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.


Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: iShares JPMorgan USD Emerg Markets Bond

    Learn about the iShares JPMorgan USD Emerging Markets Bond fund, which invests in bonds of sovereign and quasi-sovereign entities from emerging markets.
  2. Mutual Funds & ETFs

    ETF Analysis: SPDR Dow Jones International RelEst

    Learn how the SPDR Dow Jones International Real Estate exchange-traded fund (ETF) is managed and for whom the ETF is most appropriate.
  3. Active Trading Fundamentals

    How Hedge Funds Front-Run Index Funds to Profit

    Understand what front running is, and learn how hedge funds use this investing strategy to profit from the anticipated stock buys of index funds.
  4. Mutual Funds & ETFs

    ETF Analysis: Schwab US Large-Cap

    Discover how the Schwab U.S. Large-Cap exchange-traded fund is managed, the index it tracks and the investors for which it is most appropriate.
  5. Mutual Funds & ETFs

    ETN Analysis: Rogers Intl Commodity Energy Total Return

    Learn more about the Rogers International Commodity Total Return, which is an exchange-traded note that tracks a broad index of commodity futures.
  6. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  7. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  9. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  10. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  5. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  6. Lion economies

    A nickname given to Africa's growing economies.
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!