As nations look to reduce their reliance on non-renewable energy sources like oil and natural gas, alternative energy options, particularly solar, are expected to thrive due to greater financial backing. Solar power might account for 45 percent of America’s power supply by 2050, a significant increase from its current contribution of 3 percent in 2020, as predicted by the National Renewable Energy Laboratory (NREL).
Such expansion presents a major opportunity for investors, yet it’s important to recognize potential hazards. Below are essential considerations to keep in mind before putting money into solar energy.
The rise of solar power
You might believe that harnessing the sun’s power for energy is a modern concept, but the history of solar energy goes back thousands of years. As early as the 7th Century B.C., a magnifying glass was used to focus sunlight, creating heat to light a fire and cook ants. It was only in 1767 that the initial solar collector was invented by Horace de Saussure from Switzerland. A century later, French mathematician August Mouchet suggested the use of solar energy in steam engines and spent the following 20 years with his assistant to develop and construct these engines.
Over the course of the 20th century, studies on solar technology grew, leading to breakthroughs and progress. In 1993, the first photovoltaic system connected to the grid in California marked the start of distributed power technology. By 1998, a solar-powered, remotely controlled aircraft achieved a record-breaking altitude of 80,000 feet in California.
Looking ahead, solar power is poised to play a significant role in renewable energy. New constructions will incorporate energy-saving designs and technologies, reducing the reliance on non-renewable energy sources. A growing portion of the U.S.’s electrical demand will be fulfilled by solar power. Additionally, vehicles, including cars and airplanes, might be designed to utilize solar power as an energy source.
Breakdown of the solar industry:
The solar sector consists of various kinds of businesses at different stages of the development cycle, and here’s a rundown of what the leading firms are doing now:
- Creating parts and solar cells – These firms are at the heart of making solar cells and parts used to transform sunlight into electrical power.
- Assembling and mounting solar cells – These firms play a crucial role in setting up and mounting solar cells, usually on a large scale and might offer financial options along with their assembly and mounting services.
- Solar power plants – These firms run operations dedicated to producing solar power and might also be engaged in other green energy projects like wind or hydropower facilities.
Solar investments to watch
It can be difficult to know how to start investing, but you’ll generally have to choose between individual stocks and funds that hold baskets of companies.
Solar stocks
First Solar (FSLR) – First Solar is a leading manufacturer of advanced solar modules, which it sells to a variety of customers including utility companies, distributors, and commercial and industrial buildings. The company expects to benefit from increased solar panel capacity over the next five years and beyond.
- Market cap: $28.9 billion
- 2023 sales: $3.3 billion
Brookfield Renewable Partners (BEP) – Brookfield Renewable Partners is one of the largest renewable power platforms in the world and operates hydroelectric, wind, solar and storage facilities in North America, South America, Europe and Asia. Brookfield generates strong cash flow and shares that with investors in the form of a dividend, which it hopes to grow by 5 to 9 percent each year.
- Market cap: $18.9 billion
- 2023 sales: $5.0 billion
SolarEdge Technologies (SEDG) – SolarEdge Technologies is a manufacturer of solar components such as inverters and power optimizers. These components convert DC power to AC electricity and help lower the cost of the system. The company’s goal is to become the leading provider of inverter solutions to the solar industry.
- Market cap: $2.8 billion
- 2023 sales: $3.0 billion
Pros of investing in solar energy
Benefits of investing in solar energy:
- Durability – Solar energy is labeled as renewable due to the perpetual nature of sunlight, unlike finite fossil fuels such as oil and natural gas.
Environmental friendliness – Solar energy’s environmental footprint is significantly smaller compared to fossil fuels. It emits fewer greenhouse gases and doesn’t harm the earth as extensively.
Fracking and oil extraction do. Independence – The U.S. has regions like the Southwest that receive a lot of sunlight, making it feasible for solar energy to reduce dependence and potentially achieve energy independence from other nations that are major oil producers. It’s even possible for individuals to install solar panels on their homes and achieve personal energy independence. - Expansion opportunities – Given that we’re in the infancy of solar energy, there’s a vast opportunity for its future expansion. This is a major factor that draws investors to the sector, though the potential for growth does come with its own set of risks.
Cons of investing in solar energy
Despite the potential benefits of investing in solar energy, there are some concerns to be aware of.
- Inconsistent sunlight – One of the challenges of solar energy is the fact that the sun doesn’t shine all the time. The sun is only out during the day and even then, clouds can make solar energy a challenge. Because of this, storage solutions for solar energy hold great opportunities.
- Materials used – Materials used to manufacture the solar panels can be difficult to extract and are in high demand in other areas of technology. With supply chain issues impacting many areas of technology, this could present a challenge to solar manufacturers.
- Land use required – For now, large amounts of land are needed to place solar panels in order to produce meaningful amounts of electricity. Innovation that leads to smaller and more powerful solar panels could help with this challenge over time.
- High valuations – Because of the growth potential of the solar industry, the companies involved may trade at expensive valuations, making it difficult for investors to earn outsized returns. When you pay high prices for assets, you also face the risk that they don’t perform as well as expected and the price falls significantly to correct for that miscalculation.
Risks to Consider
- Regulatory Changes: Government policies and incentives can significantly impact the solar industry.
- Technological Advancements: Rapid changes in technology can affect the profitability of certain investments.
- Market Volatility: The renewable energy market can be volatile, with prices affected by various factors, including oil prices and economic conditions.
