Why You May Want to Invest in Solar Energy
Renewable energy stocks are on the mend, particularly in the solar space. After a few years of margin erosion, supply gluts, and hostile trade negotiations, solar investors who picked up cheap solar shares towards the end of 2012 are sitting on a mountain of profits today. But the question is, will it last?
The answer is yes. And the reason can be summed up in one word: competition.
After the market imploded in 2008, burgeoning solar manufacturers, both large and small, were quickly wiped out, leaving only a handful to survive in an incredibly hostile environment. But this turned out to be a good thing, as it allowed the industry to evolve at a much faster rate than it would have otherwise. Think of it as a necessary Darwinian smack-down that buried the weak and empowered the strong.
Today, those left standing have been naturally selected and are becoming healthier and healthier in an environment that has thinned out the herd and consolidated the powerful. The result is a stronger solar sector that, according to Navigant Research, will provide a product that will be cost-competitive with retail electricity prices throughout most of the world by 2020 — without subsidies.
For those looking to invest in solar energy, there are a few options, mostly cell and module manufacturers. The China-based players are the most prominent and have delivered unbelievable gains this year. Trina Solar (NYSE: TSL), JA Solar (NASDAQ: JASO) and Canadian Solar (NASDAQ: CSIQ) have been some of the biggest winners, all with gains in excess of 100 percent over the past seven months.
The only concern with these companies over the long-term is that they're heavily dependent upon support from the Chinese government. Without that support (in the form of unsustainable subsidies and mandates), it would be nearly impossible for these companies to remain competitive. That being said, right now there is no evidence that China is looking to relent on its dedication to its domestic solar industry. In fact, China officials have announced they now plan to more than quadruple China's solar capacity to 35 gigawatts by 2015.
To give you an idea of how much that is, today, the United States, which is one of the largest solar markets in the world, has close to 9 gigawatts of cumulative installed solar capacity. And that's after decades of steady growth.
The Chinese solar industry isn't at any risk of crumbling anytime soon, but if you prefer to stick with non-Chinese players, U.S.-based SunPower (NASDAQ: SPWR) and First Solar (NASDAQ: FSLR) are two of the most successful and aggressive manufacturers on the planet. They can compete with China's low-cost production with technologically-superior products, and both are also now successfully competing outside of the United States as well.
Another way to get solar energy into your stock portfolio is through financing and leasing companies. SolarCity (NASDAQ:SCTY) is a quality pick. The company is one of the most successful solar financing and leasing companies in the United States, and in two years it plans to introduce storage systems for its customers. This effectively means that its customers can generate electricity during the day, store it in an advanced battery packs, and use it at night, when the sun goes down.
Basically, SolarCity has figured out a way to make solar energy work at night. This is a major game-changer that could take SolarCity to new highs. And, along the way, the company continues to land major deals with companies like Honda (NYSE: HMC), Wal-Mart (NYSE: WMT), and PulteGroup (NYSE: PHM) — not to mention the deals it already has in place with the U.S. military. SolarCity is probably one of the smartest solar investments you can make in the near future.