no loss of power. There are no glitches. The battery is on. But we all know the battery is an energy device. It only has finite capacity. If you want your quality of life to be unaffected, if you want your air conditioner to be on for a very long time, the battery is gonna run out of juice. Some customers may want to turn the generator on.
Our system, you know, Ensemble control, is capable of that intelligence. It can now tell the generator, "Hey, you need to turn on now. You need to become the master, and the battery will follow you." The generator becomes the master, the battery follows the generator, and the customer can have whatever power he wants. That's the power of our architecture. The same thing works in reverse when the grid comes back on. When the grid comes back on, we care about customer experience, therefore, we hand off, you know, the system controller of the home tells that, "Okay, generator, you need to turn off.
Now make the battery the master again." Then once the battery is the master, it recognizes, "Okay, my grid is on right now." Therefore, now, since the grid is on, the grid becomes the master, the battery becomes grid following. That seamless handoff between grid forming, grid following any kind of resource, you know, that's what Ensemble can do. Extremely powerful. In that way, we can plug in, you know, for example, our generator functionality, we can plug in the entire install base of generators for customers. I talked about the Enphase cloud control. You know, bottom line, you have, with the primary control, secondary control, tertiary control, a full-fledged Internet of Things system. We can access all 39 million devices from the cloud. We can send any commands to those devices. That's the power of our architecture.
Like, you know, our quality gets better and better and better because we can roll out latest and greatest fixes to the fleet. It's extremely critical for us to have an always-on connectivity. Of course, you know about Ensemble. You know, Ensemble started as grid-forming technology, but it's a lot more than that. It's an entire architecture. Right? The picture on the right-hand side is a little bit complex, but let me try to dissect it. You have at the very bottom DERs at home. These are the distributed energy resources in the home. Everyone is getting conscious of climate change, so renewables are real. Renewables are going to happen. There is no question about it. The best way to actually, you know, produce power is to produce it at the place it is consumed, at the home.
That way distributed architectures are always going to win. You see here the DERs are at the very bottom. Now, those DERs can make the home self-sufficient. Those DERs can actually communicate to the home saying, "Okay, I need so much of power." The home, if the home does not have that power, what does it do? It goes to the layer above it. That's called hierarchical control. The home, for example, communicates to a layer above it. That's called virtual area, which is a cluster of homes. If the home cannot take care of itself, its DERs aren't sufficient to take care of itself, it will say...
It'll communicate real-time to that virtual area in yellow, and it'll say, "I need a little bit more power." That virtual area, you know, that's the controller, and that's going to basically take it from another home next to it or the layer above it. This is an orderly communication, entirely hierarchical, and the point is that each layer only communicates to a layer above it. That's our vision of how an Ensemble modern grid system will work. Right. Of course, here, you know, the fascinating thing about having DERs is that the power not only can it flow from top to bottom, at the top you have the transmission lines, then you have the distribution DSOs, and then the power flows from top to bottom. With DERs, now the power can flow from bottom to the top in some places.
For example, the home there, you know, the home could basically tell the virtual area, say, "I can supply power to this particular home," and you can have a transactive energy setup there. You know, Ensemble is based upon hierarchical control and it is an orderly mechanism, and the commands basically have to be entirely, you know, coming or relate to the layer just above it, because it will not make sense for something like, for example, let's say you have the DSO here. It may not make sense for the DSO to directly communicate to the battery. That would be pointless. The DSO needs to communicate to the layer below it, and then that will communicate to the layer below it, and that communicates to the home so that you can have efficient transfer, both communication as well as power.
I'd like to introduce Lorenzo Kristov now. Lorenzo, where are you? Okay. Lorenzo Kristov, he has a PhD in economics, a BS in mathematics. He worked at CAISO from 1999 to 2017. 18 years he worked at CAISO. He wrote this paper. This is Building the Twenty-first Century Electricity System. Many of his ideas are very similar to how Ensemble is architected. I'd like you guys to all, if possible, pick up a copy on your way out today and read it. It's a fascinating read. All right. Let's now get into the guts of the business. Operational excellence. We talked about core competencies. We covered semiconductors, we covered software, we covered Ensemble. Let's talk about the way we run the company and operational excellence. Quality.
One of the biggest reasons we are sort of successful today is quality. Managing quality, being, you know, having a maniacal focus about quality is why customers like us. That is ingrained into the company. It's one of our core values. A couple of years back, I mentioned our target DPPM is 500. What does that mean? That means a 0.05% failure rate. Right? 500 microinverters come back out of 1 million. 0.05%. An outstanding number. That's becoming a reality right now. You know, Jeff McNeil. Yeah, raise your hand, Jeff. He's our Chief Operating Officer. He runs quality. In the last 3 years, he has reduced our PPM to make such a number possible. It's an outstanding number. Now we are starting to focus on batteries.
You know, on batteries, we are learning very, very fast, but we have only been shipping batteries for a year. We have made all of the right decisions on batteries. Lithium iron phosphate was the perfect chemistry for us to choose. Everybody is now following, you know, suit there on lithium iron phosphate. We have introduced, you know, our 10-year warranty product, we have now increased it to 15-year warranty as we get more and more confidence. You'll all see the network operations center today. With the network operations center, the data that is coming out, we can do some great analytics, actually, a lot of great analytics, so that we can debug problems. We can take care of customers.
Like for example, we go to our fleet and we find that only 85%, 84% of the people have storm alert on, which is a problem because if they don't have storm alert on, then their batteries will not be fully charged before a storm. That kind of defeats the point. We are able to get analytics like that very quickly and do something about it immediately. Our network operations center just getting started, but it can help debug defectivity trends, and it can help us to make many decisions immediately. It's very closely linked to customer service. On customer service, our target is to achieve a Net Promoter Score of, you know, 70. Right now we are in the 60s.
This year, you know, actually 2022, our target is to reach up to 70, which is an outstanding number. Our wait times are a little bit high. In the earnings call a few weeks ago, I talked about 5.5 minutes wait time. I'm not happy about it. You know, one other reason we've been sort of successful is, other than quality, taking care of customers. Whenever that goes backwards, I'm all over it. Our entire executive staff, you know, meeting on Tuesdays, we'll start with the customer service dashboard. We'll look at wait times, we'll look at Net Promoter Score, and then we'll take the necessary actions to fix stuff there before moving to other areas of the company. We are gonna maintain that maniacal focus. It's even more important than ever.
When we were doing microinverters, this one is important for you to know. Since it is, see, microinverters on the roof, even if one microinverter doesn't work, your output is 95%. Also one more important thing is the AC output from the microinverters is parallel to the grid and subtracts or adds to the grid. While here in storage, you insert a device in the path of power. The battery is in the path of power. If there is a problem with that device, it is our problem. It is Enphase's problem. We have taken you know, customer service, extreme customer, you know, take care of customer experience. That's you know, with batteries, that becomes paramount. We have introduced 24/7 customer service. We have introduced field service teams to be the shadow of installers and help them.
Like for example, in the [audio distortion] storm that happened, many of the customers, you know what happened? They didn't even realize their batteries were working, right? They switched over seamlessly to the battery, and then they continued to run their air conditioner on. Of course, you run the air conditioner for three hours, your battery is dead, right? We are gonna get smarter about how we notify, you know, homeowners to try to prevent it. When they have a problem, we need to be there to help. Immediately within 24 hours, our team was there locally on the ground to help kickstart the battery backup. That's the kind of customer service you need because this is still new technology for customers, and many of the customers are, you know, not millennials.
They don't even know how to use their app. Even in that situation, it needs to work. It just needs to work, period. That's our attitude. That's the outage response teams that I have and the fleet analytics you will see for yourself in the network operations center demo. Global supply chain. I talked about it in the earnings. Right now we have 3 sources, 3 contract manufacturing locations, Flextronics in China, Flextronics in Mexico, and Salcomp in India. Those three, you know, we are quite well-diversified on the micros. They, you know, the three of them put together can support a capacity up to 5 million microinverters a quarter. It's not a problem. We can add more capacity if we need. Just take some lead time for us to add.
What we are doing, you know, how we are thinking about it going forward is our business internationally is expanding. For example, you know, Europe is growing very fast. We are actually debating about, okay, why not have a contract manufacturing facility somewhere close there. In that way, in times like this where we spend a lot of money on air freight, we don't need to spend that much money there. Extending that concept around the contract manufacturing locations, we are thinking about, you know, how do we establish all of the, you know, supplier feeder factories. If we are able to have our, you know, suppliers locally, they are feeding the contract manufacturing locations, then we don't need to spend ocean freight transporting raw materials over long distances. Right now, ocean freight is 8x of what it was last year.
The logistics situation today is forcing us to re-architect a few things so that the fundamentals are right. You know, establish the contract manufacturing right next to customers, establish feeder factories close to contract manufacturers, and reduce, you know, architect such that your cost, even if there are dislocations in the macro, still doesn't go out of control. On the battery side, we have two sources. They are in China. The two sources put together can do over 720 MWh a year, 180 MWh a quarter. They can flex a little bit more if needed. As I said in the earnings call, we are in the process of adding a third battery supplier in 2022. Here the name of the game is the same.
We have to work on globalization. Globalization not only means contract manufacturing location, but also all of the components that go into the batteries, where they are sourced from. You know, we had a crisis in the earlier part of this year. We had a particular component, which is AC FET drivers. You know, we couldn't ship microinverters. The average price of a microinverter, let's say, is $100 approximately. A microinverter system is $100. We couldn't ship microinverters because of a small chip. That was ridiculous. Yes, there is a semiconductor, you know, shortage that was there, blah, blah. We cannot have that excuse. We took that opportunity to now qualify five suppliers for that, for that product, for that chip. Five suppliers.
That got us thinking, saying, "Okay, we need to be well-diversified." You know, critical components like this needs to have even more than two. I used to think two was good enough. Even more than two as we get bigger. That learning, you know, from the experience earlier this year, we have some learning and we are continuously upgrading our best practices in supply chain. You can see the locations there. Gross margin. Our gross margins are under control because of two things: extremely disciplined pricing and working on costs every day. When I became the CEO in 2017, we established a pricing team with a pricing head. We decoupled pricing from sales.
We believe strongly in value-based pricing, which means you have your next best alternative, and you need to add value on top of that. The way we price microinverters is next best alternative, which is competition, plus the features that we have. Exceptional quality, grid-forming capability, exceptional customer service. Those are all worth, you know, something. That's how we price products. On batteries, the situation is very similar. Modularity, LFP, so safety, low voltage DC operation, load control. We can control four power-hungry loads. You know, air cooling, no liquid cooling. A lot of nuggets there. It's extremely important that we get the right value for our product, and that's the discipline that exists in the company from top to bottom. Now, let's come to the cost side. The costs have gone up now because of the macro situation.
Our component costs have gone up, ocean freight has gone up, air freight has gone up. We did a couple of modest price increases, but really, what has really saved us is our focus on costs. We work on the smallest of things. We work on removing capacitors. We work on price negotiation there. We work on optimizing transformers. We work on optimizing potting. We work on them day and night. It's a business process. It's not an event. It's not a one-time event. It's a process. It happens every week. The focus is on microinverters. The focus is on batteries to achieve a best-in-class cost structure. I talked about this a couple of years ago, where we were embarking on an initiative. You know, right now we have an adapter cable that ships with IQ7.
That adapter cable on one side, it's got MC4 connector connecting to the module. On the other side, it's got a custom connector connecting to the microinverter. Two years ago, we had an idea on how about eliminating the cable and just build the MC4 connector on the microinverter, and we'll save a lot of money. We have executed on that, and that has started ramping. If we did not do things like that, we would be in worse shape because in general, due to the macro, the costs have ballooned up. You know, cellular modem is one more example. When I came to the company as CEO, we were buying a cellular modem from a company outside, a great partner, and we worked with him on, you know, we negotiated with him.
He served us really well, but then, you know, we had to rethink. Saying that, "Are we gonna keep spending so much money? How about we make our own cell modem?" Right. How about dropping the cell modem? Costs a lot. We have done that as well, and that is gonna start shipping very soon. Those are two examples I chose to highlight to say it's a business process. It's not one time. It happens all the time. It happens weekly, and it needs that kind of maniacal focus for us to survive at high gross margins. The picture in the bottom, that's an example of the bulkhead I'm talking about. That's called the MC4 DC connector, and that can connect to the solar panels without adapter. Okay. Spending.
How Eric and me architected the company is the right people in the right places for OpEx. We have incredible talent. For us, Bangalore, for example, we have 65% of our headcount in Bangalore. In Bangalore and Noida, actually, India. The execution teams are all there. We do have some product development teams in Austin, Christchurch, as well as Montreal, in addition to India. Our executives and the architects are based here in the U.S. Of course, the sales and service are all global. We have the right people in the right places. No compromise on talent, no compromise on innovation, and yet we will achieve our baseline of 15% OpEx of sales. That's our baseline. That's how we architected the company.
On CapEx, we are focused on any spending that will improve how we do things from a technology perspective. We will never build big factories. We will not deviate from a contract manufacturing model. If we have to spend money on CapEx, we will do it so that we qualify multiple suppliers, so we globalize the supply chain. We realize that's extremely important for us. Extremely clear there. No big factories. We talked about our core competencies. We talked about operational excellence. In operational excellence, we talked about quality, we talked about service, we talked about supply chain, we talked about pricing, we talked about cost. What's our strategy? Our strategy is to build best-in-class home energy systems, the best products, and deliver them to homeowners through our installers, through our installer and distributor network, enabled by a digital platform. Great products.
We have, you know, installers are the lifeblood, like what I said. Our distributor partners are extremely important to us. The digital platform is extremely important to us because we can simplify the lives of installers by having a comprehensive digital platform where, which they don't need to leave, and they can always live in it. They get leads in it. They're able to design and do proposals. They're able to do permitting. They're able to do financing. It's end-to-end. They never have to leave. That's what we want to do. Great products and platform. We are just getting started with this strategy. You know, in 2018, we started shipping IQ7 microinverters. In 2020 really is when we started shipping battery, you know, battery with backup in North America, July of 2020.
You can see, you know, the results are starting to come. 48% CAGR. 48% yearly growth rate. Soon we will be introducing IQ8. IQ8 will be starting to ship in December, next month. An IQ8 is not a widget. It enables multiple flexible configurations for the homeowner. I'm gonna talk about that in detail. Okay. I talked about making best-in-class home energy systems. What does that mean? This is an Enphase home energy system. You have the grid on the left-hand side. You can see the utility meter there towards the left. You have IQ microinverters on the roof. You have your batteries there. You can see the rectangular, you know, device, that's the battery. You have a fuel cell or a generator.
The main load center of the home right in the middle with an IQ Load Controller there. You have an EV charger there. Right? Enphase EV charger. You saw the announcement this morning. We announced our intent to purchase acquire ClipperCreek. Enphase EV charger, Enphase IQ Load Controller, Enphase IQ Battery, Enphase IQ System Controller, Enphase IQ microinverters on the roof. That's the full Enphase home energy system. That's what we are talking about. When I say solar-to-energy transformation, we used to have microinverters only. Now we have all of the components of a home energy system, and I'm gonna talk about each one of those. Solar. The IQ microinverter is on the roof. Here, the story is quite simple. We are leveraging the increased TAM.
Raghu is gonna talk about it, but, you know, if you actually look at every one of the pictures which I showed in the previous page, they all have IQ8 in it. The fuel cell, for example, it produces DC, and then has got an IQ8. You know, IQ8's in there to turn it into AC. The panels, they connect to microinverters that convert DC to AC. The batteries, DC operation connect to microinverters inside the battery, make it AC. In the future, bidirectional EV charging may necessitate IQ8 inverters there in order to convert DC to AC for vehicle-to-home and even vehicle-to-grid. All of these resources will have IQ8s, will have IQs, grid forming IQs, IQ8 lines.
IQ8 solar, that microinverter that we use for solar, it's a core in everything we do. We are gonna make that better and better and better. You know, how did we do in the last few years, especially 2021 is exceptional performance in the U.S. Extremely strong in the U.S. In Europe, we doubled. We are gonna double from 2020 to 2021 in Europe. Very strong growth in Netherlands, France, Belgium, getting started in Germany, getting started in Italy, Spain, you know, Poland. I was here two years ago, and I basically said that we are gonna fix Europe. You know, Dave Ranhoff, our Chief Commercial Officer, raise your hand. He has fixed Europe. We are growing quite nicely there. You know, we continue to make progress introducing solar in new regions. We added Italy recently.
We added Brazil. We have an incredible guy in Brazil. He's making a lot of progress. Big market in Brazil. Big market, and we believe with some, you know, with our products, with some innovative, you know, financing we will do with partners, we can start gaining share there. Japan, we are gonna be working on Japan. We are gonna work on product development in 2022, and we are gonna start selling into Japan in 2023. Like I said, we are gonna ship IQ8. You know, everybody has been waiting for IQ8. They're being delayed, and that's, you know. I talked about the product challenges. We are gonna be shipping IQ8 in December. IQ8D is yet another product. That's a product for the small commercial solar business. 640-watt AC, exceptional quality, great power density.
We are coming out with an end-to-end full solution there, which is basically design and proposal, working with financing partners, and then permitting, fleet monitoring, fleet analytics. It's gonna be an end-to-end solution to help our installers for IQ8D. Of course, we are working on IQ 9 and IQ9D. Raghu is going to share a lot more details on what we are going to do on IQ 9 and IQ9D. Big market, as you can see. The served available market for residential is $6.2 billion in 2025 and $2 billion, you know, for small commercial. Storage is an exciting story. We started shipping July of 2020. We learned a lot, growing every quarter. This quarter we will do between 90 and 100 megawatt hours, as I said.
We have over 1,000 installers certified in the U.S. to install our batteries. That's amazing. That is not possible without diligently training the installers, handholding them, making sure they understand how to all the puts and takes in installing the battery. Once again, Dave Ranhoff's team has done an exceptional job in getting these 1,000 installers to install batteries. These are the installers. This is what I'm talking about, long-tail installers. These are the installers who run small businesses. We want to service them with exceptional quality and exceptional customer experience. We're very happy that, you know, storage is quickly, relatively quickly following along the lines of solar in terms of our success with long-tail installers. Today, we have IQ Battery, you know, the nomenclature is IQ Battery 3 and 10, and the T stands for thinner batteries.
You see that there in the product showcase there. Those are the thinner batteries. In 2022, we are going to be introducing a battery that is 2x more powerful. That means in a 5 kWh battery, you can do 7.68 kW of peak power. That means in a 10 kWh, you can do 15.36. That's triple the peak power available today. Today, for a 10 kWh, I can only do 5.76 kW of peak power. But this will take me to 15.36 peak power for a 10 kWh battery. Why is that important? Because when you run power-hungry devices, you know, you don't want them to shut down.
At the same time, you don't want to be spending a lot of money adding more kilowatt-hours. What we are doing is to improve the kilowatts per kilowatt-hour so that the users will not have a microgrid collapse when they use high-power appliances in backup. Extremely important for us. How did we make that possible? It's pretty simple. We used the IQ8D, the previous one I talked about, 640-watt, you know, AC devices. We used that inside the battery. Because they are roughly double the AC power compared to normal microinverters, so we get double the continuous power and triple the peak power compared to what we have today. We expect this to be a very big deal.
Of course, we have gone to 5 kWh so that we have economies of scale, and the cost is quite a bit lower. Our cost, manufacturing cost is quite a bit lower compared to the batteries today. That's gonna come out in 2022. In 2023, Raghu will talk about this. What we are doing is to rethink the way we architect these batteries. What's important here is energy density. You have the energy density, which is watt-hours per liter. You have the watt-hours per liter of the cell pack, and then there is no point in you adding overhead to that, which is power conversion, battery management, enclosure, heat management. There is no point in adding a lot of overhead there and re-reducing the watt-hours per liter.
The name of the game is how can I preserve the watt-hours per liter from the cell pack and add minimal overhead? That's where we are good at. We can combine, you know, because of our core competency in power electronics and software, we can combine power conversion and battery management together into one single board between DC and AC. Raghu is going to talk more about that. That's a big deal. It's gonna have a step down in cost. Nice step down in cost. Again, big market here. Portable energy system. You're gonna see this. You're gonna see a demo of this during lunch. Very nice-looking product. It's a consumer product. Two purposes is what I would say. Energy security in the home, which is you can power small appliances like your router, a fridge for a few hours, phones.
Energy security at home and energy on the go. Energy on the go means you can go camping, you can connect 2 foldable solar panels or 4 foldable solar panels to it. This will charge, it'll charge the battery when the sun is shining, and then you can consume from the battery in the nighttime. Ideal for camping. We are gonna be introducing this product in the first half of the year. You can see that the product is almost done. We are basically working on a very thorough process, reliability testing, then we do alpha testing, then we do beta testing, and then we fix all the bugs, and only then we will release it. You will see that this product will, you know, works nicely.
We'll release it in the first half of 2022. What's the differentiation compared to the others? This is a high-quality cloud-connected device. It's always on. It's got a beautiful app. It's the same Enlighten app that everybody is used to. We'll also, you know, display the functionality of the portable energy system. In the future, we are going to integrate it into the Ensemble platform. That means it can become a money-making device in the future that will help offset some of the costs. This is coming in the first half. You'll see the product. We have a comprehensive roadmap for it, and it's gonna be cloud-connected, so you'll know exactly what's happening at all times. Big market again. Load controller. Load controller is extremely strategic for us. Why?
If you have the ability to control loads, you can make every install a whole home backup. Why is that important? It simplifies the installers' lives a lot. Every installation becomes standardized. The installer, you know, installer companies can give clear instructions to their crews saying, "This is the cookie-cutter model. Just do this." A load controller gives you the ability to reject loads when you switch to I mean, when the grid goes out. Right now we have four-circuit load control. It's all available through the app. You can see that. There are four loads, power-hungry loads, and the way these are rejected is when you move to off-grid or when you lose the grid, you can pick the setting where you don't want that device, you don't want that appliance to consume any power.
You don't want that appliance in your backup circuit, basically. You can also choose an option where you say, "If the state of charge of my battery is less than 50%, then I want to reject that appliance." You have a lot of flexible options you can choose from in the app, but our solution today only has four controls, and they can all be shed. We are going to upgrade that. We are gonna bring out a product in 2022. That's the 12-circuit load control and 24-circuit monitoring. This means you'll have a lot more control available there. This is extremely important for example, you know, I talked about the IQ8 microinverter introduction. One of the modes that I expect people to be using it is Sunlight Backup mode.
There is no battery, and you know, homeowners expect that their system works when the sun is shining, even though the grid is out. For that case, you need sophisticated load control. For example, a homeowner can basically set up things like after this particular time, you know, closer to dawn or dusk, only have very light loads because you know that the power of the sun is gonna be less at that time. Load control along with Sunlight Backup is going to be very critical for us, and it's going to enable all kinds of use cases. In addition, even you know, having IQ8 solar with a very tiny battery. Even in that case, load control is gonna be paramount.
We view this as a strategic centerpiece, and we are putting a lot more focus on it going forward. EV charger. This is the announcement in the morning. We announced that we're gonna acquire a company called ClipperCreek. They're here, Auburn, in a couple of hours drive. High quality, versatile, you know, can work with all kinds of EVs. 110,000 charging stations shipped till date. One in every 7.5 non-Tesla vehicles uses a ClipperCreek charger. This is all level two charging, you know, inside the home. What's our plan for it? I talked about the plans in the press release. What we are going to do is to bring it into Enphase, make sure that the quality and customer experience are great. That's number one. The Europe market is really big compared to the U.S.
We are going to introduce it in Europe. We are going to, you know, introduce cloud connectivity on this product and integration into Ensemble. Integration into Ensemble, why is it important? It enables all kinds of use cases like, you know, some people want their EV to be only charged from solar. It's easy for us to do it. That's what we do here. Our home energy system, you know, the EV can plug in, plug right into the system controller there. In the long term, bi-directional charging. We believe bi-directional charging will become extremely important, both as a resilience adder for the home as well as for the grid. Again, it's obvious for us to do this because this is what we are good in. You know, power conversion, interaction with the grid.
The Ensemble home energy management system is already, you know, the basic home energy system is already working today. It isn't that much of a heavy lift for us to integrate it into the home energy management system and add cloud connectivity. We are really excited there, and it's gonna be a very big market. Fuel cell. Paul Nahi is in the back. Paul, yeah, raise your hand. There in the back. He's the president of Upstart Power. We invested in Upstart Power. It's an AC fuel cell. It's a resilience adder. It usually works with a battery. It turns on when the battery state of charge is less than a certain percentage. It turns on, it tops up the battery, and it turns off. What's the differentiator? It's reliable, it's low maintenance, low emissions. Carbon monoxide, virtually not there. No carbon monoxide.
Less carbon dioxide. 10 years of warranty, low maintenance. You know, everything is good, right? Grid-tie capability. With IQ8s in the front of it can be tied to the grid. ITC eligible. So what's the catch? Cost. And that's where, you know, companies, you know, both of our companies can collaborate and help reduce the cost because this is an outstanding product. It solves a lot of the issues that we have with other types of competing generators, for example. But cost is an issue that we have to work on. And again, why is that actually, you know, going back to it, why is that actually important? A solar plus storage system can give you 95% resilience, but there are going to be days where you're gonna have no solar.
You're gonna have no sun in the winter. There are gonna be days, and on those days, your battery is not gonna charge. This is the perfect device for that situation. It'll be off most of the time, but during winter, it'll recognize that the state of charge is less. It'll turn on, it'll top up the battery because it's, you know, it's a fuel cell. It'll top up the battery, turn itself off. It's a resilience adder. Always works in conjunction with storage. The generator. We talked about it already. The power of our software, you know, the power of our software is we are able to make it work seamlessly. Glitch-free transition. A lot of user configurable options. You know, some homeowners don't want the generator to be on, you know, unless their batteries are extremely low charge.
Some do not want it to be on during the nighttime when people are sleeping, right? All of those options are there. They are all integrated into one app, which is our Enlighten app. You might ask us, "Why did you do this?" You know. "Why did you incorporate this functionality?" Because our customers need it. If not, what's happening is you have a solar and storage system, you have a generator, and they are not talking to each other. From a homeowner perspective, he needs one view, one place where he can do everything. That's why we took it up from a customer experience perspective, saying, "Okay, we are going to do this." Our system, like what I pointed out, can orchestrate between various resources and can optimally make the generator function, optimally control the generator. That's what we do.
The user configurable options. Our AC architecture, here you can see the generator plus solar plus storage giving 15 kW to the home. All three of them are on. There is zero compromise in the user experience. He can have two air conditioners on, his hot tub on, during off grid, during backup. That's what we enable for the homeowners. Compatible with the entire installed base of standby generators. Big deal. Grid services. Grid services is becoming table stakes, and it is critical because these batteries are going to be distributed in people's homes, and it's almost irresponsible if they do not help in protecting the grid. The utilities do not need to keep building peaker plants. The utilities can start to leverage the distributed energy resources in the home.
Like during a grid service, for example, during a grid service event, you know, sometimes the utility only expects the following just make sure you don't consume anything from the grid. Take care of your needs. Discharge the battery. Grid services is becoming table stakes, and we are there. Our differentiation is we make it incredibly easy for the homeowner to enroll in grid services. To view how much they made during every discharge event. To view how their batteries performed in every discharge event. They can even choose up to the previous day to not participate in the grid services event. They have incredible flexibility, and of course, that is. We also work with aggregators and utilities here. You know, Suleman Khan is going to talk about it. He is one of our partner, you know, aggregators who works with the utilities.
In some cases, we directly work with the utilities as well. Business models here are rapidly changing. We are rapidly learning. We have many programs in the pipeline right now, and it's today focused on batteries, but with the modern grid architecture that I described, it needs to just focus on, you know, the potential of the home. It doesn't matter how the home chooses to do the grid service, it can be through anything it wants, not just the battery. That's the hierarchical, you know, architecture I was talking about enrollment, opt-in and opt-out, and tracking through the app. In addition, when we work with the utilities, we have grid services manager for the utilities so that they have the entire fleet at their disposal, and they can do what they want, assuming they have consent from the homeowners.
There is two pieces of software here. One is on the app that the homeowners see, and the other is the grid services manager software that we work with the utilities or aggregators. A lot more to come here, but, you know, we are ramping, we are participating, and we have clear differentiation, and I expect to make a lot more progress with, you know, partners like Swell. Let's quickly talk about the power of data. My microinverters today are software-defined. I have 39 million microinverters right now. With us starting to ship home energy systems, the number of devices is getting multiplied per home. All of these devices are sending data. Right now we are sending data every 5 minutes. All of these are sending data to the cloud. You know, today we have 1.7 million sites, 39 million+ devices.
Each of those devices is selling or those thirty-nine million devices are sending 62 billion-plus data points a day, 97 terabytes of data a year, and pretty soon we are going to be going to sub-one minute. You know, that we have almost real time. I did a calculation assuming a market growth rate, which is 15%, let's say, growth rate, standard market growth rate, not Enphase-specific. If I go to one-minute reporting, we'll have 4.8 million sites by 2025, 100 million-plus devices. That's. It probably will be more than that. 800 billion data points per day and 1,350 terabytes. This is with one-minute reporting. If I choose to do 10 seconds, it multiplies by six. What's the point? The point is we are sending lots of data to the cloud. What kind of data?
Voltage, you know, current, energy, you know, consumption, production, savings, events, you know, errors, notifications, you name it. These are all going to the cloud. Since we have this data from 1.7 million homes already, we have closed loop data, which means we are able to construct accurate models. When we construct accurate models, then what can we do with it? When we construct accurate models, you can start to forecast consumption. You can start to forecast production. You can do intelligent energy management in the home. You can start predicting grid outages and do something about it. You can help homeowners optimize their tariffs. You can provide recommendations to homeowners on other resources that they need to add using an ROI-based approach. You can recommend to homeowners things that they can do in order to increase, for example, the panel.
You know, if the panels aren't performing, you can help them with that. You can do efficient operations and maintenance because you already know what's going to happen. You can do efficient scheduling and dispatch. You can help out the grid a lot because you have very accurate models. You have real-time data. You have accurate models. Therefore, you can forecast the energy of the home very well. Your grid services performance can be much improved. We are gonna be working on these opportunities. For us, the name of the game is we are not gonna be selling the customer data to anybody. We value their privacy. We're not gonna be selling this data to anybody. We are going to use it to make customer experience a lot better. That's what we are going to do. We are actively working on this.
I just wanted to give you a glimpse and, you know, on the power of data that we have, how it is going to evolve when we go to real-time, and how that real-time data is gonna give us the ability to make decisions and improve the services we can provide to various constituents, homeowners, installers, grid operators, internal operations, all of that. The last topic, let me briefly touch upon Enphase installer platform vision. In the strategy, in my strategy, so I had, you know, two things. Like, actually three things. Build best-in-class home energy systems. We talked about that. Sell to homeowners through our distributors and installers, enabled by a digital platform. That's the digital platform that we are going to be talking about.
This digital platform, if properly done, has got six logical steps: lead management, design and proposal, financing and contract, permit plan set, installation and commissioning, operations and maintenance. I'm going to talk about two, three, and four here. On number one, we are working on it. We aren't ready to share the details. The concept on number one is we help installers with their leads. We land the leads directly into their CRM. Today, installer customer acquisition cost is quite horrible. It's between $1,000 and $2,000. We can use the techniques that I talked about previously to do efficient lead management. Targeted leads, qualification of leads, conversion into appointments, all of these can be done really, really well by a company like us. We are gonna be working a lot on that. In the meantime, I got two, three, and four already.
We bought this company, Sofdesk, earlier in the year, and they do design and proposal software. We are going to make that a lot better. You're gonna be seeing in the demos on how we have upgraded the design and proposal software. Let me go to the next page there. Design and proposal. 900+ installers use the Solargraf platform today. However, the platform is missing key features like shading, three-D, storage. We are fixing that. You're going to see today in your demos, we are releasing Solargraf Pro in Q1 of 2022, which will have all of these fixed. In addition, the roadmap includes incorporation of AHJ rules in the software, so it is correct by construction. We place panels correctly. It is correct by construction.
Obviously, in order to do this, to generate a proposal, tariffs, comprehending tariffs and incentives are extremely critical, and we are doing that as well. We are determined to make this a best-in-class tool, the design and proposal piece, to help our installers. Like what I said, we do not want our installers to leave the platform. We want them to do design and proposal first, then go on to financing and contract. We have integrated fintech partners. We have already. We have e-signing, you know, capabilities. We'll be adding DocuSign soon. Permit plan sets. Today, the permit plan sets are a big pain point for installers. It takes 24 hours to get a permit plan set, and many times there is rework. We have the ability to fix that.
Like what I said, we do 30% of the North American residential solar business for permits. 30%. We have incredible data there. We are working on an AHJ database, learning database, and once we have that, we are automating permitting so that it shouldn't take 24 hours. It should take less than a minute, and it'll be available seamlessly for our installers. That's what we want to do. We wanna make life easy for our installers. Those are the three things you will see today. I'm going back to the previous slide. Two, three, and four are what you will see. I talked about one, lead management, we are working on. Number five. You may not realize, Enphase has got two apps. One is Enphase for homeowners, one is Enphase for installers. The installer app is called the Installer Toolkit.
That has got years and years of work into it. We upgrade it every month to learn from, you know, to learn from our installers on both solar and storage commissioning. That one we already have, and installers are already using number five. O&M. Let's talk about O&M. O&M, we're not interested in getting into the O&M business, but we are interested in providing our installers a technology platform for O&M. That's what we wanna do. More on that later. One and six, you know, stay tuned. Two, three, four we have now. Five, from Raghu's presentation, great technology. You're gonna see that.
You're gonna see a lot of product innovation. It's a massive market. With the products I talked about, we will be servicing a $23 billion TAM in 2025. All right, thank you.
If you're ready to go. He just gonna introduce himself.
Introduce, Raul. Raul?
Yes.
All right, come on. Raul is the CEO of Cutler Bay, you know, one of our great installers. He was born in Cuba. He basically spent 30 years in retail in the U.S. and he started Cutler Bay in 2013. It's a family-run business, you know, started in South Florida, and now he is extending it into Central Florida. Now 50 employees. He does amazing work for us. He's gonna say a few words.
