Best Practices for Investing in Solar Stocks

  • Technological advancements in the solar power industry make this type of long-term investment a potentially profitable one.
  • Companies that are contributing technologically diverse products to the industry are the ones to focus on.
  • Solar power could very well take over the energy needs across the globe in the near future, and the heightened demand for this renewable energy source is good news for energy investors.
Investing in solar
Investing in solar power could help investors realize significant gains over the long run if the right companies are tapped into.

Investing in energy is nothing new, but with the threat of climate change and the potential for renewable energy sources to affordably and efficiently address such a global issue, solar power provides investors with a unique investment opportunity.

Effectively harnessing the sun’s power can provide the world with a lifetime of energy, and the rapid development and progression of solar power technology over the recent past is leading towards that goal. The demand for energy is ever-present, and incorporating a greater proportion of solar energy can better satisfy this need.

While solar power isn’t necessarily going to replace fossil fuels any time soon in terms of heating, cooling, and electricity generation, it is steadily inching closer, thanks to innovation in technology. This industry has incredible potential for growth and is anticipated to be worth $4 trillion annually by 2035. In fact, the solar industry has already expanded 30 percent compounded yearly over the last two decades.

We are certainly making progress towards shifting gears away from fossil fuel dependence and looking forward to renewables. As such, investment portfolios should be reflecting this fact. Of course, solar stocks have been associated with some level of risk over recent years, and many investors have been scared off by some high-profile bankruptcies and poor performing solar stocks that have occurred over the recent past.

But that doesn’t shut down the potential for the solar power industry. Done right, sound investment decisions can translate into handsome profits from such technological advancements that will continue to improve as time passes and innovation progressively improves.

Advancements in Solar Power Technology

The technological innovations that have been made over the recent past and those that are on the horizon could very well lead to anywhere between 50 to 100 percent of the world’s energy production coming from solar power at some point in the future.

Scientists have long been seeking out ways to improve the efficiency and affordability of solar cells, which are at the hub of solar PV systems. The average solar cell is about 15 percent efficient, meaning about 85 percent of the sunlight that comes into contact with it is not converted into electricity. But recently, a group of researchers at the University of Toronto in Canada discovered a new type of nanoparticle which could be a more cost-effective and more flexible material for solar cells.

More specifically, these new materials use types of semiconductors that can function outdoors, which is a breakthrough considering previous designs, were not able to function outdoors and therefore did little for the solar market. Panels using this technology are up to 8 percent more efficient in converting sunlight into electricity.

Another major focus of researchers is to find newer, more cost-effective ways to store solar energy. Traditionally, solar electricity has been a type of resource whereby once it’s been generated by a solar PV system, the electricity is transferred onto the grid and must be used right away or it will be lost. A number of batteries have been developed that store this energy, but even advanced ones are inefficient, expensive, and have a relatively short shelf life.

However, there have been advancements made in this realm, making the storage of solar power much more efficient and cost-effective, helping to slash the overall costs associated with solar energy. A recent project conducted by Ohio State University researchers and funded by the U.S. Department of Energy involved the creation of a battery that’s 20 percent more efficient and 25 percent cheaper than storage batteries currently available. The design involves building the rechargeable battery right into the solar panel itself instead of operating as two separate systems.

A recent discovery that could be a real game-changer for cost-effective solar power storage is the emergence of technology that is able to extract solar energy from heated sand. This technology is based on thermal energy storage (TES) and heat transfer, which involves using the sun’s energy to heat up a specific material and using the heat to generate steam to power a turbine and generate electricity on demand.

Sand has plenty of promising properties, including the fact that it’s highly abundant and cheap. It’s also capable of storing thermal energy at temperatures as high as 1000°C, translating into hotter steam for turbines and higher efficiency for electricity production. This innovative technology will not require heat transfer fluids, pumps, or pipes, resulting in a significant reduction in operation cost.

We are on the cusp of groundbreaking technological advancement in more efficient, affordable solar power, making solar stocks a potentially viable option to add to investment portfolios.

Investing in solar
Breakthroughs continue in efforts to discover cheaper, more efficient ways to store solar power, including extracting energy from heated sand.

How to Invest in Solar Stocks

Much like other commodities, an obvious way to invest in solar power is to buy stocks in solar companies. It’s been ingrained in our minds that renewable energy is the way to go to both protect the planet and lessen the load on our pocketbooks. Governments and businesses have long been vowing to go solar, and are encouraging homeowners to do the same. Encouragement for consumers to embrace renewable energy like solar power is strengthened through government incentives.

Investing in solar energy stocks can bring in high returns, so long as the right companies are focused on and entrance into the market is timed right. Solar energy stock prices are not increasing in a completely straight line, and have already experienced dips. However, over the long haul, the increase in demand for renewable energy should continue to keep the upward trend going into the foreseeable future.

Investors looking for exposure in the solar energy industry can invest in the stocks of various companies that focus exclusively on solar power, including those that produce solar panels or are involved in solar cell manufacturing. While many solar power firms are foreign, there are plenty of companies that are headquartered in the U.S. and listed on domestic stock exchanges.

Invest in One, or All Components of Solar Energy

The solar power industry is made up of four main components when it comes to investing:

  1. Solar panels that convert the sun’s energy into electricity
  2. Inverters that turn the DC output from the solar panel into usable AC current
  3. System developers that organize projects and install components
  4. Financiers of solar projects

Solar power companies might be involved in all of these components, a couple, or just one. Investors have the option to invest in a company that focuses exclusively on one component, or many, based on risk tolerance and an understanding of each category. It’s important to understand how companies distinguish themselves from each other, and how these different industry components interact with one another before determining which investment path is the right one to take.

The Company Invested in Makes All the Difference

As noted earlier, some solar companies ended up bankrupt, including Enecsys and Solar-Fabrik. Not all companies are created equal, which solar power investors need to make note of. Since many companies involved in the solar energy industry are actually making the same thing there may be little to differentiate one from another.

Investors should be looking for companies that produce noticeably different products, particularly ones that are more efficient and utilize installation systems that are much more cost-effective. The interaction between the solar power system, the utility, and the homeowner or business owner also plays an important role in the technological differentiations from one company to another.

Differentiated technology is one of the key aspects of a potentially successful solar power company. Understanding how the technology of a solar power company measures up to the competition and what steps they are taking to assimilate energy services is crucial to accurately anticipating its long-term success.

Investors might also want to consider solar energy companies that have exposure in more than one location, as they will be more protected during boom and bust cycles of solar power. In fact, solar investors should be wary of companies that rely only on one particular market. Regulations and policy shifts in a country where a company is vested in could be detrimental since the solar industry is heavily dependent on local subsidies and policies that provide access to the grid. Any sudden changes in subsidy and policy could negatively impact business.

For instance, Germany was once the biggest solar market in the world thanks largely to the high feed-in tariff rate for solar installations. When the tariff plummeted, the industry in the country suffered, taking stock prices – and investors’ money – along with it. For this reason, it’s wise to consider buying solar stocks from companies that are geographically diverse.

Investors should also be looking at companies that are vertically integrated, have strong balance sheets, and have flexible business models. These traits will help put companies a step ahead of the competition and keep their stock prices strong.

Going Long With Solar Stocks

Like any other type of stock, solar stocks can go up and down in price, as they have in the past. However, investing in solar stocks can offer great potential for long-term investors. The solar power industry can literally change the way the world is powered, which is what truly sets this industry apart from any other. Investors who do their due diligence and purchase stocks of technologically advanced solar companies that are highly scalable can potentially tap into big winners. But it will take long-term investment strategies to really reap the rewards that solar power investments can bring.

Oil and Energy Investor is meant to be an informational site only, and is not intended to substitute sound investment advice from an impartial investment advisor, nor should it take the place of due diligence on the part of the investor.

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