How to invest in the photovoltaic industry

As more countries seek to transition away from fossil fuels such as oil and natural gas, renewable energy sources such as solar energy may benefit from increased investment. According to the National Renewable Energy Laboratory (NREL), solar power could provide 45% of U.S. electricity by 2050 if the energy system is fully decarbonized, up from 3% in 2020.

This type of growth holds enormous potential for investors, but it also comes with risks that you should be aware of. Here’s what you need to know before investing in solar energy.

The rise of solar energy

You might think that solar energy is a relatively new phenomenon, but the origins of using the sun as an energy source date back to the 7th century BC, when a magnifying glass was used to focus the sun’s rays to light a fire and burn ants. Only in 1767, thanks to the Swiss scientist Horace de Saussure, the first solar collector was created. About 100 years later, French mathematician August Mouchet proposed solar-powered steam engines and spent the next two decades working with his assistant to build them.

During the 20th century, solar energy research increased, leading to new discoveries and advances. In 1993, Pacific Gas & Electric installed the first grid-based photovoltaic system in California, marking the first distributed energy installation. In 1998, a solar-powered remote-controlled plane set an altitude record of 80,000 feet in California.

In the future, solar energy will be an important component of renewable energy. New buildings will be built based on energy-efficient designs and technologies, so they will not need non-renewable energy. An increasing share of U.S. electricity demand will also be met by solar energy. Cars and airplanes may also find ways to use solar energy for power.

Division of the photovoltaic industry:

The photovoltaic industry consists of several different types of companies operating at different stages of the process. Here’s what the majors are currently involved in:

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• Production of solar components and panels – These companies produce solar panels and components that are used to convert solar energy into electricity.

• Installation of solar panels – These companies install solar panels, often on a commercial scale, and may provide financial solutions in addition to their installation offerings.

• Solar installations – These companies operate solar energy facilities, but may also deal with other renewable energy sources, such as wind or hydroelectric power plants.

Photovoltaic investments to watch

It can be difficult to start investing, but you will generally have to choose between individual stocks and funds with baskets of companies.

Here are some of the most popular ones.

Solar energy supplies

First Solar Energy (FSLR) – First Solar is a leading manufacturer of advanced photovoltaic modules, which it sells to a variety of customers, including utilities, distributors, and commercial and industrial buildings. The company expects to benefit from the increased efficiency of solar panels over the next five years and beyond.

Brookfield Renewable Partners (BEP) – Brookfield Renewable Partners is one of the largest renewable energy platforms in the world, operating hydro, wind, solar and storage facilities in North America, South America, Europe and Asia. Brookfield generates strong cash flow and shares it with investors in the form of a dividend, which it hopes to grow by 5 to 9 percent each year.

SolarEdge Technologies (SEDG) – SolarEdge Technologies is a manufacturer of photovoltaic components, such as inverters and power optimizers. These components convert DC power to AC power and help reduce the cost of the system. The company’s goal is to become a leading supplier of inverter solutions for the photovoltaic industry.

• Market capitalization: $2.8 billion

• Sales in 2023: $3.0 billion

Solar-based funds

iShares Global Clean Energy ETF (ICLN) – The purpose of this iShares fund is to track the investment performance of an index composed of companies from the clean energy sector. Companies can produce energy from solar, wind or other renewable sources.

Invesco Solar ETF (TAN) – Invesco Solar ETF is based on the MAC Global Solar Energy Index and invests at least 90 percent of its assets in securities included in the index. Enphase Energy (ENPH), SolarEdge and First Solar are the largest holdings.

Fidelity Clean Energy ETF (FRNW) – The Fidelity Clean Energy ETF, launched in 2021, aims to track the Fidelity Index of clean energy companies. Companies in the index are engaged in the distribution, production or supply of technology or equipment supporting the production of energy from solar, wind, hydrogen or other renewable sources.

Advantages of investing in solar energy

Investing in solar energy has many advantages. Here are the most important:

• Sustainable development – Solar energy is classified as renewable because we won’t run out of sunlight, while fossil fuels such as oil and natural gas have a limited supply.

• Environmental influence – Compared to fossil fuels, the impact of solar energy on the environment is small. It has a much lower carbon footprint and doesn’t damage the soil in the way fracking and oil drilling do.

• Independence – Some parts of the United States have a lot of sunlight (e.g., the Southwest), which raises the possibility that solar energy could help reduce dependence on, or even become independent of, energy from other oil-producing parts of the world. You may even be able to install solar panels on your home and become energy independent as an individual.

• Growth potential – Since we are still in the early stages of solar energy development, the potential for future growth is enormous. This is what attracts most investors to the industry, but this growth potential is not without risk.

Disadvantages of investing in solar energy

Despite the potential benefits of investing in solar energy, there are some concerns to keep in mind.

• Uneven sunlight – One of the challenges of solar energy is that the sun does not shine all the time. The sun only shines during the day, and even then, clouds can make solar energy a challenge. For this reason, solar energy storage solutions offer enormous opportunities.

• Materials used – The materials used to make solar panels can be difficult to extract and are in high demand in other areas of technology. As supply chain issues affect many areas of technology, this could pose a challenge for solar manufacturers.

• Required land use – For now, large areas of land are needed to place solar panels to produce significant amounts of electricity. Innovations leading to smaller and more powerful solar panels could help address this challenge over time.

• High valuations – Due to the growth potential of the solar industry, the companies involved may command high valuations, making it difficult for investors to realize excessive profits. By paying high prices for an asset, you also expose yourself to the risk that it will not perform as well as expected and the price will drop significantly to correct this miscalculation.

Conclusion

The solar industry has come a long way since people used mirrors to start fires. Today, this industry has enormous potential as a cost-effective source of renewable energy. Investors have the choice between holding individual shares or purchasing funds that invest in the entire industry and various renewable energy sources. While the solar energy industry shows potential and has several advantages, don’t forget to pay attention to its risks as well. Remember that any asset can be a bad investment if you pay too high a price.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. Investors are further informed that the past performance of investment products is not a guarantee of future price increases.