Thank you. Good morning, Badri, Eric. Thank you very much for inviting me here today. It's an honor for us in South Florida to be partners with such a great company. Let me tell you a little bit about, you know, why we're here today and, you know, how it all started. Like Badri said, you know, I started Cutler Bay Solar Solutions eight and a half years ago, after 30 years in management in retail. I was born in Cuba, grew up in Spain. Very early stage, I've always had a passion for renewable energy. I went to business school and graduated from Cornell University. As family grows, you get caught up. I have four great children, and you get a very cushy career. You go, you know, stay there.
As my youngest daughter was graduating, my wife and I found ourselves in a great position to say, you know, "What's next?" A lot of people decide to travel at that time. A lot of people decide to do many different things. I wanted to start a renewable energy company. I wanted to make a difference in our market. The first thing that we needed to do was, you know, do the research, find out what was available, you know, what we could do, and how we could make the biggest impact in South Florida. Everybody I met in South Florida said it wasn't right for solar. The utility companies do a magnificent job advertising how low rates are in South Florida. Solar doesn't make sense. They've even claimed that we have a different sun than California does.
That's why you know, solar does not work in South Florida. I knew that we did it. I knew that solar would work. I knew that if we had the right technology, if we had the right products and the right customer service, we could be successful in South Florida. As we started doing research, we were looking for what companies could we align ourselves with because we knew that, you know, the only way that we could be successful was if we had the right products and our customers could get great value. Solar companies come and go. Installers, you know, they don't stay around. That's because they don't make a commitment to the consumers. When we were looking to do that, we wanted to find a company that was willing to make that commitment with us.
In 2013, you didn't find too many homes with microinverters. Wide aspect of the market, the solar market was widely arranged by centralized inverters. When we looked into the technology that Enphase was offering at that point, we quickly realized that that's who we wanted to align ourselves with. We quickly realized that not only were they at that point providing the best products on the market and the best value for our customers, but they were also investing tremendously into future technology. That created a bond between Enphase and Cutler Bay Solar Solutions that has grown over the past eight and a half years, and strengthening not only us as a company, but strengthening our customers.
Our customers today have the best product installed in their home and the best ability to improve their lifestyles, not only because we have done the installation, but because those products that we have brought have brought with them great customer service, great reliability, and are products that are really designed for them. Over the years, we have grown tremendously. That growth could never happen without a great partnership with Enphase. Badri talks about how the installers are the heart of the big components of Enphase. We feel very honored because we have felt all along the years that there is a true partnership between companies. I'm very proud of my team. I by far know that I have the best team in South Florida. I have the best installers. I have my own engineer and staff. I've put together the best people around me to help me be successful.
Enphase has enlisted us to help them be successful. As we talk today about this new battery coming out, I don't know how many different meetings we've had with them over the past year and a half, not only sharing the feedback from what we have already installed, but the feedback of what the challenges are on the market. That battery is designed specifically with us, South Florida market, in place. We have the challenges of multiple air conditioners. Our homes. In California, for example, the average home uses anywhere between 800-1,200 kWh. We're challenged with 3,000-4,000 kWh homes that we have to try to power up. Enphase has listened to us, has taken our input and implement it into their products.
Not only allowing us to present to our customers a much better product designed for their needs, but also empowering us to offer the best value to the customers. Our growth could not have been possible without that great partnership from Enphase. Last year, we had the ability to go into a major retailer, Home Depot, open up their doors and allow us to bring products into their stores, opening up a retail market for us. Enphase immediately partnered up with us, creating the displays and allowing us to bring into the Home Depot the experience of the products, so that a customer can now walk into a Home Depot store and shop the Enphase products, shop our services while they're in that store. Again, that would not be possible without the great partnership between a manufacturer and an installer.
One of the reasons why we chose Enphase was because we had the ability to the ease of installation. Our installers could install the products quickly, rapidly, efficiently. It was the right product for our consumers, but more importantly, it was the right product for the future. Our consumers, at that point, could install, for example, a solar system and eventually add batteries and storage to it. Customers that installed with us five, six years ago can easily integrate the newest technology into those products without having to replace anything that they already have at home. The innovation from Enphase, the teams working at Enphase to develop the next generation of products, have always taken into consideration the investments that their customers have already made. They are able to better their homes, they're able to better their experience without having to waste any of the investments they have made.
I am very, very happy to be here today, and thank Badri and Enphase for inviting us, because we are an example of what we can do with these products and what our customers can, you know, enjoy from the integration of the Enphase technology. Thank you.
This is a story about bright ideas.
While experimenting, I felt sure I could record an even greater result.
It begins with Thomas Edison and the light bulb, an invention that lengthened day and shortened night. The idea was so powerful it became the symbol for all bright ideas. Edison, being Edison, began to look for a better way to power those light bulbs. He said, "I'd put my money on the sun. So long as the sun shines, man will be able to develop power in abundance." Now, the clean energy future Edison imagined is here. Solar power is no longer an experiment. It's reliable and ready, and more practical than ever. It's now within reach for all of us. We can make, use, save, and sell our own power. Edison gave people light. Now we can give them power. This is the light bulb moment light bulbs everywhere have been waiting for.
Good morning, everyone. My name's Raghu Belur. I'm the Chief Product Officer for Enphase. Martin and I started this company back in 2006. You know, if Thomas Edison today was walking down the streets of Fremont, California or Palo Alto, California, and he looked up, he would recognize pretty much all elements of the electrical infrastructure, the poles, the wires, the transformer, the substation, maybe not the reclosers, but pretty much everything would be the same. Something has to change. The customer expectations today about their energy has completely changed. People are expecting greater degree of resiliency, cost, et cetera. Electrification is going to happen. EVs are coming. We have to drive change. The same cannot continue.
Some of the decisions that we made earlier on in the company, including naming the company Enphase Energy and not Enphase Solar, was pretty deliberate. We did envision this moment of transformation where we'd have to think about re-architecting the electrical system from the bottoms up. With that, I'm gonna jump in here and share some of that vision, along with details that Badri talked about around our products. Right. It starts with thinking about Ensemble. Ensemble as our technology. Today, if you think about it, the vernacular that we use in describing our industry is completely changing. We talk about things like, of course, EVs and microgrids and resiliency, and we talk about grid services and coordination. All of this changed. The question is, can we be the drivers of change by having an architecture that can support this change?
If you look at even over the last couple of years, architecture matters because as you think about newer and newer resources that come onto your system, you need an architecture that's capable of supporting those things. If you look, we talked about Ensemble as our technology. It started with some history, right? We had said distributed architectures always win in the long run. We had some guideposts that we had established as a company when we started, one of them being distributed architectures. The second was power electronics was gonna be done digitally. The third was software, both at the inverter level, communications, and at the applications level. That drove us towards the architecture of doing everything in the AC domain.
Now historically, if you look at it, the utility infrastructure and the grid was a twentieth-century marvel. Did amazing things. Now over time, it has had a tremendous amount of difficulty in adjusting to change. AC is universal. AC is simple. Everybody understands that 120-volt wall socket that runs at 60 hertz. Everybody understands that. So for us, it was important to make the right choice of architecture, and AC is absolutely that right choice. That AC allows us to plug in disparate resources onto the same common bus, may that be the grid, may that be solar, storage, generator, load, fuel cell, EV, and anything else that's gonna come out in the future, because it's not done, right? The control mechanism that we use is twofold.
If it's a system that is not compatible with AC, we put an IQ8, which is a full stack device, power conversion device that can then take whatever DC is and convert it into a grid-compliant AC system. We do that for solar, we do that for storage, we do that for the fuel cell, and we'll do that for the EV as well. For those systems that are already AC to begin with, the grid, for example, or generator, it's control. The system, all it's doing is federating which resource will be used to serve the load. For that, we use a marketplace approach. We define this notion of buyers and sellers. You guys are very familiar with that. For example, solar is obviously a seller. Storage could be a buyer or a seller, just like the grid.
In real-time, what the system does is find what's the best lowest marginal cost required to service that load. So we do what's called marginal cost optimization within the home, 'cause no individual resource is trying to make money off another resource, so it's always cost optimization within the home. IQ8 becomes a foundational element of that thought. The grid was always architected as a hierarchical control, primary, secondary, and tertiary control. Primary control looking at voltage and frequency, secondary control looking at movement of power between two designated areas, and tertiary control was economic optimization. What we did was took what was right out of that grid, of that marvel of the twentieth century, and brought it all down onto our own ASIC.
The IQ8And the Swift ASIC is the foundational element of that full hierarchical control. The reason for that was you can now build a very generalized solution, not just for one home, but also for multiple homes. Taking that same concept of I wanna do federate all my federate resources within the home in order to manage the power flow to the right appliance, and by the way, the right resource, the next appliance that can come in simply plugs into that same bus. We can now make it, because it's AC, seamlessly extensible to beyond one home. We created that generalized solution. If you take a step back, that home is a microgrid, right? The architecture is such that not all homes have to have all of those resources.
There could be a home with just solar as a resource, IQ8. It's just solar as a resource with load control. I give you some more power. I can add energy storage to it. I increase my resiliency factor. I come back and add a fuel cell or a generator. I increase the resiliency factor even more. Now, take that same thinking and extend it beyond one home. Now I can pool these individual microgrids together. Pooling these individual microgrids now leads to even greater resiliency of that microgrid, of the bigger pool of microgrids. As an example, I can imagine a world someday when my neighbor's washing machine wants to run. That washing machine is serviced by my solar system. Why? Because I have surplus energy.
My batteries are charged, I'm not consuming as much, I have surplus energy, and now I can transact that energy over to my neighbor. These are logical constructs today. There is a physical construct for a microgrid today, which is the home, which is your meter. That's not a necessary condition. Can be expanded to having physical constructs where you can look at homes being put together and physically isolated, so energy can be transacted from home, one home to another. This is why architectures matter. This is why providing a comprehensive solution and not putting pieces and widgets together matters, because at the end of the day, the best customer experience that can be delivered is by owning that central piece that we talk about, which is that entire Enphase energy system.
If we can own that central piece and manage how energy flows between resources and federate them cleanly, you have a winning solution. Right. The grid has to evolve. We have to rethink how the grid is going to run from the bottoms up, and I'll talk a little bit more about that in my last slide. Before we continue, as I had mentioned, IQ8 is a fundamental element. Power electronics, et cetera, are very, very important. If you think about the evolution of our micro, it's really understating that power conversion is all that that micro does. What did we start with? When we first started, qualitatively speaking, and I'm gonna give you a number, 80% of what our microinverter did was power conversion. A very small portion of what that device did was interface with the grid.
Today, if you look at how that has evolved, the inverter is doing a lot more things, right? We embed communications in there. We have advanced grid functions. We made the inverter completely bidirectional, right? Now, we are also talking about adding yet again, more functionality. So the core inverter is becoming more and more sophisticated. That's why power conversion, calling it a power conversion device is completely understating its capability. But as we go, power conversion is just as critical as well, right? Modules are becoming higher and higher power. We expect that, especially as modules are going to bigger and bigger cell formats, we expect 600-watt modules to be out here in the next 12-18 months, which means we need to continue to increase the power of our device. The best way to do that is through GaN.
GaN is a very good device. It's a wide bandgap device, and it can really increase the power density of our device by 50%. There are two things that GaN does really well, and I'll get into a little bit of detail. The first one is it has very low on resistance. The device itself has very low resistance. By adding GaN, you can increase the efficiency. Efficiency is very important. The reason is, as you increase the power, you want to reduce the power losses in the microinverter because the more losses you have, the less reliable it gets. Adding GaN can increase power while increasing efficiency, so your losses can be lower, so your reliability actually goes up. The second thing that GaN does is you can run the converter at a much higher frequency.
Today, on average, we run it at about 100 kilohertz. Now we can run it at couple 200 kilohertz. What that does is significantly reduce component sizes. We can, by going to switching frequency that is 2x, the transformer, which is our biggest component in our device, and I encourage you to walk over there and look at the IQ8, which is open, and you'll see a high frequency transformer in there, that can be reduced by 30%. You can reduce the overall footprint of the device by running it at higher frequency. Now you're running it at a higher frequency, you're producing more power. It's the device is becoming more efficient. That's a winning combination. GaN really helps in that. We are also adding some analog ASICs in there, like a driver ASIC that will further reduce the component count.
This is the problem promise of a semiconductor architecture, is you can keep integrating and keep doing more. I think, I remember back about 7 years ago, somebody asked me, "Hey, you've done 6 ASICs by now. Are you done?" No way. Right? We can keep integrating. We're gonna keep finding new things to integrate and add, and I'll talk about that in a couple of slides, in a couple of slides from now. Speeds and feeds. We are gonna keep adding new functionalities as well, right? We wanna do three-phase grid forming. What three-phase grid forming now will allow us to do is solve what we are solving for the residential problem for resiliency and economics and bring that to small commercial as well. I think small commercial, you get the same benefits by providing resiliency in small commercial, which would all be three-phase.
The key is, and just like we decided when we did residential, is you cannot violate the sanctity of a distributed architecture. Three-phase grid forming without centralized control is extremely important and a very, very hard problem to solve, but that's what we are solving. Same thing, we wanna make that device, again, it's a completely software-defined device. We wanted to make it completely a variable frequency device. Something that can go from 60 Hz, 50 Hz, down all the way to 8 Hz. The problem that solves is you can now replace what's called a variable frequency drive for solar water pumps, irrigation pumps, using the same device.
Using that same IQ9 topology, we can achieve that, both single-phase as well as three-phase. If you look at where we are headed towards with IQ9, we are looking at a 500-watt AC and the IQ9-d with 960-watt AC, and we talked about the power density being 50% higher because it's running at 200 kilohertz, and it will be more efficient as well. A word of caution. We are very excited about GaN. We've been working with GaN companies over the last 5-6 years, and we've been tracking the evolution of GaN, and to a great extent, we've also been influencing how GaN has evolved. GaN still has to have a cost trajectory that's going to make it such that we can continue driving the absolute dollars down of the product.
You do get some natural advantages because of a $1 per watt advantage because the watts are going up. We do need GaN to get down further along the cost trajectory. Furthermore, you know, we are looking at 5, you know, a capacity of 5 million micros a quarter. We need GaN to scale up and meet the reliability of the products that we have, meet our $1 per watt advantage because the watts are going up. We do need GaN to get down further along the cost trajectory. Furthermore, you know, we are looking at 5, you know, a capacity of 5 million micros a quarter. As well, what you're seeing is just we continually make improvements. Badri pointed out, look, we are improving the bulkhead.
We are going from a custom DC connector to a more standard connector and making it a bulkhead connector. That's an example. Though every element of the device is gonna get improved. The way we build our mechanical chassis, the way we weld those chassis together, we are looking at make a lower footprint, about 15% lower than that. The transformer itself, because it's running at a higher frequency, can be 30% smaller. We talked about the new gate driver that again incorporates additional components into it and then drive the component count down. Again, that improves reliability, improves cost, et cetera. We talked about GaN being running at 200% faster. We are really making a lot of changes to it and looking at it much more holistically. Again, power conversion, key element.
We do a lot of that, but new ASICs coming on board means we are adding more and more functionality into it as well. This is why when you are in a semiconductor-based topology, when you are software-defined, you can add more value, you can add more functionality, and you're not asymptoting on cost. We have a lot of room there, and we can keep improving. The key is you have to keep innovating. It doesn't come for free. You have to do a lot of work, but you're not at an architectural limit. You can keep going, and that's the power of our approach. Let me go to the next topic here. You know, we got into the storage business. We picked LFP because for safety reasons, much better thermal performance, et cetera.
Sorry, the metric that everybody thinks about when they think about energy storage is, hey, what is your energy density of your cell and cell pack? What is your gravimetric density? What is your watt-hour per kilogram of your cell and cell pack? You can start with a pretty decent cell and cell pack. You can find your LFP or whatever chemistry you want. But the problem is invariably you take that, and you put a lot of stuff around it, and you kind of blow out the efficiency of the both the energy density as well as the gravimetric density of the device. We did that too, by the way.
We took what was a pretty good LFP cell pack, and we added micros and communication devices and a battery management system, and we had stacks of micros, and we ended up with something that's close to 50 watt-hours per year. Again, going back to thinking about it in terms of silicon and semiconductors and semiconductor integration, for us, we said, "No, we're gonna do what we have done with solar, which is continue integration, drive power up, add new functionality." Look, solar at the time didn't even have anything, any notion or advanced grid functions or any of those things. We just added all of that functionality into the device itself. We took the same approach with energy storage.
This is our next generation IQ Battery, and what it has that's really cool about it is it takes all components that you see. You see a battery management unit, you see a battery controller, you see 4 IQ batteries in there or IQ microinverters in there, and shrinks it all into one device. The thing here that we integrated is we integrated the battery management also into the ASIC itself. We do that in software. Not only do we take all the power electronics and integrate it, we integrated the communications as well as the battery management. Again, the exact same playbook that we talk about where we are driving integration. When you do that, we expect that we'll double the energy density. Because at the end of the day, the homeowner cares about the energy density of the solution.
You cannot go out there and pitch, "Hey, you got this great energy density of your cell, but I screwed it all up by putting all this stuff around it." Well, that doesn't work. If you can go out there and sell them the solution that has double the energy density, now that's very powerful. There are a number of other advantages as well. Of course, it's a specific device that we are gonna build that combines both the battery and the power management and all advanced grid functions, communication, everything onto one common device. A single board replaces seven different boards. Why? Because we integrated the functionality, and a lot of that is in software. That's the other beauty of it from an implementation point of view, is it's a single firmware image. It's a very big deal. One firmware image to upgrade, one firmware image to manage.
You don't have to manage multiple of these hardware-software devices. This integration can double the energy density of our devices, and that has huge implications in terms of ease of installation, speed of installation, cost of installation, aesthetics for the homeowner. Of course, you can think about it from a cost point of view, what it does for our cost when you do things more and more in silicon and more and more in software. We expect that the max power of this device will be 1,500 watts, and we'll have 200% overload. That means 30,000 watts. Again, we don't violate the sanctity of our distributed architecture, in that you can stack multiple of these devices together. When I mean device, I mean the power electronics and the cell pack.
There's only one board between what you take, a raw cell pack, which does both charging and discharging, and one piece of electronics that makes it full stack compatible to Ensemble. One device only. We know how to make that device, and we know how to make that in large volume. We know how to make that very well with great deal of reliability. That's really exciting about this next generation, where we are integrating numerous functionality of the requirements of the storage solution onto a single platform. We not only think about products, obviously we think about making them extremely reliable and very, very simple to install. We think about installation much more holistically than that. We wanna make that whole install process very simple, very fast, and extremely reliable.
You're seeing this transformation from solar to energy means installations are going to become more complex. It was solar only. You install your solar, you install a gateway, and you were done. Not anymore. You know, if you wanna install storage, you got more work to do. You need to install safety devices along with it. You have to install our IQ System Controller. You have to install our IQ Combiner. You add EV, you'll need, you know, you have to have a EV supply equipment or a bidirectional device for that. Our goal is to look at things much more holistically and really drive down the cost of installation, speed up the time of installation, and make the installation much more reliable. With that commentary, let me tell you what we're doing about it.
Every system, if you want to form a microgrid, needs a safety device called a microgrid interconnect device. Today, that microgrid interconnect device is embedded in our IQ controller. What that device does is it identifies when a grid has failed and seamlessly creates a microgrid. If the tertiary control engine chooses to isolate the home from the microgrid, it opens up that MID and allows the system to form its own microgrid. What we wanna do is take that safety device and embed it in the back of the meter itself. Because today, the installation process is such that when you have that microgrid interconnect device separate, it involves a lot of main panel rewiring.
When you rewire the main panel, you have an electrician in there rewiring it. It takes much more time. The quality of install, you can make mistakes, you can break stuff, the cost gets driven higher. With this device, installing this device between the meter and the meter base really makes that whole function completely trivial. As an example, this install can be done in less than 30 minutes with minimum to no touching of the main panel. That's very powerful. There are some other advantages as well. For example, we all need to measure CTs. The CTs can measure current, which we do using CTs. Now, CTs can be embedded inside the meter collar itself.
We think that this is gonna be a big deal in evolving and speeding up and improving the quality of installation. California has some unique problems as well. If you look today, California has something called as a meter main combo. In fact, installations are more complex because of those meter main combos. Because you somehow have to go in and insert the isolation device between the meter and the main. When they're both integrated into one device, it becomes that much harder. It involves a lot more rewiring. This completely solves that problem as well. Now, again, a word of caution. That meter is owned by the utility, so we do need utility approval.
Having said that, a number of utilities are allowing more and more of these meter collars because they see the advantages of it in terms of being able to provide some level of control of the DER. As an example, when you're recovering from an outage, the utility can now do a controlled reconnection, and that's very helpful. The utilities are amenable to allowing meter collars, and a number of them have already allowed it. This will further improve our whole installation process. Moving on. We talked about EV chargers and EV growing globally nearly 30% every year. We know it's gonna be a huge market, but at the same time, it's a huge load. Today, an EV is about a 9.6 kW load per EV.
If you look at people, you know, if you look at the utility infrastructure today, 3 or 4 homes are grouped up into and serviced by a single transformer, and the transformer may be 15 kW. There is no way the infrastructure is gonna support all of these EVs. You're gonna really overload all of these transformers and bring the grid down to its knees. What you have to do is make EVs charging fully controllable, which means you can control what source it charges from, what rate it charges from, and how long it charges. That means bringing EV onto the Ensemble platform. The acquisition moves us in that direction. It's not all doom and gloom. EV can also be used as a very valuable resource if you make the EV fully bidirectional.
Now, EV can add to resiliency because now you have this big capacity storage sitting there, and now I can use that storage to power the home in the event of an outage. Similarly, you can even provide bidirectional, you can go vehicle to grid as well, where you are providing resiliency for the grid at large. There's a lot of discussion going on today whether that bidirectional function's gonna be done directly via AC or DC. If it's done via DC, then we treat it like our storage solution. We put an IQ8 in front of it, and we charge with DC.
If it's done with AC, then we treat it as a simple control device that just flows power back and forth, and we control how it controls how and how much, at what rate, and for duration we draw power from the EV. The beauty, again, is in that Ensemble architecture. Again, take a completely disparate resource that we had not thought about, and you can very easily, because of your architecture, bring it on to the common platform. We are actively participating in this discussion through standards bodies, et cetera, on how EVs will integrate into the grid, how EVs and the bidirectional power flow with EVs are gonna be handled through standards, and that's the good news. We think this is gonna be very, very interesting and very exciting as we bring that onto our platform as well.
The announcement today about ClipperCreek plays in very well to our strategy. AC fuel cell, we have one in the back there. This is our partnership with Upstart, who we invested in. Again, you take something as disparate as a DC fuel cell, put an IQ8 in front of it, full stack device, and now suddenly it's fully compatible with IQ8, fully compatible with Ensemble. I apologize. It's a resiliency adder. The plan is that the fuel cell will always be paired with storage because a fuel cell is an energy device. It's not a power device. With battery, you get energy, not necessarily long-duration energy, but it's also a power device. The combination of those two is extremely valuable.
Now I can ride out outages for much, much longer periods of time. Why? Because now if you have extended period of outage and the sun isn't shining, I can recharge my battery not from solar, but from my fuel cell. Now I can support the home, both power as well as energy. We think that this, again, is a powerful combination. I wanna illustrate how relatively simple it is for us to put that versatile device called an IQ8 that we have, completely software-defined, put it in front of this device, and now it's Ensemble compatible. It's actually grid compatible. We can even grid connect it or use it only for resiliency. We expect more and more development to take place, and we are gonna continue driving integration.
Of course, I think Badri mentioned it, we gotta work on cost, right? I think it's gonna happen over time, and we can work with our partner to drive the cost down. This device is very reliable and has very low emissions. I think it's a powerful combination. Arguably one of my most important slides, and I put it in the context of grid services, but really it's an illustration of how we think that the grid's gonna get re-architected from the inside out. All of these homes have DERs. Our notion is that those DERs, those endpoints, this is part of the distributed architecture thesis, is that those endpoints are extremely intelligent, and they make autonomous decisions. Think about it as hierarchies and layers.
If you look at our IQ8 microinverter on the roof, every individual microinverter has incredible level of intelligence in it. Put your solar and your storage, with storage, which also has IQ8s in it, put them all together, and now you have made your home extremely intelligent. Let the home make autonomous decisions. The next layer similarly makes those same autonomous decisions. Why do we need to do this, right? If you think about the way the grid was architected, it was architected for unidirectional power flow. Everything. They relied heavily on predictability of behavior. Power flowed from transmission through a TSO to distribution through a DSO down to the individual home, and everybody knew. The utilities, folks had modeled everything very cleanly, and they knew how much a home was gonna consume.
The only variable was summer consumption was gonna be different from winter consumption, and they could do things like switch cap banks, et cetera, and maintain voltage and frequency and deliver the necessary power to the home. DERs came along and completely upended that thinking. Solar, storage, et cetera. Now you have this load, huge load called EV. Forget about adding a massive load, this load moves around. It's going to be very chaotic. This is where we think, and this is where Lorenzo's paper also comes in, plays in really well, is that grid needs to be re-architected, rethought of from the inside out, which means from the bottom up. Every home is extremely intelligent. That home is aware of. A home is referred to as an area. This is actually grid parlance.
You group areas together into virtual areas, and that's all done in software. That virtual area is only aware of the virtual area above it and then the area below it. When you think about, that would be a very distributed way of managing power flow. Centralized topologies are suboptimal in our view. Having a command and control center that sits on top at the DSO, for example, and then trying to control every single appliance or every single resource, every single device within the home, it's not a scalable solution. Forget about it not being scalable. It's gonna be very expensive if in real-time you need to understand the state of every single device. Third, it's not gonna be secure. If somebody breaks into that central authority, they have unfettered access to every single device behind every meter.
Our view is do everything in a distributed manner, where you let the endpoint makes decisions. It's hierarchical, and every hierarchy is only aware of its parent and its child. When you do that, I'll try to illustrate this with some video here. If you look, a command comes in from the utility cloud to the Enphase cloud. The Enphase cloud then instructs the virtual area saying, "I need you to deliver so many megawatts over this period of time." That's all it needs to do. It doesn't need to send any command to any of the DERs that are below. It only needs to be aware of that one virtual area that's below it.
That virtual area can then decide, sends commands to the virtual area below it, and then the virtual area that's one level below it can then decide whether it wants to participate or not. That participation then trickles all the way down to the home, and the area which we define as the home can then decide whether to participate and if so, how to participate. What that means is you leave it to that home, in our case, the IQ controller, to decide whether you want to discharge a battery or reduce a load, as an example, or use the EV if it's available. The system that's sitting at the top, the utility cloud, there is no central authority that has to make any of those decisions. This is a completely decentralized or completely distributed grid.
You can see the virtual area on the left decided not to participate, and the virtual area on the right said, "Yes, I'm participating," and it dumps energy into the system. The awareness only has to be at one level. This is a beautifully scalable model. It's secure because you're not sending information back and forth, and the area on the utility cloud doesn't need to know what's underneath, what DERs are available. It's all done in a hierarchical manner. This is the beauty of Ensemble. This is an important element of what we'd like you to take away, is that as this whole infrastructure needs to be rethought of, we have all the building blocks now to do, to re-architect the grid from the inside out.
We have all of the building blocks there. We have the technology. We have embarked with the very first step that you take in terms of the choice of architecture matters. We have embarked on the right choice of architecture right from the get-go, being AC architecture, being fully distributed. Right? Now, when we started this company, there were so many decisions we made. The technical brilliance of Martin and the decisions were just right all along. Here were two guys. Our goal was to make great products, build great technology, change the world if we can. Really, for the beauty of Enphase to shine, we needed world-class execution. If you think about TJ and Badri finding that diamond in the rough, and Badri transforming this company over the last four years, it's been mind-boggling. Right?
This is just the beginning. We have all the pieces. We are on the top of the first innings. This is just the beginning. We have all of the pieces. We have the technology. We have the product. We have the desire. We can re-architect this entire grid. That's what makes the future super exciting. Thank you. I would now like to introduce Suleiman Khan. Suleiman is the CEO of Swell Energy. Suleiman directs the company's customer acquisition, project development, project finance, and grid services efforts. Suleiman's a great partner of Enphase. Welcome.
Thank you, Raghu. Thank you, Badri. Thank you, Dave. Such an honor to be here with you folks and your family, and I would say such a pleasure to have listened to everything that's being said. I'll just start by saying the conviction is infectious and the product development is trailblazing and very encouraging. I just wanna dovetail off of Raghu's point about this being the beginning. Swell Energy. In the next 10 minutes, actually, really quickly, I'd love to go over three things. Number one, a quick overview of the company. We'll dive into what we do as a company. Number two, more materially, really talk to folks about the promise of the virtual power plant or the distributed power plant.
Number three, talk about what does it take for us to get there over the next five, 10, 15 years, and really how companies like Swell and Enphase can accelerate the transition of the grid, primarily through the use of virtual power plants. Swell Energy. We are a developer, owner, operator of virtual power plants. In this capacity, we essentially work with utilities and customers. We consider both parts of the meter, if you will, to be our true customers. The company was founded with the ambition to really integrate energy storage onto the grid in a manner that makes DERs less adversarial to utilities, right? I got into the space in 2008.
Many utilities have been extremely progressive as it relates to DER adoption or RPS standards, but there has been an underlying tone of adversarial notions from the standpoint of number one, revenue cannibalization, from the standpoint number two, of really bringing more solar onto the grid, especially behind the meter than perhaps utilities could have really appreciated. We started this company to really, at the heart of it, launch grid services as a feature that homeowners could participate in and utilities could benefit from. If you look at what we do, again, straddling the meter, we think about utilities and customers and consumers as our two customer parties. Without going into too much about the host customer, everybody here understands the value proposition of energy storage to host customers.
On the utility side, really, we like to think about it in two different buckets. There is the energy procurement cost management that virtual power plants can bring to a utility, and then there is a grid network cost management that virtual power plants can bring to a utility. When we think about virtual power plants, we define them essentially as a fleet of DERs. In our nomenclature, DER is not distributed energy resource, it's a dispatchable energy resource. We think of VPPs or DPPs as a fleet of DERs, customer-sided, that when brought together, aggregated, and dispatched in concert, can bring utilities significant grid services value. In some cases, this grid services value can replace peaker plants. In other cases, it can go beyond replacing peaker plants.
I highlight some of these grid network cost management elements here to point to the fact that unlike a centralized generation facility or a peaker plant, or unlike batteries for that matter, sitting in front of the meter in the middle of the desert appended to a PV farm or a wind farm, when you think about distributed resources behind the meter, you can place them surgically in a manner that actually allows you to pinpoint certain sub-loads, certain circuits, and really bring additional benefits to the utility that may not have been achieved through centralized generation or peaker plants. The other thing that you're obviously doing is, at the same time, is bringing benefits to the homeowner.
As a company, what we strive to do is essentially make sure that these virtual power plants are something that utilities can actually get deployed and do it in a manner that doesn't violate the retail use case, right? You think about how a utility may wanna utilize a home battery or a fleet of home batteries, and you think about how the homeowner may wanna utilize that particular battery. Making sure that you have, number one, the type of VPP program that accommodates both. Number two, the technology, including hardware, including software. Number three, the capability to aggregate more than just solar and storage, but various other assets behind the meter. You bring all this together, and all of a sudden, as a financing company, for example, we are no longer thinking about just financing solar panels.
In our mind, we are financing batteries that are powered by solar, right? If you take it one step further, it's not even just about power, it's not even just about financing batteries, it's truly about financing virtual power plants, a brand-new asset class. At the heart of it, you think about the customer value prop from the standpoint of cost mitigation and lowering the cost of batteries, right? Today, we are still early in the cost curve of the residential home battery. However, over the next couple of years, we are going to see this price point come down at a level where it's going to propagate the way we saw solar propagate, call it 12, 15 years ago. Well, until then, Swell is bringing additional revenue to homeowners to be able to bring down the cost of these energy storage resources.
Wanna dive in. This has been a rather academic conference, I feel like. Wanna dive in without overwhelming folks into some examples and case studies of virtual power plants that Swell has signed up for, in many cases in participation with Enphase. At the highest level, we have two programs with Southern California Edison and one with HECO, which are very interesting to think about independently. Our Southern California Edison programs are essentially designed to relieve congestion on the grid, to basically provide capacity when needed. SoCalEd would call on us to dispatch a fleet of batteries across two different regions to essentially mitigate grid congestion. Our HECO program, on the other hand, goes a couple of steps further.
In addition to dispatching the batteries when the grid is stressed from a demand supply standpoint, HECO is also requiring us to keep additional dry powder, state of charge, if you will, in the batteries at nighttime, such that we can draw down excess wind. Not only are we dispatching these batteries when the grid is over congested, but we are actually taking down from the grid energy when there is excess energy because of no concurrent load. Our team, as you can imagine, is extremely thrilled about this because this is the beginning of cracking the proverbial glass ceiling on renewables, right?
When you can take down intermittent energy and store it and utilize it for the home and utilize it for the broader grid, in a manner that we are now doing, you really start getting towards renewables being, frankly, a comprehensive part of a utilities portfolio. The third thing that we're doing with HECO is frequency response. It's a very interesting feature in that, you know, many of us have been to conferences and heard about revenue stacking and value stacking. But the ability to take a battery or a fleet of batteries and to stack them, providing reg up, reg down, and fast frequency response, is something that, you know, we are very much looking forward to doing in participation with, in conjunction with the folks that are here. What does it take?
In the last minute or so, I'd love to just talk about what does it take to bring this to bear? Well, it's interesting to look at how Enphase fits into all this, right? Enphase has over 1 million residential solar systems across the country. Well, there's a windshield perspective to the VPP, but there's also a rearview mirror perspective to it. Those are 1.2 million systems that are potentially disparate, that if connected with a battery, could be aggregated to form virtual power plants or distributed power plants in different parts of the country. You think about the capacity to take existing assets, bolster them, and take disparate systems and bring them together. It's very interesting to see how Enphase could be an incredible force in really moving the virtual power plant forward.
With that, I would thank once again the folks that have made this possible.
