Energy Sector Commodities: Solar Energy Investment
Solar power currently accounts for only 1 percent of total renewable energy sources, but it’s one of the fastest-growing areas in the commodities arena. Governments around the world are in the process of announcing massive infrastructure spending programs dedicated to harnessing the sun’s power and turning it into electricity and other forms of energy.
India and China have been at the forefront of this trend, with $30 billion in projects announced in the 20 years ahead. Even countries that you may not associate with renewable energy are taking the lead on this matter; Saudi Arabia, the world’s largest oil producer, and the United Arab Emirates have both dedicated large budgets to the development of solar power.
Even the Kingdom of Morocco has jumped on the bandwagon, with 3,000 megawatts projected by 2020 to come from solar plants located in the Sahara Desert.
Broadly speaking, solar power is the process by which energy from the sun is harnessed and channeled into a usable energy form, generally heat or electricity. Two different processes can transform solar power:
Solar photovoltaic energy: Don’t be intimidated by this high-sounding name — it simply describes the method by which energy from the sun is captured and transformed into electricity.
Solar thermal energy: This method transforms the sun’s energy into heat, which may be used for a number of different purposes, such as interior space heating or water heating. If you’ve ever seen flat-panel solar collectors mounted on homes or buildings, they’re used for solar thermal energy purposes.
Many companies are trying to turn these two methods of transforming solar energy into a commercially viable enterprise, but they face some challenges. One of the biggest impediments to the commercial success of solar power is the sun itself! Specifically, the sun isn’t a resource that you can control.
For one thing, you can’t manipulate the weather, so you’re at the mercy of rain, fog, clouds, the earth’s rotation, and other natural external factors that block the sun. For this reason, solar power accounted for a little less than 0.06 percent of total energy consumed in the United States during 2005.
Currently, the equity markets give you a direct way to get exposure to the solar industry. Following are some of the top names in the industry to choose from:
First Solar, Inc. (NASDAQ: FSLR): FSLR was one of the first solar companies to go public. It’s involved in the manufacture and sales of photovoltaic solar panels to end users, including governments, corporate entities, and private individuals.
Its two main revenue generators come from the components sector (selling parts for specific solar projects) and the systems segment (installation of solar farms). With net profit margins in excess of 22 percent (2010 figures), this company offers solid exposure to the photovoltaic market segment.
Suntech Power Holdings (NYSE: STP): Suntech is a world leader in the development, design, and implementation of solar photovoltaic systems and products. In addition to providing construction services, the company offers engineering and maintenance services to its clients around the world.
It has a global footprint, with operations in Germany, the United States, Australia, South Africa, Japan, and South Korea. For a truly diversified global exposure to the solar industry, be sure to consider Suntech.