There are several reasons why solar energy is going to be an increasingly important part of the total energy picture for the foreseeable future. Climate and pollution issues are driving energy production away from fossil fuels and toward clean, renewable energy. Across the world, the middle class is growing and with it the demand for more energy. Meanwhile the technologies involved in industrial scale manufacturing of solar products are becoming faster, more efficient, and cheaper. The best investments in solar energy will be in those companies that best use these factors to generate profits. To apply the intrinsic stock value approach to these stocks, you will need to learn a bit about solar energy, the producers, the resellers, and the market. Here is some information to get you started.
The Many Different Kinds of Investments in Solar Energy
When investing in stocks in the solar market, you need to apply the same reasoning that you do for any of your investments. Are you investing for the long term? Are you more comfortable with large cap dividend stocks that do work in the solar energy area but have a broad base of products and services to guarantee those dividends for years to come? Or, do you like to find startups with the prospect of extraordinary growth? Whichever approach you take, you will need a company that stays ahead of the curve in this rapidly advancing investment arena.
Lots of companies are working in solar energy. Some are large companies for whom solar is a small percentage of the business and others are small companies totally devoted to solar. Large companies like Tesla, NextEra Energy, or AES Corp. are billion dollar companies with small-for-them solar exposure but still have more invested in and income from solar than smaller pure-play solar companies like Sunrun or Enphase Energy.
Here is a “baker’s dozen” list of companies trading on U.S. stock exchanges and working in the solar sector. They are listed by the size of their solar footprint.
- Tesla, $25 billion, solar panel installation
- NextEra Energy, $17.8 billion, utility
- The AES Corp., $10.6 billion, utility
- JinkoSolar Holding, $3.98 billion, solar panel manufacturing
- Brookfield Renewable Partners, $2.5 billion, solar panel manufacturing
- First Solar, $2.5 billion, solar panel manufacturing
- SunPower, $1.67 billion, solar panel manufacturing
- SolarEdge, $1.1 billion, solar panel and accessory manufacturing
- TerraForm Power, $940 million, utility-scale power production
- Sunrun, $844 million, installation of solar panels
- Enphase Energy, $404.5 million, manufactures solar components and accessories
- Vivint Solar, $301 million, solar panel installations
As you can see, there both large and small companies in this sector and companies that just manufacture panels, those that just install them, and utilities for whom solar is an increasingly large part of their operations.
Investments in Solar Panel Manufacturing
The two important things to know understand in this niche are solar panel efficiency and solar panel cost per watt of power produced. The technology is advancing and panels seem to get more efficient every year. However, end-users want the most power production for their dollar. Thus, cost per watt is commonly the driving factor in profitability. While the folks making the most efficient panels may get bragging rights, those that most-effectively produce panels that deliver the most electricity for the dollar will likely be the ones to survive and prosper. Solid fundamental analysis is important here and it needs to be repeated every time technology advances. Largest players in this niche are JinkoSolar Holding, First Solar, SunPower, and SolarEdge.
Investments in Solar Panel Installation
To a degree this is a less chancy investment niche. These folks are not hurt by investment is manufacturing technology that become obsolete in a year. But, they need to constantly find customers, compete on price and service, and stay current with the technology. The biggest player in this niche is Tesla followed by Sunrun and Vivint Solar.
Investing in Solar Energy through Utilities
This sort of solar investment is one step further removed from the risks of advancing technology. Utilities tend to be secure investments and those that are the best run are the most successful. Utilities that make the best use of solar will be increasingly prosperous as the decades roll by. NextEra Energy and AES Corp. are the largest in this niche. The part of this sector that includes companies that just use solar for power generation bears watching. The one to watch in this case is TerraForm Power.
Best Investments in Solar Energy
The best investments in solar energy over the years will be those companies that use this advancing technology most effectively to generate long term, reliable profits. You will want to decide if you are going to “bet” on a pure manufacturing play, someone installs the panels, or the folks who generate power. Then you need to apply the same diligence that you use for every investment. What sort of debt does the company carry? How much cash does it routinely generate? Are its sales steady or always up and down? And, have they demonstrated the ability to stay ahead of the curve by adapting new technologies, efficiencies in their operations, and dominance of any particular part of the market? Are they, like the Coca Colas of the world, a household name?