Hello, my name is Lisan Hung, and I'm the General Counsel of Enphase, and I lead the global environmental, social, and governance efforts for the company. I'm happy to share with you how our efforts will help lead to achieving long-term outperformance. At Enphase, we're passionate about advancing a sustainable future for all. We create products and technology that make energy accessible and reliable, and we do it with sustainability. You heard earlier about how we're bringing the power of electricity to the hands of the people through our home energy management system, Ensemble. Later today, you'll see through the product demonstrations how we're creating even further reach through our IQ8 grid-independent microinverters and our portable energy system.
If you're familiar with our sustainability report, you'll know that last year, by the end of Q3, our products helped to reduce 20.8 million metric tons of CO2 equivalent. We'll update those figures for you this year in our next report. While our products help to mitigate global warming and to lead acceleration to the path of clean energy, we recognize that we have a responsibility to manage our environmental impact. We are working on establishing a baseline and a strategy for reducing our emissions while not impacting our core business. Because if we're able to reduce our emissions and reduce the impact to the environment, that means we'll be operating with even more efficiency. As we develop our future products, we think about striving to minimize our carbon footprint as well as to minimize waste.
You heard earlier that our IQ T batteries are nearly 50% slimmer in size, and you heard from Raghu that our IQ9 family of products are smaller and use fewer parts. When we use fewer parts, this translates to a step down in our costs. As we look at expanding our portfolio of products, we continue to invest in R&D in green chemistry as well as sustainable product development, and all of this helps to reduce our whole home energy carbon footprint. We're committing to a robust approach. We act responsibly in our supply chain sourcing. We intend on collaborating with our suppliers to share best practices in environmental and social performance. We'll also audit compliance to our ethics and our code of conduct because we want to do business with companies that share our same values.
We'll focus on enhancing our people and our communities. We believe it's critical to invest in the livelihood of our employees. We want to build an environment where everyone feels valued, included, and treated equally. We are a sponsor of the Women in Cleantech & Sustainability. We've signed the CEO Action for Diversity and Inclusion, and we've taken the ParityPledge in support of women and people of color. Since last year, the number of women leaders in the company has doubled. We recognize that diversity fuels innovation, and we continue to seek out qualified candidates in underrepresented groups. For our communities, we'll continue to build rapport and to leverage on our core competencies to advance social development, such as our partnership with GRID Alternatives and other initiatives, globally around the world. You'll hear more about that in our next report.
To increase transparency and accountability, we're working on cultivating our ESG goals and metrics and our key performance indicators so that we can build a capability for reliable disclosures to inform investment decisions, as well as to guide the company in making its decisions and actions throughout every level. We're aligning with our investment community. Our board has oversight of ESG, and we have an ESG task force. We've recently hired a director of ESG who will be dedicated to achieving our ESG goals. We published our inaugural ESG report earlier this year, and we plan on doing so on an annual basis. You can look for our next ESG report sometime during the first half of 2022 when we have a full year's worth of data to report on. With that, I'd like to introduce you to Enphase's CFO, Eric Branderiz.
All right. I'm between this presentation and your lunch and, you know, it's kind of like, no matter what you do, how much color you put on your presentation, nothing beats a great products, you know, development and presentation by the CEO and CPO. Now, here comes the guy, the finance guy in black and white, never red. Never red. To show you the way we can bring everything together. The way I actually organize my slides today, I have five questions. Five questions that I get the most from all of you. Actually, there are a few employees here that actually are investors, and they give the same question to me. Say, "Listen, the fact that you have done so well in the past, nothing guarantee that you can continue doing so in the future." It's a basic question.
Look at the competitive environment, see where we are and what makes you think that you're gonna do so great? That's question number one. The second question is, and it's kind of a good one. It says, "Well, you keep on piling up this amazing cash. First of all, tell me how on earth you convert your P&L into cash?" That's a question I get a lot. Meaning, is just the P&L a whole bunch of some of the parts with a whole bunch of GAAP and non-GAAP movements that is difficult to understand, or is something that you can quickly look at quarter on quarter and see how that beautiful P&L converts into cash in the balance sheet, goes from the bottom, piles up on the top? Second question.
The third question, "Now that you have all this cash, what are you gonna do with it?" This is our cash, right? Are you gonna give it back to me, or you're gonna invest it? You're gonna do something about it. So how do you allocate that hard-earned cash into the future for growth? The final question we get is, "You have this framework that you have and, the baseline financial model that we disclose, and you guys have been doing really well in beating that number quite a bit. So when are you gonna change it? Come on, put yourself out there. Bring a number." Within that same question comes like, "By the way, where are you gonna be in five years from now, four years from now? What are you doing with the portfolio of products that you're rolling up?
How do you convert it into financials? And how can I model your company so I know that you're as good as you say you are?" I have five slides for those five questions, and each one of them are gonna be very quickly, and we're gonna try to do it in 15 minutes. There is one slide at the end that is very detailed, so we're gonna spend a little more time bullet by bullet, and we're gonna find they'll all go together, right? It's for the analysis designed specifically for you guys to see, okay, what is new from earnings? What this guy is telling me now that he has that he didn't tell me before? What is it all about, this appendix that you have out there together with two more slides on the presentation plus the appendix?
I can run on the back and do my models if I need to. 'Cause this is an Investor Day, right? It is. I'm sure that all of you are anxious to see what I have on my plate here, right? Although it may not be a lot of surprises because we made an announcement this morning on the EV charger company that we acquired, and which I'm gonna get a lot of questions, why on earth? You know. I get the why on earth. That, you know, and I have a good answer for that one. I'm gonna be ready for you on the back. We've got a set of teams, a very well-aligned team on the FP&A group that can answer all the questions and help you to refine or tweak the models that you have.
My view is that we are gonna provide a lot of 2023 to 2025 data. 2022 is somewhat out there, and I want you to focus on those latter years as you think about the future of the company and based on what you heard today. Having said that, just moving to the first slide. Okay, so we got two little graphs here that are very simple. In one, I'm showing you I'm growing a lot, Badri quoted 48% CAGR, and the other one I'm showing that I'm making a boatload of money, which are showing the gross margins going from 20% to 40.5% in a period of 5 years, in which my operating income was -5.5%, and now it's 24.3%.
Going back through history, I am saying the question of why you think you're gonna be doing as well in the future, right? Can you repeat that? Can you replicate something similar over the next 5 years? You will figure it out pretty quickly. In 2017, Badri came into the company, and he launched the IQ platform, IQ 6. Within a year, the product was fully ramped, and that year was a very successful year for that particular product. We make an announcement that year that IQ7 was on the horizon. IQ7 was supposed to be the most revolutionary product that we ever produced. That device is more powerful. It come in families. It can have multiple power ratings in different forms.
It's an international SKU, so we can put this one device that we build, and we can put it everywhere, and it's software-defined to the point in which by a push of a software, you can update it and completely accommodate the local regulatory, statutory, utility requirements of the region. It's a simple product, simple logistics, smaller, thinner, lighter, more powerful, and a family of products. That product ramped through 2018. At the same time, Badri made an announcement in 2017, and he said, "We're gonna provide a bold gross margin, OpEx and operating income target." At that time, it was a pretty bold one when you are a -5.5% gross margin. That particular financial operating model got achieved completely as we exit 2018 with a fully ramped new IQ7 product with an international SKU.
In 2019, we started operating pretty much with this particular set of family of products, pricing at the level of detail that you probably have never seen on any other company. We call it the responsibility pricing, or you can call it, you know, methodical detailed pricing, plus a cost reduction roadmap like never seen before as well, where we negotiated every single component, multi-sourcing at the same time and trying to achieve the best economies of scale that we could by setting up contract manufacturers. With that product and having this family association, we can have multiple pricing with the same cost. Higher pricing for higher power, mapping to the different models, modules, and with that allows me to navigate through product mixes within the same family. Very simple.
You sell more micros to fulfill a power requirement for the panels that are becoming more efficient, more powerful, and you can price more. Cost is the same. That's the model. That model worked really well all the way through the end of 2021 when we announced now that we have another product coming up, which is IQ8. IQ8 is highly differentiated from IQ7, even more differentiated than IQ7 was differentiated from IQ6. Why? Because it's a grid-forming microinverter. It's the only microinverter in the world that can allow you to run your solar system when the grid is down and no batteries. Nobody has that. We have it. We also don't have just one product. We have one product in a family, IQ8, IQ8A, IQ8H.
Each one of them more family similar to IQ7 allows me to continue to do price differentiation, more power, and that's the next product in the roadmap. The cost base is pretty much about the cost that we run for IQ7, as IQ7 was about the same cost as IQ6 in many ways, right? The ability to be able to price higher and being able to run cost in the same family on the roadmap over time is still there. It's a semiconductor-based product. It has the same capabilities that Raghu detailed in his section. That product is gonna be shipped in general availability in December, this quarter. That will take a ramp. Badri disclosed the ramp will be 4 weeks. Now, we did 4 weeks, we wish. 4 quarters. We did IQ7 in 4 quarters.
We did IQ 6 in four quarters. IQ 8 will be an interesting one because it has the capability to pair with the storage. That requires a little bit more involved sales process, especially when you need to explain the differentiation between a grid-type product and a not grid-type product, and a grid-agnostic capability to the homeowner. Most of the people still believe that their grid-type systems can operate without a grid. Here we are, two years in a row operating on a 40%, we'll say 16%-24% growth margin, beating our 35, 15, 20 finance operating model that we roll out in 2019. Now the question is, why you're not changing?
Well, even though we feel extremely good about our future and how we're gonna be rolling out IQ8 with a run between 4 quarters and 6 quarters, like Badri said, we still believe there are challenges out there in terms of logistics. The supply chain situation is not very clear right now. We are navigating actually, I will say, better than the average company out there. We know how to do this. We are doing it well, and we demonstrate that with results, with tangible results, not only having a good third quarter, but also guiding a very strong fourth quarter. We believe by the second half of next year, some of these things will be behind us, we hope. As we navigate with more information, we're gonna be able to make the decision more soundly.
At the same time, I'm telling you, my baseline is 35%, but my real plan remains to continue beating my own records on gross margin going forward. That doesn't change. What used to be a bold statement of faith that you guys need to believe me that I can deliver from 2017, but Badri now is a statement of fact that I need to continue replicating and doing with the many years of execution, delivering what I promise. That is still there. This baseline is perhaps a symbol. A symbol that eventually needs to be changed, refreshed. Maybe a refresh to say, "Let's catch up with my reality." You know, when we feel good, we wanna do it. That's not. Today is not the time. Thank you for understanding that. Moving to the next slide. Okay. There you go.
The second question that I get a lot is, how do you convert the P&L into cash? Well, there it is, right? We are growing a lot, and this is your EBITDA. EBITDA is kind of like a SEC technique that's supposed to be a proxy for cash. We call it adjusted EBITDA. We don't have a lot of adjustments. It's a non-GAAP P&L converted into an EBITDA. That's it. It's all non-GAAP. You know, cash is cash. There you go. We generated $100 million of cash last quarter, and I don't see problems of us continue doing that. The proof is on the numbers. There are the numbers.
When it comes to now the way I actually continue piling up our cash, almost to $1.5 billion of cash by the end of the quarter on the midpoint of the guidance, and, you know, not assuming the M&A that we just disclosed, we probably have around between $900 million-$1 billion of cash that I can use for other activities, either returning to the shareholders or make capital investments within the company, make operational expenses, and so on. I'm gonna talk about capital allocation in a moment. The reality is that, you know, our cash generation capability will continue to be in place as long as we continue to delivering the P&L that we deliver, and there are no complications. Look at the P&L converted into cash every single quarter going forward because we have a simple business.
The way Badri architected the business 2017 is very brilliant. He did a restructure. He looked at the company and he says, "What are the things we wanna retain and what are the things we wanna change?" He retained a few, and he changed a lot. The things that he changed are still live today. There are four things that we focus and we do well. The fact that we did it in the past, if we continue doing it, I can guarantee you it will be the same in the future. One is quality. The other one is customer service. People laugh at me when I tell them about my NPS, Net Promoter Score for customers. People say, "Why are you even bringing it up on the script?
It sounds like cheesy. It's actually extremely important. People love us because we take care of them. Customers know that we will take care of them. When Badri says we are 24/7, that means we are 24/7. We are willing to step into the shoes to provide the resiliency to those homeowners who buy our systems. We never are gonna abandon homeowners. Homeowner is at the center of our decision-making, and this is who we are. That will never change. Installers and distributors are partners to success to deliver that particular experience. They are very important to us. We all look at the homeowner to solve the problem. When you're thinking about data privacy, we are not gonna sell the homeowner data. We really believe the data belong to the homeowner.
We're gonna use it to make him or her a better customer experience. That's part of the decisions that we do. It's a principle that we have as a company. We wanna be trusted on the energy requirements for that particular home. On the cash we raised, we did actually 4 converts since I've been with the company, and each one of them have better terms. Crowning my last convert with 20, it's a 20, what do you call it? A 2026 convert. We have one for 2028. Same kind of package, right? That I'm very proud our brilliant Chief Accounting Officer actually executed on that one, where we got a 75% conversion premium, zero coupon.
We have our cost per overlaid completely paid off with tax deductions. That brings dilution on the stock after the stock surpasses $388. Zero coupon money, stock needs to be $398 before I start diluting your investment in the company. Pretty amazing, right? You know, most of this debt is very long-term, long mature. The ability for us to deal with the repayment of the debt is actually pretty flexible because we can settle in cash, we can settle on stock or a combination of the two. It's very flexible. The access to the capital market is still there. Eric, you're still telling me you're piling up cash, you very good, you good leverage, your capital structure of the company is pretty good. You know, give it back to me. Well, we did, actually.
Thanks to the board, representatives of the board are here. We actually did a share buyback exercise, the $200 million share buyback program approved by the board back in two months ago, three months ago. Again, our Chief Accounting Officer executing on the plan, buying 1.7 million shares at $117 apiece. With a 1.2% EPS accretion to the company. Pretty nice, eh? Now we got another $500 million approved. I'm jumping a little bit here into the next slide on capital allocation, because now I'm telling you how I've actually distributed value. The share buyback program was very important to us. We did it. We do. We overanalyze perhaps the intrinsic valuation of the company using discounted free cash flow on a very conservative discount rate.
We evaluate the stock price. Opportunistically, we evaluate where we see the stock going, and we jump in, and we execute on that plan when we see the time is right. In many cases, the time may be right, but we wanna keep the money because there is a target in sight that we wanna use the cash for. We believe the return on that particular investment is higher than the weighted average cost of capital. You know, prior execution doesn't guarantee future perfect execution, but we have the business process in finance to evaluate the intrinsic value of the stock and make the judgment call when it's needed. Mature companies do that, and we do that as well. $500 million can be gone anytime when the right opportunity comes. You know, I still like the cash on the balance sheet, frankly.
Looking at capital allocation rules and retracing back into the four principles, one of them is investment on ongoing growth. Badri talked about the simple company, invest only on the bringing the right people, hiring the right folks in the right places at the right price with the perfect talent. Talent never been compromised. That's the setup that he set up in 2017. This is what we continue doing. The investments on R&D and innovation now took front seat. When you move from survival to I have a lot of cash, now the decision-making process is pretty straightforward. We are a product company, and the cash will go to innovation. Martin and Raghu, that's your dream when you were starting up, right? Now we have it. Products and innovation. We are a product company.
There is no one in the company that cannot go about and explain in detail the products that we sell and the technological configurations that we have. That's important. That's the priority. The second one goes to Dave Ranhoff, the Chief Commercial Officer, to continue our global expansion. That means we're gonna continue investing on sales and marketing in the right places at the right time, again, using a very OpEx-light approach. We are not gonna build massive headquarters international. We're gonna, you know, we're gonna start shipping from distribution on those locations and build enough momentum to start building teams on location, right? That's how we are entering Italy. That's how we are entering Bulgaria, Belgium. That we are entering Spain and any other of those countries that allow us to double our revenue year-over-year.
Your promise from 2019, from 2020 because of COVID couldn't happen. We made it happen between 2020 to 2021, doubling the revenue. Badri , you fixed Europe. Thank you. The money goes to the growth on that, and we are gonna be doing it on a OpEx-light The rest goes to Jeff McNeil to continue diversifying our supply chain by adding additional contract manufacturers. Many of them will be a surprise to you, perhaps even domestically, that we are evaluating. That diversification of the supply chain will be done with contract manufacturing. We don't have any plans for vertical integration into any of that.
We're gonna continue relying on the same model, becoming more sophisticated in how we manage those relationships and our logistics and trying to navigate issues in the future in a simpler way. When it comes to M&A, we have a playbook that we developed. Our former head of investor relations, now head of corporate development. The Vice President, Adam Hinckley, is doing a phenomenal job. He built that team very quickly and a very, very promising pipeline of acquisitions that we have. Now, our ability to digest acquisitions is amazing. We have a great operations team, very mature. I mean, Jeff McNeil, finance, myself and the team, we can actually absorb the companies, integrate them very quickly, create P&Ls for about a year. That's what we do.
We actually create a P&L for that company a year and monitor that we actually monetize those synergies. That is very easy. The question about can you digest whatever you're trying to eat? The answer is yes, and faster than I can actually chew, frankly. The appetite is big. My ability to process all of these decisions about which company we select is very detailed, very tedious and very slow because once we go with an LOI, chances are we're gonna close. When we close, it's gonna happen. Then the roadmap comes in. How do we make that company smart? How do we bring that to the company, to the combination of the two beyond the simple, I save on OpEx, I save on CapEx, you know. That's kind of like the low-hanging fruit. Fine, it may happen.
The big opportunity is how we use that as a vehicle for growth beyond organic growth. That's what we are focusing on, and that's what I think we are doing really, really well. When you see all the cash on the balance sheet and say, "Well, how come you're moving so slow?" Well, we acquired three companies. We announced one today. The three that we acquired is SolarBridge business from--. Now the IQ8 is the result of the talent that we brought from that company in many ways. I cannot even tell you the benefits of that SolarBridge acquisition brought in terms of the commercial agreement.
When it comes to Sofdesk, it's an amazing software tool with digital design and a proposal tool that Badri's turning around and converting into a world-class, top-of-the-line tool used by our installers in our digital platform. He talked about the AHJ and permitting process. We do single-line diagrams that is not done by anybody right now in conjunction with the design in the proposal. It's a pretty amazing execution, and all of them are performing significantly better than my internally developed P&L for targeting the synergies. You know, we know how to do this. We just wanna make sure when we pick something up, it's gonna win and it's gonna win. That's why ClipperCreek is gonna be a good one, right? It's gonna be a test because that's a we consider that one with a lot of potential.
It has a great potential for making it super smart, very prolific everywhere, with a very strong ramp and, incorporated into our digital platform, with our ecosystem within Ensemble, is a perfect fit. We talk about share buyback, we talk about the opportunities there, we talk about M&A. On M&A, the other thing is everything runs through an ROI payback and, you know, using our weighted average cost of capital as a benchmark. If it doesn't exceed that number, it's not gonna be a target, and it needs to be in sight. We have long-term P&Ls on all of those with probably three scenario modeling done by the former corporate financial planning and analysis head. It ties to my plan, really. No stretch on the imagination to make the deal happen.
It needs to really be accretive to the company at an EPS level. Otherwise, we're just not gonna do it. Capital allocation, I think I answered the question on that one. You know, this is tied out into the next slide. A question that I get is, you know, you gave me the $10,000 per home thing that was really good rule of thumb in 2019. Back then in Investor Day, we told you that we can actually get to an average of $10,000 per home in revenue by using a 20-panel average solar system and a 10 kWh battery. What happened with that? How does it look like now? This slide is actually pretty important, and I see many of your faces already taking notes. You don't need to take pictures. There will be a download version for you.
In 2019, we have the IQ7 family of products. Remember, it's a family. We price to value on the family. An IQ7A is significantly more valuable than a plain IQ7 or an IQ7 plus or an IQ7X. So 2019 is $2,000 per home. We've actually stood in front of you, and we told you $10,000 per home, we're gonna launch Ensemble in 2020. Get ready because it's gonna be. It was a tough launch, right? We got coronavirus happening when we did betas. We think it was really tough. Then 2020, Q3 2020, we started to ship production of Ensemble, meaning the battery, the IQ Battery. You know, we started with a long tail, was a little tough.
We moved back to tier two to help us to get the right volume. A lot of learnings. Back fast forward to today, I think we gonna be shipping based on the point, the midpoint of the guidance of Q4 2021, about 245-246 MWh of storage, which is a pretty good result considering the year of the ramp. We also announced IQ8. IQ8 now has this power of pricing similar to IQ7 with the significant differentiation of grid agnosticity. That's a big deal, guys. If we do a good job training and educating consumers and installers, our partner installers, I think this could become a very big opportunity on the per home dollar on the 20 micro assumption, right?
You look at exiting 2021, we are at $2,300. Now, we need a few price increases to adjust for inflation, as you, as you know. At the same time, we also move towards the 7A kind of efficiency level, therefore allow us to have a better price mix. As we exit, this is exiting 2021. I think you can find Waldo on 2022 on your own. We can help you if you need to. 2023 and beyond looks very, very promising, right? Now we are talking about a $12,000 per home, and that does not include the portable power station, and does not include commercial. In which case, I'm gonna move to the next slide.
Now, this one is a little bit of an eye chart, but you know, we talked about some of these factors that I'm gonna be presenting here during earnings, so I'm not gonna repeat some of the bullets by each one of the categories. You can see here we are showing you a global revenue growth framework. I tested this slide with my own team doing multiple analytics, so I hope the conclusions that you arrive are very similar to the conclusions that we internally arrive. It has a lot of good information. First of all, it has information from 2022 to 2025. Secondly, you need to read it in conjunction with the appendix on page 67. This is the first time we are actually publishing our interpretation of the SAM for each one of these systems in our portfolio.
Each one is a system. I mean, some of them right now, the charger looks more like a smart cable or pseudo smart cable that will become a system hopefully pretty soon. The acquisition of the EV charger, it's not a system. Portable energy system is a real system. It's already cloud, but it's not fully incorporated into the Ensemble as participating into the AC marketplace yet, but it's on the roadmap. The small commercial solar system we already announced before, and I'm gonna talk a little very briefly about it, and the residential storage and residential solars are our bread and butter today. When it comes to residential solar, I'm gonna talk about four points out of these bullets. One of them is that the SAM that we assume to grow at a baseline of 15% CAGR from 2021, ending 2021 through 2025.
That's one assumption to keep in mind. We expect to grow faster than the market. We have demonstrated that we can do so, and we believe we will do so as well. We will qualify additional control manufacturers worldwide to ease logistics for customers. We do expect a modest ASP decline to 20-25. I'm gonna help you out here with some nuggets. We always assume almost mathematically that there is a 1.21% per quarter erosion on pricing just because. You can use your own assumption, but, you know, those are the assumptions that we normally use internally to drive our financials. When it comes to residential storage, the SAM we are seeing is gonna grow by 1 to 1.5 gigawatt hours. The SAM at 55% CAG. The
I'm correcting. The SAM in 2021 was 1.5 GWh and will grow 55% CAGR from 2021 through 2025. Cells reaching current cell pack capacity in the second half of 2022 is an important thing that I want you to know. We already disclosed the capacity generation that we have available. We also talked about the possibility of getting more capacity for the existing two suppliers that we currently have. That's one thing to keep in mind. The last comment on this section that I wanna emphasize for you is that IQ8 enables smaller battery systems accelerating market penetration. Basically, think about the home's essential backup value prop that we have. With IQ8 on the roof and a 3.3 kWh battery. That's a phenomenal easy sell for penetration of storage going forward.
I think it's your favorite value prop, right, Dave? By saying, "Why not add a small battery to your Sunlight Backup that works only when the sun is shining?" This one can work for a few hours even when the sun is not shining. Correct? That value prop is the first time that we can offer that level of modularity because IQ8 now enables that ability to modularize at a lower level than before because of the number of micros required in the roof pairing with the amount of battery, the minimum amount of battery that you needed by IQ7. That restriction is already removed. That can allow a faster penetration of the storage going forward. When it comes to a more commercial, I wanted to tell you that we are very excited about the product.
The product will have an exciting roadmap as a software wrap, but you should assume minimal revenue contribution in the year of launch, which is this year. We already talked about the product being available, general availability in the second quarter of 2022. We're gonna start shipping betas in Q1. The commercial SAM is estimated to be about $1.7 billion for 2023 and $2 billion in 2025. Again, that information is in the appendix, laid out by regions.
We believe we're gonna be able to command premium pricing because of our software definition of superior product reliability, and the price points that I've been looking at will allow us to potentially get to about 500 MWh, MW of system size. The new opportunity here is between 20 kW systems for commercial, all the way through 500 MW systems of commercial based on the product roadmap that we talked to the team. I think that will be. But again, I will assume minimal revenue contribution on the year of launch. We expect a post-product proliferation of about 5% per year market share capture. That tells you a little bit how we are thinking about the product.
When it comes to the portable power station, similar to the small commercial, it's the year of launch, so we should assume a modest market share capture at launch. The SAM for the PS is about $1.6 billion in 2023, and growing to $2.5 billion in 2025. Also, again, in the appendix, broken down by region. There will be general availability of the product in the second half of 2022. You will see a demonstration of the product during lunch. I think you're gonna love it. Don't take it home, please. We have only a few. We expect a large market share capture opportunity with product differentiation, cloud connectivity, and Ensemble integration.
The Ensemble integration is what the battery does once we can put it as part of the AC marketplace, you can potentially dispatch it for grid services if you want to. All of them can be connected together, and it's truly on the go. When you keep it at home, we can make it to participate on your ecosystem once we get that capability enabled as part of Ensemble. It's adding battery just with portability capabilities, you know, taking it to another level. Finally, the EV charger. This one, I wanna probably go through all of them very quickly. We pay about $150 million, $110 million in cash and $40 million in stock. We have an earn-out set up with the team for the $40 million stock base, a part of the proceeds.
We're projecting sales in 2021 to be 21,000 units in the U.S. EV market. That means that you can look at the some information and you can do your own calculations for the projections in the appendix. Again, the appendix becomes a very important part of the presentation. Expect the U.S. EV market. Our point of view is the U.S. EV market will grow at a 50% CAGR. These are all global, right? From 2021 through 2025. It's a big wave of growth coming up and, you know, we would like to participate. The way we would like to participate is by making the product smart. First of all, synergize it within Enphase, make sure we get the contract manufacturing set up properly.
We provide the customer service and all the elements that we need to synergize with our customer service style. They do have a pretty good customer service process. We're gonna leverage that. We're gonna roll out the product within our own existing channels under the ClipperCreek name, and we're gonna start the process of incorporating quality reviews and a contract manufacturing setup and start, you know, moving and transitioning the product into the cloud and ultimately do bidirectionality. I mean, if there is a company that knows bidirectionality, it's us. That's what we do for a living. Ensemble has a proven track record of doing that really, really well and in a very, very smart way, giving the power to the homeowner on the app.
Allowing the work on directionality, bidirectionality into the EV charger is gonna be super important part of the roadmap and very good for price differentiation and allowing us to grow with the market or beyond the market. Those are my prepared remarks for today, and I hope you enjoy the Investor Relations Day. I think we have a Q&A session now. Thank you for coming, and thank you for making the effort to fly here today. Thank you. Christine?
Let me wrap it up. A quick history. I joined the company in 2017. 2017 was about conserving cash. 2018 was about IQ7 product introduction. An amazing product, exceptional quality. End of 2018, we committed, meaning we executed what we committed, 30/20/10. We made it a reality. End of 2018, exactly what I told in 2017. 2019 was about how do we grow up beyond microinverters. In a pure solar company, we started doing R&D and started working on storage. In 2020, we introduced batteries. Q3 of 2020, we introduced batteries, and we have started ramping well. 2021, we are bringing, as promised, a grid-agnostic IQ8, an IQ8 that can do Sunlight Backup. That's now possible.
That has not been possible till now. Then you saw the various other pieces of the home energy management system we talked about. We talked about solar, storage, load control, EV charging. We talked about even, you know, having generators and fuel cells, grid services, and a robust home energy management system. Home electrification, hot topic, is inevitable. Home electrification is going to happen. It's here to stay. Climate change is real. Natural gas is going to be under a lot of stress. What does full home electrification mean? Homeowners have a head start today. They're already buying electric vehicles. They're getting more and more conscious, already buying electric vehicles. Next step is your hot water heater, your cooking range, your washer, your dryer. These appliances that run on natural gas are going to be electrified. It's going to happen.
You know, incentives may be there to accelerate the transition, but that transition is going to happen. What can we do? Enphase, we know how to manage these loads. How can we execute full home electrification? You electrify these appliances, and then you add more solar and more storage, you add load control, you help the homeowners become an integral part of the grid, providing grid services. We know what to do. We have been doing that. We showed you that today. We are well-positioned to help to put homeowners in the, at the center of the universe. Now, there is gonna be no leakage in their energy. With a simple app, they'll be able to look at all their energy, 100% of their energy, and able to make, use, sell, save their own power. We are well-positioned to do that. Okay, thank you.
Now, I'd like to invite a few of us from the executive team to answer questions.
You wanna bring the mic?
Yeah. We are ready to answer questions.
The mic or-
Mic.
Mic.
Please, a mic.
Yeah.
Thanks, guys. Brian Lee, Goldman Sachs. Had a question first on the new EV charging opportunity. You mentioned the $6 billion SAM by 2025. That's as big as the residential solar that you outlined. This may be in the appendix, but you know, you've talked about sort of $2,000 per home for the micros. How much is the opportunity per home for the EV charging in that math to get to the $6 billion SAM?
You wanna take that, Raghu?
First, SAM is global. That's the really important part because in Europe, the market is significantly bigger. The first thing we're gonna do is, in addition to building out, doing everything that we are doing for the company in terms of reliability, contract manufacturing, and so on and so forth, going into distribution to take the product to Europe. The market is huge there. In terms of the dollars, I'm not sure we are breaking out the dollar amount for it, but let me tell you one more thing, that bidirectionality will be important. That'll be a significant value add.
While today it's going to be about just EVSE as a supply equipment for charging, in the future, as we not only transition the product into Europe, it'll also be about providing additional services like full bidirectional capability. We haven't broken out the spec in separate specifications.
That's okay. Fair enough. Maybe just a follow-up real quick for Eric. You mentioned market share capture for some of the buckets you outlined on that last slide. How about for EV charging, that $6 billion SAM? Any sort of initial thoughts around market share capture?
Yeah. We just acquired the company, right? I believe the differentiating elements on the EV charging device will come with cloud connectivity and bidirectionality. You know, right now it's a level playing field. Pretty much all the devices are about the same, and most of the control happens within the vehicle. The ability for us to cloud connect, potentially create fleets, and provide access to commercial, perhaps, and eventually get to a very fast path to bidirectionality is gonna be the big breaking point for everybody, right?
Last one from me, probably for Raghu. On the IQ9 overview, the decision to go with gallium nitride versus silicon carbide, can you kind of talk to that a little bit? And then you didn't mention timing. I think gallium nitride is still known to be pretty expensive. What's the sort of status on timing of the launch, and then supply chain-wise, is there enough sort of supply of gallium nitride as you think about moving to platform 9?
I'll take that one. The reason to choose gallium nitride is obvious, you know. To pack in more watts per inch cube. If you see some of the current papers out there, a MacBook charger today, a consumer MacBook charger today is roughly about 6 watts per cubic inch. Gallium nitride has the ability to push that up manyfold and miniaturize. The whole point is miniaturization, increasing the power density and improving energy efficiency. That's what we are all about. You asked us a question on timeline. Timeline, a new technology like this will have cycles of learning. In the past, for us, it has taken us from IQ7 to IQ8, it has taken us 18 months, 18 to 24 months. You know, I expect something similar here. We are working with a few partners.
We are not yet ready to declare them openly. There are partners who we are very used to work with. There are new companies we are working with. There is also GaN has also two things there. One is a unidirectional GaN, and the other one is bi-directional. If you have a bi-directional GaN, and you couple it with a gate driver, six devices can become two device, eventually. He showed that we are using, you know, we are doubling the frequency, you know. We're not gonna talk about IQ10, but in IQ10, I expect to go to even higher frequency because the higher frequency I go to, my transformer size drops one over root that. You know, GaN is evolving. We are learning along with the market.
We are working with the right players, and there will be some cycles of learning.
New ASICs also that allow us to do additional levels of integration. GaN is the right long-term plan, and so you wanna get going on it now, despite it being somewhat early days.
Can you get closer to the mic, please? Thank you.
Now about the EV charging point, have you guys decided to purchase from?
EV charging, think about what it is all about. It has to work in conjunction with the home energy system. We cannot treat it like a widget. It has to be an integral part of Ensemble. Why? Because there's gonna be several use cases. There is gonna be a homeowner who will say, "I want to charge my EV only from solar." We can enable that. The homeowner is gonna say, at some point, "I want my home to be powered by the vehicle." We know how to do that, bi-directional power conversion. Our core competency is power conversion, bi-directional power conversion at that, interaction with the grid, which you must do right now, part of the home, and a cloud-connected software. This is what we do. This is what a typical home energy management system is.
In places where we do not have the core competence, we'll go and partner with others. In these places, it's obvious that I can do power conversion, I can do software, I can interface with the grid. The only thing I need to pick up is the interaction with the automakers, which is not that difficult to do.
Can you hear me? Yeah. Thanks very much. Mark Strouse, JPMorgan. Can we just go back to the comments you made a few weeks ago on your earnings call about the IQ8And the potential supply chain challenges if the demand exceeds your expectations? I know it's only been a few weeks, but just any update there on how you might be, you know, taking steps to get ahead of that?
Well, from a supply chain perspective, we are getting ready for the IQ8 ramp. Like what I said, whatever I said in the earnings call still stands. We have solved the AC FET driver problem. That's actually history. Jeff McNeil has qualified 5 suppliers for that device. So that's not a problem. We don't see a big issue here. You know, typically product ramps like IQ8 take some time. Our history has shown this will take between 4 and 6 quarters. In the case of IQ8, the sale is an involved sale on, you know, between a grid-tied system and a system with Sunlight Backup. Between a Sunlight Backup plus a Sunlight Backup with a small battery. Installers will start getting proficient, you know, within a couple of quarters, and then it'll take off.
