By Thomas Kostigen
Many of us have heard that the price of solar energy has come down. But what does that mean exactly? And is that good or bad for investing?
When we hear that oil prices have dropped, that is not usually good news for oil stock prices. But solar energy is different. Here’s why: Solar is fighting to compete with fossil fuels such as coal and natural gas that are used as common sources of electricity. Lower solar prices mean this energy source has a better chance of being adopted into a power utility’s mix of energy products—giving the sector a much-needed boost in total revenue and — importantly — acceptability.
To be sure, people can buy solar panels directly to power their homes. A typical solar array costs about $15,000 and the energy produced from it amounts to between three cents and six cents per kilowatt hour. That compares to fossil fuel per-kilowatt-hour prices of between five cents and 17 cents. But consumer-direct solar savings isn’t where the real money’s at; investing in solar companies that produce massive amounts of power is.
There are essentially two ways to create solar electricity. The most common solar arrangement is made via photovoltaic (PV) cells. These are made from silicon, mirrors, or lenses. They capture sunlight and semiconductors transfer electrons through circuits that can be tapped for power. A growing solar segment is concentrated solar. Here, much of the circuitry is skipped and power is transmitted via direct current. This allows transmission to be extended farther. Direct current, or DC, historically has been problematic because the high voltage needs to be stepped down before it reaches outlets. Otherwise it’s like pugging your toaster oven directly into a power line — and the obvious problem with that: poof, up in flames. Advances in technology, however, now allow for better stepping down of power without sacrificing its thrust. This gives solar companies operating in the segment more reach, and more potential markets to service. In addition to segments, there are manufacturers, suppliers, and installers to consider as specific company investment plays.
In any case, solar energy stocks have been outperforming the broader stock market. Year-over-year through June, for example, Invesco’s solar exchange-traded fund (ETF) produced a total return of more than 36 percent compared to a total return of 16.6 percent for the S&P 500. Tesla’s rocket returns are further testament to solar’s future. Of course, there are many companies to invest in directly and many that have indirect ties to the solar industry (even some traditional oil companies have large solar portfolios). And, of course, there are solar ETFs and mutual funds that take across-the-board positions in solar companies. That’s why it’s important to get the advice of a financial professional when it comes to solar investing.
With solar prices down and a growing emphasis on climate-friendly companies that embrace the tenants of Environmental, Social, and Corporate Governance (ESG) standards, there are forecasts for robust growth in the solar industry. In other words, solar’s future is looking bright.
Thomas Kostigen is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues.