How to Profit from Solar Energy

Solar energy has become a more viable option for consumers and businesses as technology has advanced and the cost has fallen. A report by the U.S. Department of Energy’s National Renewable Energy Laboratories reports that the cost of utility-scale solar fell by 30% in one year, and solar hardware for residential use, such as Tesla’s solar roofs, is poised for more widespread adoption. 

Alternative energy sources 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 and when the price of oil rises in the future. (To learn more, see: "Solar Power Gets Some Major Backers.")

Solar energy typically works by converting light energy from the sun into electricity. Photovoltaic (PV) energy is created using flat solar panels that 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 on a single point to turn 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 6 cents per kilowatt-hour [2], and the price has dropped by 73% since 2010, according to International Renewable Energy Agency (IRENA). In comparison, electricity generation based on fossil fuels costs in the range of 5 cents to 17 cents per kWh.

While the most efficient solar panels on the market today have efficiency ratings as high as 22.5%, according to EnergySage, a company that researches solar systems and installers, the majority of panels range from a 15% to 17% efficiency rating. SunPower panels are considered the most efficient solar panel brand available on the market.

Another reason that the price of solar has dropped is due to an increase in supply, particularly 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. (To learn more, see: "Solar Is Starting to Win the Price War.")

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 less than 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. (To learn 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 do not use back to the grid. This billing method credits solar customers against their electricity consumption, lowering their monthly bills. 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.

According to EnergySage, for example, homeowners in Portland will save about $17,000, on average, if they go solar over a 20-year period. In Boston, homeowners will save approximately $43,000 on average and, in Los Angeles, homeowners can save $50,000 over 20 years. Depending on the region, the system may still 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 will be more attainable.

The Solar Investment Tax Credit (ITC), introduced in 2006, has created an average annual growth rate in solar of 54%, according to the Solar Energy Industries Association. Moreover, as the supply glut from Chinese production is met by increasing demand, the profits to solar companies are likely to increase. (To learn more, see: "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. Though TAN was down 0.52% year-to-date as of March 2018, it was up 41.2% over a one-year period. 

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

First Solar, Inc. (FSLR)

First Solar beat consensus estimates in the first two quarters of 2017, and the results for the third quarter were even more impressive. First Solar reported a year-over-year growth of 60%. First Solar stands to benefit from the Trump administration's tariff decisions that are expected to affect Chinese imports because it uses thin-film solar panels – a different technology than that employed by the Chinese companies that the tariff is designed to protect against. First Solar's panels are exempt from the tariff. First solar saw a decline in its stock price of 28% in 2018 as of October. However, this could be due to escalating trade conflict between the U.S. and China and increasing U.S. production. This downturn could represent a long-term proposition and buying opportunity for solar investors.

SunPower Corporation (SPWR)

SunPower is majority owned by petroleum giant Total S.A. (TOT). Total S.A. is supporting SunPower after recent financial difficulties, and SunPower is heavily investing in new technology from Cogenra Solar to move into utility-scale projects. (For more, see: First Solar a Steal, SunPower Less Sunny: Analysts.). Additionally, according to Reuters, the company is considering expanding production in the United States and will acquire SolarWorld Americas, a U.S. producer of high-quality solar panels. SunPower shares shot up late in 2018 with the news that some of its materials would be exempt from tariffs. (For more, see: First Solar and SunPower: Effects of Solar Panel Tariffs.)

Vivint Solar, Inc. (VSLR)

Vivint provides rooftop solar and storage solutions for residences. In 2017, the stock was up nearly 56% for the full year and, in 2018, the stock is up 30% on the year. Vivint has some of the lowest solar installation costs in the country and is expected to show significant future growth as the residential solar industry expands. In California, for example, a recent mandate calls for the installation of solar systems in all new homes by 2020. 

Solar power is becoming more affordable and more efficient at turning the sun's energy into usable electricity. 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.