With traditional energy production rising from fracking and horizontal drilling, the renewable energy sector hasn’t been a great investment since the financial crisis. Broad-based clean energy funds- like the iShares S&P Global Clean Energy Index (NASDAQ:ICLN) –still sit far below their all-time highs. Those lousy returns have been even worse for the solar sector. As prices for panels have crashed due to a glut on the market, many solar stocks have suffered.
Yet, solar bulls may finally be getting some good news.
For the first time, new solar power installations overtook wind energy capacity across the globe. That’s a huge win for the energy form and could finally signal solar’s return as a valid portfolio choice.
Policy Shifts In Key Markets
According to Bloomberg New Energy Finance, photovoltaic capacity installed around the world this year will beat wind for the first time ever. The news agency predicts that a total of 35.5 gigawatts (GW) worth of wind energy- both onshore and off- will be installed this year. That compares to its median forecast of 36.7 GW of new photovoltaic capacity.
The key for the shift has to do with policy shifts in several key markets.
First, the lack of clarity on subsidies in the U.S. and China will hinder new wind installations. These markets currently account for roughly 60% of the newly installed capacity of wind energy. Likewise, Europe’s continuing debt nightmare and austerity budgets will hurt wind's chances. Overall, Bloomberg estimates that wind will see a 25% decline in the number of new installations this year. That puts it on par with 2008’s number of new facilities.
At the same time, policy shifts and cheap prices are helping solar’s chances.
In the wake of its nuclear disaster, Japan has emerged as the solar hotspot as the government there has enacted sweeping incentives to increase capacity and adoption. China is also making the shift the solar rather than wind as the nation spurs development to counteract its “glut” of produced panels. Those cheap panels are making it easier for solar to compete with more traditional fossil fuels- like coal and natural gas- in some markets.
Bloomberg cites those reasons as why solar will represent 16% of the world’s total installed power generation capacity by 2030. That’s up from just 2% in 2012.
A Sunshine Portfolio
Perhaps more importantly, Bloomberg reports that solar firms may finally be on track to regain profitability. That could mean finally adding some solar power to a portfolio.
The Guggenheim Solar ETF (NYSE:TAN) is still the easiest and broadest way to play the sector. The fund is up an astonishing 110% year-to-date. Yet, with capacity still rising, more gains could be had. The ETF holds 29 different solar firms- including Yingli Green Energy (NYSE:YGE) and Canadian Solar (NASDAQ:CSIQ). Expenses run 0.70%, which is a bit high. However, the fund has ample volume versus the other main competitor in the space- the Market Vectors Solar Energy ETF (NYSE:KWT).
For investors, it maybe finally time to bet on the solar players like Trina Solar (NYSE:TSL) or even the stalwart of the industry- First Solar (NASDAQ:FSLR). Like many of the other solar firms, FSLR was hit hard the last couple of years. However, its thin film technology is still one of the cheapest and most efficient on the market. Secondly, the firm’s position of operating installation sized solar facilities on behalf of utilities is a big win for shares. According to the Solar Energy Industries Association, roughly 452 MW of the 832 MW installed during the second quarter was in utility scale projects. First Solar shares currently can be had for a P/E of just 10. Cheaper than rival SunPower (NASDAQ:SPWR).
Finally, both Applied Materials (NASDAQ:AMAT) and GT Advanced Technologies (NASDAQ:GTAT) could be buys as they produce the equipment needed to make solar panels and wafers. With the glut gone, they could see more orders coming from the solar space as capacity finally begins to ramp up.
The Bottom Line
After experiencing some of the worst years in its history, the solar energy sector could be having one of its best. New installed capacity is growing and will finally overtake wind energy in new added capacity. That’s a huge win for the sector.
Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.