The Ultimate Guide To Solar Power Investing

Solar power is an increasingly popular energy source as well as an investment option. The growing industry has led to a rapid adoption by citizens, businesses, and governments to incorporate solar panels on everything from parking meters to bridges. There are a wide variety of panels meant for small homes and businesses as well as entire grids and large buildings. As the industry continues to blossom, the cost of producing the panels has dramatically decreased and over the coming years is predicted to dip even more, perhaps making it a viable alternative to cheaper fossil fuels like crude oil and natural gas [see also Three Things Wall Street Journal Didn’t Tell You About Commodities].

Solar Power Explained

Solar panels are typically referred to by their technical name, photovoltaic modules. As PVs become more efficient and less costly to produce, their attraction as an investment has soared. Recent years have seen a number of innovative solar companies emerge to help ween the planet off of fossil fuels and on to a more renewable source. While solar is still in its infancy, the facts and figures point towards a wealth of potential in its future. For example, the earth receives more energy from the sun in one hour than is consumed in an entire year according to Energy Matters. While solar may be one of the least used renewable energies for the time being, it is by far the fastest growing [see also 25 Ways To Invest In Silver].

This year, the world’s largest solar energy project was recently offered a loan totaling just under $1 billion U.S. dollars. Construction on the Agua Caliente Solar Project began in 2010, and is expected to be complete by 2014 in the desert of Arizona. The project, headed by NRG Solar, will be exclusively using photovoltaic modules produced by First Solar. The project will create more than 400 jobs, and “will avoid 237,000 metric tonnes of greenhouse gas emissions per year, equivalent to taking more than 40,000 cars off the road annually” writes Carmen Doyle. Already, Pacific Gas & Electric company has entered into a 25 year contract with NRG to purchase power generated from this robust plant.

Solar usage and capacity is dominated by European nations, with Germany leading the way, but the rapidly growing China is nipping at its heels. Recently, it was announced that China, the world’s most populated country, will attempt to install up to 10 GW by the year 2015. The country also has outlined plans to achieve a total capacity of 50 gigawatt hours by 2020, meaning that the increase of solar power between 2015 and 2020 will be fivefold. With China being the world’s largest maker of solar panels, this estimation does not seem too far fetched, and has investors chomping at the bit to cash in on this massive increase in alternative energy from one of the few countries with the budget flexibility to pursue such a program [see also 50 Ways To Invest In Gold].

Though the solar space had a brief slowdown in 2009, the industry grew by 73% in 2010 to reach more than 40 gigawatt hours of total global capacity. As a reference point, one gigawatt of energy is equal to one billion watts. According to a 2007 report form the U.S. Energy Information Administration, the average home uses 11,232 kilowatt hours of energy on an annual basis, though estimates vary across the board. This means that one gigawatt is enough energy to power roughly 90,000 homes for a year, and the total of 40 GW in place through out the world could power 3.6 million homes annually. Over the past decade, solar capacity has grown an average of 39%, helping to power more and more homes and businesses across the world.

Solar Power Supply And Demand

For the time being, the solar industry is dominated by the developed nations of the world, which should come as no surprise given how expensive these systems can be to install. China comes in as the 8th ranked country though it has robust growth predictions and goals that it plans to meet in the coming decade, making it a country to watch as the solar industry plays out [see also Three Reasons Why Gold Is Overvalued].

Total Solar Power Capacity In MW (2010)
Germany 17,320
Spain 3,892
Japan 3,617
Italy 3,502
United States 2,519
Czech Republic 1,953
France 1,025
China 893
Belgium 803
South Korea 573
*Source: British Petroleum Statistical World Energy Review 100


Solar Power Price Drivers

As a global commodity, the price of production as well as overall capacity of solar power is impacted by a number of factors, and is often subject to significant price swings in a relatively short period of time. The major price drivers of solar power include [see also Dividend Special: Top Companies In Every Major Commodity Sector]:

  • Weather Conditions: The most obvious price driver for solar panels comes from weather conditions. Panels are strategically placed in sunny areas, but any number of cloudy days or weaker than usual sunlight patterns could lead to a lower output by various solar farms.
  • Government Subsidies: A number of solar panels and farms depend heavily on government subsidies and tax breaks to keep their operations afloat. When economic times are tough, government agencies may be forced to scale back on alternative energy spending but likewise when economies are strong there may be increased government participation in the space.
  • Crude Oil/Natural Gas Prices: Crude oil and natural gas are the two most popular fossil fuels for energy production through out much of the world. However, with both commodities being finite resources, fluctuations in their price will have a major impact on whether or not solar power is a more economically viable option by comparison [see also Analyzing Five High Yielding Oil & Gas Pipeline Stocks].
  • Industry Innovation: With a number of companies working to constantly improve the photovoltaic structure, industry innovation will have a significant impact on solar. Photovoltaic panels are getting smaller, more efficient, and less expensive to produce. The faster the technology for this industry improves, the faster it will grow both as a practical means of generating energy and as an investment.

Investing in Solar Power

Solar’s appeal as an investment stems from its wide use throughout the globe. As such a popular commodity with such a strong growth outlook, investors can use solar power to make plays against strong and weak economies. An investment in solar power can also be used to make a play on weather conditions or to hedge against crude oil and natural gas [see also Company Spotlight: First Solar (FSLR)].

Solar Stocks

Solar production is quickly growing in China, however, a number of Chinese companies are also listed on U.S. exchanges, giving investors easy access to these securities. There are also a large number of options on foreign exchanges.

  • First Solar (FSLR)
  • Trina Solar (TSL)
  • Jinko Solar (JKS)
  • JA Solar (JASO)
  • Yingli Solar (YGE)
  • SolarWorld AG (SWV)
  • GT Solar International (GTAT)

Solar ETFs

While direct investment in solar is impossible, there are several ETFs that offer exposure to the underlying industry, giving investors a tangible asset to help them play the very intangible commodity.

  • Guggenheim Solar ETF (TAN)
  • Market Vectors Solar Energy ETF (KWT)

Resources On Solar Power Investing:

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Disclosure: No positions at time of writing.

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  • Todd

    California alone could sure use another Gigawatt. Actually 120 of them if the 11,232 kWh per household per year figure is on target. 11 million homes, and only 77,000 of them have gone solar.

    • Todd

      To answer Daveb’s claim, 90 thousand homes is the correct estimate only if a single gigawatt performs as terribly as 2.74 kWh a day. I would agree the math was off due to mismatching units. But there’s a followup problem: solar power is not an ‘always on’ resource so instead of dividing 1 GW by household wattage, divide 1 GW worth of annual kWh production by annual household consumption (11,232 kWh in the example).

      First change GW to kW: 1 GW is 1 million kilowatts:
      Annual Production: 1 million kilowatts * 365 days * 5.45 hours sunlight per day = 1,989,250,000 kWh. That’s nearly twice as much hehe.

      So realistically, a GW of installed solar capacity would generate the equivalent of 177,106 US homes typical power consumption.

      *The 5.45 hours is an approximation, see NREL’s PV Watts calculator for area specific insolation data. :)