“The Department of Defense, the largest single energy consumer in America, is bullish on solar.”
Bernie Sanders, Politician
What Are Solar Energy Investments?
Solar energy investments can be defined as investments that are related to using solar power for energy production purposes. This includes investments in solar installers, panel manufacturers, component manufacturers as well as investments in solar power production companies.
Even though solar power has become quite popular and can be considered as one of the most promising renewable energy sources, investing in financial instruments related to solar power can also pose some risks.
This article is meant to give you an objective view on the topic of solar energy investments so you can decide by yourself if you want to invest in this financial market category.
Types of Solar Companies you could invest in
- Solar installers
- Cell and panel manufacturers
- Component manufacturers
- Power production companies
Solar installers usually are shops that supply private persons as well as companies with the installation and maintenance of solar panels.
They also directly sell solar systems to customers. Therefore, solar installers can be regarded as sellers as well as service providers for solar systems.
Cell and panel manufacturers
Solar panel manufacturers focus on the production process of solar cells and panels. After the production process is completed, they ship their panels to stores where private persons and companies can buy them.
These kinds of companies may also be involved in big solar infrastructure projects, including advisory support for government projects or other projects that are led by private companies.
Apart from the solar panel itself, there are plenty of other components necessary for the successful installation of solar panels on roofs or on solar farms.
There are some companies that solely specialized in those kinds of components and solar accessories instead of producing solar panels.
Power production companies
Solar power production companies are not engaged in the manufacturing processes nor in the distribution of solar systems. Instead, their goal is to produce solar energy on a big scale and sell it to households, big companies or other energy consumers.
Therefore, these kinds of companies heavily rely on energy production optimization processes, since this is their only way to beat the competition in this specific market.
Types of Financial Instruments related to Solar Power
- Solar stocks
- Solar income funds
- Solar bonds
- Solar derivatives
- Solar power ETFs
- Mutual funds
Stocks are probably the most common investment form when it comes to solar energy. Like stocks in other industries, they can be considered as equity instruments.
By holding such instruments, you participate in profits and may also get a dividend each year since you own a small fraction of the respective solar company.
Solar income funds
Solar income funds often refer to funds that are set up by official institutions and are often backed by the government. These funds aim to provide official institutions with financial measures so that they can accelerate the transition process from fossil to renewable energy sources.
Solar bonds are a debt financing instrument. Like other conventional bonds, they usually pay bondholders a certain interest rate each year.
However, contrary to investments in solar stocks, with bonds, you will not be entitled to get a dividend since you do not actually own a share of the company but rather give the company kind of a credit line.
Solar derivatives are financial instruments that are based on specific stock values or indices.
Compared to conventional stocks, derivatives are more complex financial instruments and are also often subject to larger swings, which makes them an investment alternative for experienced investors.
However, inexperienced investors should probably refrain from engaging in derivative investing since it usually poses a greater risk to lose significant amounts of money.
Solar power ETFs
Solar power exchange-traded funds may be a good alternative to investments in single solar stocks since they usually bundle many solar company stocks in a fund that hedges against the loss of single companies and reduces the overall swings.
The administrative fees for ETFs are also usually quite low, which makes them quite interesting for investors who want to invest in long-term opportunities.
Solar mutual funds pool your money together with other investors in order to buy a collection of different financial instruments related to solar power.
They are actively or passively managed funds that contain a mix of certain solar stocks and derivatives. Even though mutual funds could perform quite well, due to the higher administrative fees, they often do not pay off in the long run.
Top 10 Solar Investment Opportunities
Below, some of the most popular solar investment instruments are given. Please note that this is not an investment advice but should rather give you a rough overview of the investment opportunities in this alternative energy niche.
|Name||Company Type||Investment Type|
|Canadian Solar Inc||Solar panel manufacturer||Stock|
|First Solar Inc||Solar panel manufacturer||Stock|
|BB Global Solar Energy Index||Mixed||Solar Index Fund|
|Solaria Energia||Solar panel manufacturer||Stock|
|SunPower Corp||Manufacturer & Installer||Stock|
|JA Solar||Component manufacturer||Stock|
|Risen Energy Co||Solar panel manufacturer||Stock|
|JinkoSolar Holding||Solar panel manufacturer||Stock|
|Ivesco Solar ETF||Mixed||Solar ETF|
|GCL System Integration||Solar panel manufacturer||Stock|
Chances of Solar Energy Investments
- Solar energy is one of the most promising renewable energies
- Technological progress may make solar energy more profitable
- Few big companies may dominate the market with high margins
- Government subsidies for solar companies
- Contribution to a greener energy mix
Solar energy is one of the most promising renewable energies
Even critics of solar energy may admit that solar energy, although it has some downsides, can be considered to be one of the most important renewable power sources, which will be a pillar for the transition from fossil fuels to sustainable energy supply. Solar energy has broad acceptance in our society and countless people have installed solar panels on their rooftops.
