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How To Profit From Solar Energy

Author: Christopher Williams

Once regarded as too expensive and inefficient, solar energy is now becoming a more viable option for consumers and businesses alike. Alternative energy s are typically more in demand when the price of fossil fuels is high, but there are still many ways to profit from solar energy – both when oil prices are low, as they are now, and when the price of oil rises in the future. (See also: Solar Power Gets Some Major Backers.)

Solar Energy: An Overview

Solar energy typically works by converting light energy from the sun into electricity. So-called photovoltaic (PV) energy is created using flat solar panels which can be affixed to a structure's roof or arrayed across open spaces. Another method, known as thermal solar, uses a series of mirrors to focus the sun's energy to a single point, turning water into steam which then turns a turbine. For consumer and business applications, photovoltaic solar panels are much more common than other types.

According to the U.S. Department of Energy, solar energy generation today costs around 13 cents per kilowatt-hour. This accounts for state and federal subsidies awarded to solar power and is nearly 14% more expensive than the cost of electricity provided by fossil fuels. The price and efficiency of solar panels have already fallen quite a bit to come down to this level, and research and development is underway to further decrease the cost of production.

New materials known as perovskites have been incorporated into solar cells and have increased solar cell efficiency in laboratory tests, from a 3.8% efficiency in 2009 to just over 20% by 2014. If technological development in solar continues at this pace, PV electric generation could increase to produce 50% more energy per square foot of solar paneling in just a few short years. If progress to increase energy efficiency stays on track, this renewable energy will be able to compete head to head with traditional fossil fuels, even at today's low oil prices.

Another reason that the price of solar has dropped recently is due to an increase in supply – especially from Chinese producers. China has over-produced solar panels relative to current demand, which is putting downward pressure on prices. At the same time, the cost of installing solar panels and the time required to do so has fallen due to more efficient methods and specially designed tools. A typical residential installation today might take four hours while the same installation just a few years ago would have taken two or three full days of work. (For more, see: Solar is Starting to Win the Price War.)

Profiting By Getting Solar Panels Installed

Most state governments offer some sort of tax subsidy or grants to encourage more widespread solar panel usage. As a result, the final cost after installation may be reduced from the sticker price. Furthermore, tax credits given for solar power could help reduce annual tax bills. However, the best way to profit from having solar panels installed on your roof is through net metering. (For more, see: A Solar-Powered Home: Will It Pay Off?)

Net metering allows utility customers who generate their own solar electricity to feed some of the energy that they don't use back to the grid. This billing method credits solar customers against their electricity consumption, lowering their monthly bills. According to the National Renewable Energy Laboratory, a typical residential 4 kilowatt PV system would reduce a homeowner's utility bills by approximately $400 a year. Most states have passed net metering laws, but differences between state legislation and implementation mean that the benefits of net metering can vary for solar customers in different parts of the country.

Depending on the region, the system may be too costly to earn a positive return on investment even after incentives. As the price of solar panels and their installation continues to drop, profiting by producing solar energy may become more commonplace.

Investing in Solar Stocks

According to a report by analytics firm IHS Technology, the market for solar electricity installations is poised to grow by 16% worldwide this year. In 2014, the amount of PV solar power generation in the U.S. grew by 36%, with an anticipated further output growth of 26% in 2015, amounting to more than 8.2 gigawatts of capacity. As the supply glut from Chinese production is met by increasing demand, the profits to solar companies are likely to increase. (See also: Why You Should Invest in Green Energy Right Now.)

One of the most convenient ways to invest in the solar energy sector is through the Guggenheim Solar ETF (TAN). According to its prospectus, the ETF consists of approximately 25 global stocks selected based on their relative importance in the solar power sector. It includes companies that produce solar power equipment and products for end users, companies that produce the equipment used by solar panel producers, solar installers and companies specializing in solar cell manufacturing. Despite falling 2.1% in 2014, TAN has returned nearly 41% year to date. (See also: Top 10 Alternative Energy Stocks for 2015.)

Investors seeking individual companies may want to consider the following companies:

Company

Ticker

Description

YTD Return

Mkt Cap ($billions)

Solar City

SCTY

Solar panel installation & leasing

4.45%

5.4

Sun Power

SPWR

Solar panel installation & leasing

32.29%

4.49

First Solar

FSLR

PV module manufacturer

38.89%

6.24

SunEdison

SUNE

PV module manufacturer

35.78%

7.21

Vivint Solar

VSLR

Solar panel installation & leasing

45.88%

1.42

Enphase Energy

ENPH

Inverter systems for solar electricity

-4.48%

0.6

Ascent Solar

ASTI

Research & development of new PV technology

-12.14%

0.02

Trina Solar

TSL

PV module manufacturer (Chinese ADR)

29.59%

1.11

JinkoSolar Holdings

JKS

PV module manufacturer (Chinese ADR)

41.70%

0.88

Yingli Green Energy

YGE

PV module manufacturer (Chinese ADR)

-14.04%

0.37

JA Solar Holdings

JASO

PV module manufacturer (Chinese ADR)

20.22%

0.47

Daqo New Energy

DQ

PV module manufacturer (Chinese ADR)

18.03%

0.33

Hanwah Q Cells

HQCL

PV module manufacturer (Chinese ADR)

96.36%

0.22

ReneSolar

SOL

PV module manufacturer (Chinese ADR)

26.24%

0.18

China Sunenergy

CSUN

PV module manufacturer (Chinese ADR)

69.41%

0.03

Canadian Solar

CSIQ

PV module manufacturer (Canadian ADR)

43.94%

1.92

Solaredge Technologies

SEDG

PV inverters and monitoring (Israeli ADR)

19.57%

0.97

: Reuters Data as of April 2015.

It is clear that there are a number of large Chinese photovoltaic panel manufacturers, which has contributed to the excess supply we see today. Despite that, so far this year, the majority of solar cell manufacturers, as well as installers, have seen double digit returns. (See also: It's Finally Time to Bet on Solar.)

The Bottom Line

Solar power is becoming more affordable and more efficient at turning the sun's energy into usable electricity. Despite an oversupply issue attributed mainly to Chinese exports, 2015 has been a banner year for solar stocks so far. As the prices of oil and fossil fuels begin to rise, solar energy will be viewed as a more competitive option, further increasing its demand.

For those seeking a broad investment option in the solar sector, the Guggenheim Solar ETF, TAN, is a good option. People might also profit from solar energy by having solar panels installed on their own homes or businesses in order to take advantage of net metering to reduce utility bills.

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