That's usually the way we have seen, and we are gonna be ready for it.
Okay. Just a couple quick follow-ups for Eric. I'm sorry.
It's distracting me. The gross margins on the EV charging business today, and where do you see that going over time?
Comparable.
Today or over time?
Today.
and then just on the two of your different slides, you talked about assuming the ASPs for your battery business decline over, I think, through 2025, but the revenue per household looking out to 2023 was the same as 2021.
Let me see if I understand the question. You're saying that the battery price-
Yeah. I think the battery price, if I remember right, was what? Yeah, say around like 6 or-
Right.
-$7,000. That was the same in 2021 as it is in the column for 2023.
Correct.
In your other slide, you talked about you assume ASP declines through 2025.
Yeah. The cell battery pack itself will undergo significant cost reductions thanks to the EV industry. Overall, the product mix that we currently have, we may be able to manage our pricing within the range. It's a range, right? We believe that our differentiated product, our ability to modularize that and get, you know, more like the 10 kWh to become the standard. Right now, the standard for a typical home is a 16.8 kWh. With this new IQ8 solution that allows you to more use a smaller battery, roughly it's gonna average down into a 10 kWh battery because more people will get the 3.3 kWh solution, right? It's cheaper, very entry. That provides better penetration, which allows us to price much better, right?
Because now we have the other pieces on the home energy management system on the storage side, like the switch, for example, that its price not gonna be as subjected to the same dynamics as the cell battery pack reduction within the BOS of my battery solution, right? The other one is the power electronics, right? The batteries and the pieces that we do, we expect less price elasticity that you will see on the cell battery pack front. Hope I answered your question.
The other thing.
I wanna add one thing if I could.
Yeah.
The other thing I'd add is we're gonna see more homes adopt batteries. You know, today we have an attach rate of X, and you're gonna see that number climb, I think, rapidly, not only in the U.S. and other markets. As the homes become more electrified, as homeowners get EV chargers and they get cars and they start electrifying, they're gonna add more solar panels, they're gonna add more batteries, and we're gonna see a proliferation of the whole thing. We're just getting started. I mean, even in the U.S., you look at attach rates, they're going up every single quarter, and they're gonna climb over the next several years. We're seeing the same in Europe. We're gonna see the same around the world.
Right. The battery we'll be introducing in 2022 will have double the power, continuous power and double the peak power. We expect that will basically, you know, instead of people packing up on kilowatt hours, they now have a real battery that can deliver a lot of kilowatts per kilowatt hour. That's important for me because that is value that was not there, that's not there with respect to my competition, and it'll help me to establish a premium. In addition, the 15-year warranty. You know, we are gonna be working on making batteries better and better and better. 15-year warranty is something soon we are gonna look at exceeding that too. We expect that we will. You know, like what I said before, we cannot price the product until or unless we add the right value.
The pricing equals value that we add compared to the next best alternative. We think our, you know, advantages are going to be higher power. It's going to be, you know, customer experience. It's going to be defectivity rate, you know, achieving the same gold standard that we have on our microinverters. Those are our assumptions.
Yeah. Just to add one more thing on that one is the 5 kWh storage solution that he refers to is the one that will bring the level of differentiation.
Yep.
Cost-ability opportunity for us. That's on display here, so if you wanna spend some time with that.
That's-
That would be a great, amazing product, right?
Right.
Just so you know, we got the technical people here. They can give you all the answers.
Hi, can you hear me? Oh, yep, it's definitely on. Yes, I'll keep it to one question as requested, just specifically following up on the storage comments that you just alluded to on the increasing attach rates. Can you talk specifically through your strategy on ramping the volumes against the backdrop you talked about on all the product improvements? I know you increased capacity to 180 MWh quarterly on the last update. But just thinking through the cadence of that ramp into 2022 and 2023, if you can help quantify that for us.
I'm gonna have Dave talk about the demand and Jeff talk about supply.
On the demand side, as you know, the California market's very, very strong for batteries. If you look at all the market research, it shows you California's a major market. We're seeing other markets develop very rapidly. Now look at what happened in Texas earlier this year with their storms. Texas wasn't on anybody's radar until they had the storm. Now it's on everybody's radar. Florida. Raul's here from Florida. He can tell you the attach rates in Florida, what happened when you started a year ago, what they are today, what you expect them to be next year. You know, New England, same thing. Look at the storms they just had. They just got hit with storms.
I mean, it's happening everywhere, and customers are wanting batteries more and more than we've ever seen before. The attach rates when we started, we thought were gonna be around 10%, 8%-10%, 10%, maybe 11, 12%. I think they're gonna double quickly, and maybe even do a lot more than we think. Events like this just spark customers to call us and get on the phones and say, "I don't wanna deal with this again. I wanna take control of my own destiny and not sit here in the dark with my family, uncomfortable with what's going on. Can you help us?" We're getting those calls everywhere. Also, as I go to Europe, we spend a lot of time in Europe. Germany has very high attach rates, 80%.
If you go to Germany today, and you talk to customers that buy solar, 80% of them add storage. That's coming to this country. It will happen here. Same in Australia, it's about 30%. It will happen there as well. You're just gonna see this home energy management situation develop all over the world. I'm very, very bullish on storage attach rates, and I think we're just gonna have a multiyear run across the world.
To talk about supply, there's two aspects when we look at supply. We're very focused, of course, on the battery cells themselves and those suppliers. As Badri had informed you guys in the last call, we got two now. We have others that we're working to bring online. Having a multi-source strategy with those suppliers as well as having partnerships with them, we work very closely with them with our forecasts and our service agreements with them. We have upside potentials with the right notification of lead times, and so that's well established. We have other things that we're doing as far as getting global diversification on that, which global diversification does two things for us. One is obviously helps us protect the supply with any disruption that can come.
For me, what I actually love even more than that is it shortens my lead time.
Mm-hmm.
I don't have as long of to ship things around. All that's in play and it working, and we're keeping that ahead of the demand that Dave's going for, and our. My job is to keep making sure that happens. The second side of that is being able to put the cells into batteries and make whole systems. We have two factories that do that now, and plans will continue to expand that, again, with global diversification to be able to have that in a footprint that has the capacity with short lead time to our customers.
We're gonna take a question from the web. Phil Shen is asking, "Is it possible or even probable that you could continue selling the IQ7 family even after four quarters of IQ8 ramping, i.e., in 2023? Is it valuable for you to sustain the wide product offering from a margin standpoint?
That's a good question. Is it possible to sell IQ7 product in parallel with IQ8? I mean, there may be some countries where the grid is so good that it never fails, right? We'll see if there are countries like that. You know, maybe in that case, the customers say, "Okay, I'm happy paying a little bit less for IQ7." You know, however, my opinion is that that will be a very small fraction. I think the innovation in IQ8, the way it responds to changing grid conditions 1,000 times faster than IQ7, it's just a product that's going to be superior in functionality to IQ7. Yeah, you know, customers will decide what they want, and we will be there to help them.
We think, you know, the transition will take 4-6 quarters. We'll find out sooner or later, you know, how that is. The other big advantage is, you know, between IQ7 and IQ8, there is one major difference, which is the ASIC. The ASIC is a different ASIC. There is a lot of components that are shared between IQ7 and IQ8, aside the ASIC. It's not too much of a heavy lift for Jeff. You know, multiple puts and takes, we'll see. Customers will tell us.
Yeah, if I may add, the IQ8 can operate like an IQ7. You can operate an IQ8 in grid tied mode, which means you don't need any of the safety functions. It can just be the IQ8 with our combiner. You'll get the functionality that you want.
Yeah.
For a very small add-on.
Just to clarify, if we price the IQ8 grid tied as a solution well, the difference between an IQ7 and IQ8 is obviously very small, and consequently, why would you not-
Yeah.
Do you have a grid-agnostic product available? The only thing you are saving is the switch. Fine, you can get the switch later, right?
Yep.
Hi. Joseph Osha, Guggenheim. Badri, you've talked a lot about the long tail and focusing on the long tail. It's been a great strategy. It seems as if there is some consolidation going on out there if you look at what happened with Blue Raven and now ADT and Sunpro. I'm just wondering if you see more consolidation out there in the dealer network and what, if so, that would mean for the business.
I'm gonna have Dave answer that.
It's a good question. We are seeing some. You mentioned ADT. There's some partnerships forming across, there's no question about it. Lumio is another one that's starting to consolidate a few. I don't know how far it goes, to be honest. I mean, most folks find it not easy to make this a national effort. You know, it's very much if you're successful in one region, it's because of the people you have.
Mm-hmm.
It's all about staffing to win and hiring great people. It's not that easy to scale and continue to grow in multiple regions. I think there will continue to be some. I think you're gonna see utilities start to get super interested, right? We've been in a kind of an annoyance, and Raghu, as you've been saying, they've been trying to stop us in many regards. I think the utilities are now beginning to see this makes sense. They're getting overloaded with more demand. They're gonna wanna participate. They aren't gonna wanna lose that customer. You may see utilities starting to step in and take a more active role in participating in capturing some of these installers. I think there will be more consolidation, there's no question.
How much and how fast, I'm not sure. Because when you pick the phone up, if you're a homeowner living in the middle of Kansas or the middle of Texas, you like to pick up someone that's in your neighborhood, that's in your region, that knows you, that you trust to install your system. There's still that connection between the customer and the installer. It's super important. We'll see. There's certainly some. We'll see more. How much, I'm not sure.
Good afternoon. Kashy Harrison, Piper Sandler. My question revolves around ClipperCreek and the EV, and the EV charging acquisition. When we think about IQ8, when we think about IQ9, it's very easy to articulate the competitive advantage that you have relative to a lot of your competitors. However, when you look at EV charging, it's not quite evident, you know, where the point of differentiation is. What is it about ClipperCreek that made it special? Why ClipperCreek? Why not someone else? Do they have any secret sauce or anything special to offer? Thank you.
Yeah, take that, Raghu.
Yeah, sure. The competitive advantage doesn't come from thinking about it as an individual component. The competitive advantage comes from providing that entire solution. If you wanna deliver the best customer experience, which is really important, you have to provide that end-to-end solution. Think about EV and EVSE or bi-directional EV as a strategic element of that offering that we have, not just as one specific individual component. It's inevitable. We talked about it, right? Home electrification, which includes EV, is inevitable. It's coming at a very fast rate. You have to be able to manage that EV, manage the charging of the EV, the source, the rate at which you charge, the duration at which you charge.
You have to get pretty involved if you want to have a successful energy management system or an IQ energy system in your house. Plus, EV also is an opportunity. It's a fantastic resource that can be sitting there, and you move it in. If you can do bi-directionality, which we are very good at, plus grid interaction, plus software, I think we bring a tremendous amount of value. We goose the value of that solution. It's no longer just an EVSE dumb charger. We can really make it very valuable. Then the competitive advantage comes from providing a complete solution, complete system.
Yeah. Just to add to that, I mean, the reason we like ClipperCreek is, Badri mentioned, from all the companies that we looked at, they have. First, they run a profitable business. They've been doing this for a long time. They care about quality, and they're really credible with customers, right? They stand behind their console. That was a good synergy from the get-go. Second one is our ecosystem platform Ensemble will work with any EV charger, right? We are, in a way, providing one more alternative to homeowners on an integrated platform, right? On that one, we wanna make it smarter, bi-directional, and that will happen hopefully soon enough that becomes a differentiating factor with any other competing solutions out there.
Yeah.
Working? It's not working.
Hi. Good afternoon. Thank you for taking my question. Sophie Karp, KeyBank. I'm curious how you think about when you calculate and assume your addressable market, right? How you think about the cost to consumer and kind of break even point to the consumer when they purchase these systems, right? You talk about increasing the overall value from 2000 to 6 to further out. Maybe that makes sense in some higher energy cost markets, particularly in Europe, right? Or in the coastal markets in California, some elsewhere in the U.S. Maybe not so much where utility rates are half of or less than half of what they are in those markets. What is your assumption about how geographically your market will expand or evolve over time, if you will? Thank you.
You wanna take that?
Yeah. First I'll take the question on the cost. We share your concern. You know, the cost to a homeowner of an energy management system is rapidly becoming a more expensive proposition. You think about the cost of the home. Second most expensive acquisition a homeowner normally made was their vehicle. Home energy management is coming right up there with it, right? Particularly if you add what you just described, solar plus storage plus, plus, the price tag can get high. There's a couple things we're doing. One is we're always, number one, looking to how do we reduce cost. I think Badri talked about that, Raghu talked about that, and it's in our DNA. Most of us came out of semis. It's all about cost reduction, quality, driving all those elements. That's number one.
Immediate thing we can do is financing, right? If you look right now, 70% of the products today are purchased on loans, and that shifted a lot from PPAs to loans. We absolutely believe that's the right solution for the homeowner to own the asset. We think that represents significant long-term value. We have a 25-year warranty, so we try to describe to the customer this is not just thinking about the initial upfront acquisition, you're gonna have this product for 25 years. Think about what that's gonna do for you for 25 years. Think about not having to pay your utility bill after some period of time and having free energy. A lot of it's education, but the immediate issue is financing.
How do we wrap financing into all the things Badri talked about with that homeowner journey on a digital platform? How do we make financing an integral part of the solution? Instead of putting a big price tag out there, you can put out $163 a month. The homeowner thinks about $163 a month relative to their energy bill, and then they see all the benefits of, "Yeah, I pay that, and guess what? I own the asset, I control my destiny, and the bill's about the same as my energy bill, and now I own it, and in a couple of years I pay no energy." A lot of it's education, but the first thing we're gonna do is financing through third party and other means to make financing an integral part of the digital platform.
As you're configuring your system, you're thinking about it, we're helping our installers like Raul and Suleiman on how they think about it. Suleiman's an expert in this. He can help us as well. Bottom line is financing is the first thing, and then education is the second piece. I think if they have those two things, it will pencil out for them.
Hey, this is working. Good. Julien Dumoulin-Smith, Bank of America. Afternoon, guys. Congrats again. Maybe just I'm gonna keep going on this cost focus real quickly. Let's talk about IQ9 again. You talked about roadmap a minute ago. Let's press. How do you think about the extent of cost reductions that do you expect that to enable specifically? I know you talk about this trajectory. What do you think about the deflationary backdrop? Again, open-ended. You kind of alluded to it a second ago, you know, home consumers trying to bring down that cost. What does that ultimately say for then your margins as you think about it? You didn't formally change your kind of conceptual targets.
Although I think in the commentary you alluded to kinda hitting above your historical record. Again, I don't wanna hold you too much to it. If you can kind of put these three together and again, trying to map out this 2023, 2024 timeframe, that it seems like you were talking to that IQ9 introduction.
Yeah. Sure. You wanna talk about the cost thing?
Sure. I think cost comes at many different levels, right? Yes. At the inverter level, obviously there is cost. Initially we wanna be cautious, right? GaN is still new. Over time, GaN's gonna pay off in spades. Everything from reducing the size of the footprint because you're running it at a higher frequency. Today, we are running. We're gonna double the frequency, but you know, it can go significantly higher than that. Again, vendors are gonna catch up and reliability kicks in. The device is gonna get less expensive on a unit basis over time. Plus, the other help is that the power is going up. There is some intrinsic dollar per watt advantages. That's on the inverter solar side. Remember-
That, if the power goes up, then the number of inverters required.
Yeah.
Right?
Per home
The balance of systems.
Helps as well. In addition, remember, that's the foundational element for us, for all other products, for other products as well. Even we're gonna use IQ9 or IQ9 BATT, battery product, for our storage product as well. That has an impact on the storage solution as well. You look at the foundational element, drive the cost down. It's gonna happen over time as GaN matures, costs get better, but then it pays off over the cost of all the other solutions. Eventually, it has to pay off for the homeowner in terms of a smart system. One thing I want to add to that is we showed you a full-fledged energy management system that has for everything from, you know, obviously, we manage the grid, solar, storage, generator, fuel cell, etc.
The beauty of that architecture is you don't have to have all the elements. You could have an IQ8 only or IQ9 with just the load controller. Or you could have a what we call essentials backup only, which is an IQ8 load controller and 3.3 kWh of storage. Or you could have the entire deal. You really can very easily and simply meet, tailor it to a particular homeowner's expectation. Couple that with the financing, you're gonna be less expensive, be more resilient, and be more future-proof than any traditional energy source. I mean, that's a given.
Yeah. The other thing I'd add to the cost structure, if you look at this country, we're what? $2.85-$3.10 a watt. Go to Australia, $1.10, right? Here we have huge soft costs.
Yeah.
Cost of sales, cost of permitting, all these huge costs that have to go away. That'll help the homeowner a lot when we take these soft costs out. One of the things Badri has is this, get this digital platform, make it easier and easier and easier to do that, and find ways to automate all the pieces and remove the soft costs. You know, you look at Australia, they don't have any sales force. They're not paying sales guys out there to sell solar. They're not. You know, with 33%, 35% attach rates, your neighbors have it. Word of mouth is what's selling it. I think this country will get there too. It's just gonna take more time. The soft costs have to go. That's what's gonna drive it down.