Moreover, solar power is an energy source that will never become depleted, since our sun will likely have a longer timespan than our earth. Therefore, solar power can be used in perpetuity.
Additionally, even though the production of solar panels involves the use of fossil metals, once these panels are produced, energy can be produced for a long time in a fully green manner.
All these factors make solar energy one of the most promising investment areas in the context of renewable energy investments.
Technological progress may make solar energy more profitable
Solar energy has become quite popular over the past decade.
However, since our level of technological progress skyrocketed over the past years and will continue to do so in the future, chances are that solar energy systems can be made even more efficient and therefore even more profitable.
This also implies that companies which are part of the solar industry will likely be able to increase their profits, which in turn may lead to higher returns for investors.
Few big companies may dominate the market with high margins
The current landscape of solar companies is characterized by a few very big players. This in turn implies significant market power for these companies, which may use this market power to increase prices and their profit margins in the long run.
Moreover, these big companies often put plenty of money into research and protect their inventions with patents, which makes it hard for additional companies to enter the market.
Government subsidies for solar companies
In many countries, governments and other authorities support companies and individuals who support solar power with financial subsidies. This could mean that companies in the solar industry get tax advantages or other financial subsidies. It could also mean that houseowners get a lump sum of money if they install solar panels on their rooftop.
Solar companies will greatly benefit from those subsidies, especially in countries where these subsidies are quite high since companies may be able to increase their profit margin and private persons may be more eager to buy solar panels due to these subsidies.
Both effects will likely increase the total profits of solar companies, which in turn will also benefit shareholders in this industry.
Contribution to a greener energy mix
Apart from the financial aspect, investments in solar companies are a great way to support the energy transformation process from fossil to renewable energy sources.
Everyone of us should feel the obligation to contribute his or her part in order to make our energy mix greener and to ensure a livable future for the next generations.
Risks of Investments in Solar Energy Securities
- Only a small fraction of solar companies may survive
- Regulations may pose problems for solar energy companies
- Global competition will be quite strong
- Landowners may prevent expansion of solar energy
- Other superior energy sources might be developed in the future
Only a small fraction of solar companies may survive
The fact that the solar market is dominated by a few big companies which may buy up competitors and grow even more may also imply that many small companies might face significant problems to survive the competition in the solar market.
Therefore, investments, especially in small solar companies, should be made with great care in order to avoid huge losses due to potential insolvencies.
It might be a better idea for investors to invest in solar energy funds or ETFs so that the risk of investing in individual companies can be hedged and you will be able to benefit from the overall development of the solar energy market instead of relying only on one or a handful of companies.
Regulations may pose problems for solar energy companies
Another risk related to solar investments is increasing efforts of regulation from official authorities and governments. This can include increased requirements regarding safety issues, but also increasing supervision regarding the market power of certain companies.
In general, higher levels of regulation and supervision are almost never good for profits of companies.
Therefore, depending on the development of regulations in the solar power industry, companies may lose part of their profits in order to fulfill increased regulatory requirements.
Global competition will be quite strong
Especially for smaller companies in the solar energy space, it will be quite hard to compete with the big players who act in many different countries.
Big players can use tax advantages and other financial measures in order to strengthen their market position, while small local companies will likely not be able to do so.
This may lead to a state where small companies may get out of business or may be snapped up by larger corporations. Thus, instead of investing in small local businesses in the solar industry, you should rather rely on big companies or solar company funds in order to diversify your risks and to stabilize yearly returns.
Landowners may prevent expansion of solar energy
For the expansion of solar energy as primary alternative energy source, large areas of land have to be used for the construction of solar farms.
However, landowners who are not convinced of solar energy or may be just frustrated may prevent this expansion by simply not making it available to the general public.
They may rather plant crops on their fields instead of selling their land to private solar companies. This may be a serious problem, since large areas of land are urgently needed by the solar industry in order to strengthen the meaning of solar energy in the green energy mix.
Other superior energy sources might be developed in the future
Even though it is rather unrealistic that we as humanity will be able to develop alternative energy sources that are superior to solar energy, this time may come in the next years or decade.
For instance, hydrogen fuels may be the ultimate power source in the far future since it virtually implies zero emissions and could be used until the end of mankind.
Therefore, other alternative energy sources might make solar energy obsolete, although this may not be realistic in the near future.
There are plenty of ways how you can invest in solar energy. There are also many different financial instruments that you can choose from, depending on your individual risk-return profile. However, always keep in mind that investments always imply a certain level of risk.
Although solar energy has many advantages, there are also some risks involved in investing in solar energy companies. In the end, you have to decide for yourself if the solar industry will be a niche for profitable investment opportunities.
About the author
My name is Andreas and my mission is to educate people of all ages about our environmental problems and how everyone can make a contribution to mitigate these issues.
As I went to university and got my Master’s degree in Economics, I did plenty of research in the field of Development Economics.
After finishing university, I traveled around the world. From this time on, I wanted to make a contribution to ensure a livable future for the next generations in every part of our beautiful planet.
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