I need to clarify the gross margin question. In terms of Australia, one challenge with Australia is, I believe, the country as a whole was bombarded with lower quality devices, and that kind of adding to this lower cost. There is a
Sensitivity on pricing. They got great penetration. You know, now people are coming back and saying, "Wait a minute, what did I buy?" Right? There's a little bit of buyer's remorse going on right now, and that's why we are entering very strong in Australia as well, right? I mean, Europe is actually very interesting. I just wanna bring it up because that's kind of like a more comparable in the sense of a mature market where, you know, we are actually winning with great margins and at the same time we are penetrating and people don't compromise on quality. I think that hopefully Australia will evolve the same way. It's not about kind of getting to the $1 per watt kind of thing. It's about what are you getting really when you buy, you know, what you buy, right?
I think lots of that is going on. In terms of the gross margin, before you start projecting 60% gross margins, based on my comment, you know, I think that we provided a midpoint of the guidance for you guys to allow me to have breathing room. And I think it's a very reasonable midpoint for you guys to model in the short and mid-term. I think that, you know, I don't wanna say that the 35, you know, 30. You know.
I don't wanna say that the baseline model is an antique, but I will say that it used to be a bold target, and now is something that we sit very comfortably in, and I would not be doing my job if I don't aspire to beat my own gross margins every quarter, right? I wouldn't be doing my job. You know, the market is gonna be very interesting. All these logistic costs. I mean, how many companies, think about it, right, manage to cut capacity by half in Q2 2020, come out of that doubling the capacity without compromising the margin. Thank you, Jeff.
Then on top of that, coming here, living with this kind of like 20% increase on the ASIC and component prices like that, and then they come up and they can continue guiding very consistently the way we are guiding and not compromising that. I want you guys to give us a little credit on that. Also forgive us for not being bold and in this environment of confusion. Well, when you write all your reports. Thank you.
Hi. Steve Fleishman from Wolfe Research. Strategic question of just when you listen to the strategy, it sounds like you'll kind of increasingly potentially be a competitor to your tier one customers. Could you talk about how you're thinking about that strategically? And maybe related, just you mentioned the idea of, you know, utilities getting more, you know, maybe be more open to working with partners. Just given the scale of your business, you would potentially be a natural one to do that with. Thoughts on whether you could do that and accelerate adoption.
Yeah. Let me comment on your first question. As Badri said, the installers are our lifeblood. We will never compete with our installers. Number two, we need our distribution partners because they do an amazing job at things we don't do at all. Kitting things, packaging things, the last mile delivery. They have a lot of trucks. They have a lot of people. They're close to their customers, and they do things we don't do, nor do we have any intention of doing. I love our revenue per employee model, our gross margin focus. We're not gonna get into businesses that need that, but we need partners that do that. The first thing, we will never compete with our installer partners. We will not compete with our distribution partners, period.
We talk very openly with them as partners about how can we together solve some of the problems you're raising. How do we deal with these utilities that are now wanting and showing interest? How do we deal with different aggregators that are trying to do different things? How can we partner together to bring the complete solution? I'm not worried about competing with our tier ones. We will not. We will partner with them. It's a big world out there. We have 2,000 employees in our company. We can't be everywhere. We don't want to be everywhere. We're not trying to be everywhere. We're best at what we do, which is innovation, best products in the world, best quality in the world, best 24/7 ever.
That's why that digital platform's so critical, so we can scale enormously without having to add a lot of people. Right? We need and we cherish and we value our partners, and we will not compete. Best way to put it.
Back there.
I'll take another question from the web. This is from Moses Sutton. The IQ Battery 5P, do you need to get it recertified versus the existing IQ Battery 3 or 10, and any limitation in IQ8D manufacturing capacity to be embedded in all the batteries next year?
Yes, I'll take the compliance part, the recertification part. Absolutely. Anytime you do a new product, not only do we have to go through all the compliance requirements, not the cell pack, but the solution needs to go through full UL certification. We also have to run through our full reliability qualification as well. It's a new product launch. As far as supply chain on IQ8D-
Yeah, on IQ8D, it is very similar to what we have on the IQ7, IQ8. A lot of reuse of components. When you see the image of what it looks like, it runs in the same lines in our contract manufacturers. It's one that, you know, with planning, is more of a derivative than a whole new platform for how it runs in manufacturing.
A couple questions on the IQ8. You know, first of all, is there any risk of product transition issues? You know, it's such a much better product than the IQ7. Are you a little bit worried about the transition and getting stuck with some inventory? Secondly, what's the upgrade opportunity for the IQ8? And then finally, I believe the product's supposed to be out in the end of 2019. What were the product delays, and can you talk about are there any additional hurdles, in terms of the development?
Product transition, I already said 4-6 quarters. Then the second question was what? This.
Upgrades.
Upgrades.
Upgrades. Yeah. Upgrades is very interesting. We expect a lot of customers, a significant chunk of customers, especially the ones who have bought product maybe more than 5 years ago, to come back and ask for this grid-forming functionality. We'll be ready to tackle that. The first few months, though, I think, you know, I would say first 6-9 months is we need to get our installers, you know, comfortable with selling IQ8, the value proposition of IQ8, and the product will start ramping. The supply chain will start ramping. Once the supply chain starts to stabilize, then we can use that as a launchpad and do a lot more lead generation with our own customers. That's what our plan will be.
Regarding shipping IQ8s, we are on track to ship starting in December. Why has it been delayed in the last two years? Yeah. Okay. You should come to my staff meetings. What I decided was, you know, introducing a battery was extremely critical. The feedback from our installers was, introduce something that can pair with your current microinverters immediately. That's why we took the opportunity to do a two-phase approach, which is make your batteries first, which is what we did. We introduced it in Q3 of 2020. That paired with, you know, IQ7, IQ6 M-Series, we did that. You know, the IQ8 uses a different chip. It uses a different communication scheme.
It is still PLC, but the trick was to make our communications gateway, you know, compatible and have only one version of software so that we don't have a chaos in the field. It has taken us a little bit more time. You know, that's over. We're ready to ship. We'll start shipping December.
Just to add to that, clarify. The IQ8 product was actually available inside the battery in Q3 last year, and we ship them. That's what he's referring to when he says we made that decision as a priority, right?
Right.
Getting that to work on the roof, especially on the, what we call it, the Sunlight Backup option, is not for the faint of heart when you have the variation of frequency and voltage on the with the sun and all of that. That was all the software work that took place to get it just right for the homeowner experience, right? Is that a fair-
Yep.
Hey, guys. Chris Souther, B. Riley. I wanted to ask a little bit about the commercial solar strategy. It looks like you're targeting about 5% market penetration per year. Maybe you could just talk a little bit about the installer and distribution visibility on maybe the first 5, 10% of share. Can you get there with just a portion of your current installer customers who are using you guys on resi, also using you on commercial? Do you start to need, you know, additional new customers to start to hit that penetration? In the appendix, it looks like you're entering North America and Latin America next year for commercial and then Europe in 2023.
Could you talk a little bit about, you know, the different go-to-market strategies for some of the different regions there?
Raghu, why don't you take.
Yeah, let me take.
The first part, and then Dave will take.
Yeah. One of our thesis for the small commercial product that's really valuable is it actually. The market that we are addressing is not very different from the residential market in that what we have found is a number of our installers who do residential may go off and do, you know, a 50-kilowatt job, one job a month. They may do, you know, 40 jobs of residential, may do one 150-kilowatt job a month. From the standpoint of go-to-market, training them up, et cetera, that's actually a pretty relatively small jump. Second, also is from a product point of view, if you look at some of the regulatory requirements, particularly around rapid shutdown that apply to residential, actually applies to small commercial as well, because that's a building rooftop requirement.
The thesis that the small commercial market, and this is really important, small commercial. We are not talking about 1 MW or 5 MW. Those are braggawatts. This is a real market with real money to be made and a real. If you can solve these problems, you can really increase the level, the TAM of that market as well, I think, with a great product, and I think the market's ready for such a product. With that,
The thing I'd add is, I think Raghu said it beautifully. We have in any given quarter, maybe 2,200-2,500 installers in the U.S.
That install. Some install one quarter, maybe not the next. That's the value of the long tail. A lot of them are long tail installs. The first target we have is our current installers that are already installing us with resi and do the occasional commercial job. We have a few commercial installers that are very loyal to us, and they do mostly all commercial jobs. It's that current core. Today, they're using the IQ7+, and they're really looking forward to getting the IQ8D so they can help be even more competitive on the pricing scheme. That's the first target we're going after, and we think that's a relatively reasonable chunk of the revenue we're gonna get in the first year, is just focusing on them.
Make it super easy, womb to tomb, from all the different pieces on the digital platform, make it a comprehensive solution to make it super easy for them to win more of the bids with Enphase than feeling they have to go and use a different supplier that's a lot less expensive for the pressures of the commercial project. I think we have the installers already nailed who we need to win to really gain a lot of share in the U.S. and make that successful. Your point's accurate. We're gonna go to Europe is phase two. Europe is, you know, we have a different profile in almost every country. If you look at what we're doing in France, large market share residential, a lot of commercial installs wanna work with us. We go to Germany, very small today. Italy, very small today. We're just getting into Italy.
We're starting to develop Germany more. Holland, the Netherlands, and Belgium, I think is a kind of a mix. We've got a lot of market over there, and the same profile. A lot of these installers that do resi that wanna do commercial, and it's a natural for us to come with a more competitive offering to allow them to be more successful in more bids. I think we're not gonna have problem finding installers. That's a fact. We got them. We just have to now make all the pieces easy for them to work with at a price point they can win. That's what we'll work with.
Hi, my name is Morgan from Barclays. I was just wondering if you all could share your views on where you think your retrofit opportunity goes for storage in the event that Build Back Better goes through. Just any thoughts there on how you're planning to target that or your monetization opportunities.
Sorry, I didn't get the.
The retrofit opportunities.
Storage retrofit.
Yeah.
Monetizing that with Build Back Better.
Absolutely. It's definitely a very strong opportunity for us. In North America, we have about, you know, somewhere in the vicinity of 1 million homes. All of those homes are either M-Series or IQ-Series micros. Our devices and the storage solution that we have are all compatible with those M and IQ-Series inverters. That opportunity exists. We showed you all the data that we have. We have very close relationship with both the installer and the homeowner through the app. In fact, we have a near real-time connection with the homeowner that allows us to even take it a step further, evaluate a priori because we understand the consumption, what size storage they would have.
We would go to them with a very proactive and almost pre-designed system, say, "Hey, if you did this is what your ROI would look like." There is a lot of opportunity there, and it is definitely something that we are targeting. At the same time, while you're doing storage, it could also be an opportunity to say, "Why don't you upgrade your whole solution to IQ8," as an example. It's a target-rich environment. I think we just have to get-
Yeah, I'd add. I remember when I first joined the company very shortly after Badri, we didn't even think of the retrofit market or the upgrade market. Honest to God, we didn't. All my effort was on new homes. What do we have to do to win new homes in every single state? We dissected the states, we looked at where we wanna go first, and I had seven words: Staff to win, set the plan, execute. Staff to win, hire A players everywhere. That's what we did. Hired the best people on the planet, set a very clear plan and then measure. That's what we did to turn really the sales channel around. But bottom line is all I thought about was new homes.
I think Jeff came with the idea one day that we had a product, the M190, that wasn't as reliable. Martin, one of your earlier designs, right? That wasn't as reliable as your IQ. Gotta blame Martin for something. He's sitting right here, right? Jeff came with the idea, why don't we offer them an upgrade path? We reached out to all the M190, and I was surprised how many said yes.
Yeah.
Right? Something like 20% of them. A lot that didn't say yes, they either moved or our email address or phone numbers. Anyway, I was shocked at the upgrade opportunity. You raise a beautiful point. I think that upgrade market is beautiful for us.
Yeah.
One point, what? 1.7 million homes, and they have the mindset of refreshing their technology on some reasonable frequency that we didn't anticipate until probably two years ago. Now we understand it. We're doing a lot of digital campaigns. We're reaching them through lots of different methods to see if we can help them. If we can help take them from what they have today as they start electrifying their home, they add more electrical appliances, EVs, et cetera, we wanna take them into the future. It's a great target.
I just want to clarify that highly unlikely was Martin, is probably Raghu on the M190. I just want to leave it.
It's not Martin.
I wanna make sure this is recorded.
Yeah, it's probably me.
Mm-hmm.
Any other questions?
Thanks.
Hey, Maheep here from Credit Suisse. Eric, for you on slide 60, just want a clarification. You talked about modest ASP declines for residential solar. Just want to check if that's on an every product basis or on a blended basis, through 2025.
ASP decline.
ASP decline.
Modest.
Modest for solar.
That's on a product basis or on a blended basis for the whole residential solar group?
It's on a blended basis that he expects or he's modeled.
Modest, and he quantified what that means. It's roughly about 5% a year.
Right.
That's what he said.
That's for solar?
Yeah.
Got you. Just a quick follow-up on the charging or the EV chargers side. Are you still planning to sell in the commercial market? Just want to understand if you plan higher wattage chargers for fast charging going forward.
Today, they are all level 2 chargers, and the wattage is up to 50 kilowatts. We have to. You know, there are two things which are very interesting in this opportunity, is of course within the home it's a no-brainer, but for everybody who wants a charger for the home, will they have access to a ClipperCreek network outside the home? That's a business that we have to look at. We're not ready to talk about it much. We have to make our own assessment. Then taking it one step further, which is level 2 AC today, fast charging DC, right? Do we want to build those kinds of chargers for commercial?
Mm.
That's something we will look at it deeply. We just announced the acquisition. The acquisition needs to close, and then we'll probably have three to six months where we'll have firm strategy there on those two pieces. Otherwise, it's what we said is obvious: international expansion, improve the quality and customer experience in line with what Enphase is used to, add cloud connectivity, integrate into the Ensemble platform so that homeowners can do interesting things, and work with car companies on enabling bi-directional EV charger, whether the standard is AC or DC. DC more advantageous for us because it'll require power conversion at home. AC is same as a level two today, but a little bit more sophisticated. We'll be well-positioned to do all of those.
Hi. Biju Perincheril with Susquehanna. You are obviously producing a strong platform for the long tail installers to compete with the larger national installers. Can you talk about the trends that you're seeing in your installer network? Is that expanding? What does it mean for your market share?
Yeah. The Enphase Installer Network is really important to the company in every single corner that we operate. You know, we started slow. We started in the U.S. We started with about. We have platinum, we have gold, we have silver, so we have different tiering. We looked, and Bhavani who's here, you may wanna chat with her at the break. She dissected the United States, and we had a goal of any homeowner in the country should be able to call up and get multiple bids from an Enphase Installer Network partner. We started saying, "How many do we need to provide that level of service to a homeowner?" We built that network out, and we've got a very tight communication. As I said, we have what? About 400 in the U.S. in the Enphase Installer Network? About.
We've got, like, 2,200 installers in the U.S. 2,300 installers. We want to develop that further over time, make that more important, because to us that's a channel that we get really close and tight with. I can share with you, every single week we have an open mic where we let every installer. We go around the country, we bring them in and we do a round table with Badri, with Eric, myself, Raghu, Jeff, whole management team. Mehran, who runs the division, and Aaron who runs our microinverter division, and Jayant who runs the digital group. Every single week we just listen to installers. What are your pain points? What do we need to do?
That network is amazing at bringing us things we need to fix, things we need to help make their life easier. The value of the network's amazing. It's incredible because it's a two-way street, you know?
Yeah.
The question was whether those installers are getting bigger or you-
I'm sorry. Yeah, I got carried away with the discussion. It's really a mix. You know, we have installers that operate in a certain geo, they don't wanna get bigger. They have you know X number of crews, they're incredible crews. We have others that wanna get bigger, so it's really a installer by installer. I was surprised 'cause I go to many. We're capitalists here, right? We wanna grow things, right?
Yeah.
I sit down and they say, "No, I'm not really interested in growing much more. I've got seven crews. That's all I can really manage. It's what I wanna deal with.
Yeah.
Others are saying, "I wanna go into new states. I wanna expand to new territories. I wanna grow the business." We work closely with Mandy, who's amazing, 'cause she helps us figure out how do we work together with those installers? How do we bring services? How do we help them, right? Very mixed bag, to be honest with you, about people that wanna grow.
The one thing you wanna mention is the digital platform services that we have, and how little by little some of these EIN members started to appreciate some of those tools and so on, right?
Very true. You know, we've introduced it very recently and we sit down with our installers on the EIN and say, "Our job is to make your life easier. Where are your pain points? What can we do to help you run your business more effectively?" We get a lot of different issues, and that's what this digital platform that Eric's pointing out is, if we can help them from the early on lead all the way through the proposal, the design, the permit, right through to, you know, figuring out what's the bill of materials, how to work with their distribution partner more readily, then how to install, how to service. All of our training is on the digital platform. We do virtual training everywhere. We run a lot of webinars.
It's all about servicing those installers and making their life easy. Eric coined this term Hotel California. Once they check in, they'll never check out, if we do it right. It's kinda the Hotel California is our goal to once they check in, no reason to check out.
I think The Eagles.
Oh, yeah, The Eagles.
The Eagles.
Oh, yeah.
All right.
Good point.
Yeah, I think we are done with questions. I encourage all of you to go upstairs for lunch and see the portable, you know, energy system. Then we have a lot of interesting demos for you. Please hang around till 3:00 P.M. and watch the demos. Thank you very much