The global solar industry, expected to become the world’s largest source of energy by midcentury, has experienced a volatile decade-plus, driven in part by changing government policies and oil and gas market fluctuations.

In the U.S., the investment tax credit for alternative-energy stocks propelled solar energy installations in 2015. The extension of the tax credit into 2017, however, worked to delay contracts as the urgency was taken off customers to sign deals. In the 2000s, German solar tariffs provided a boost to the industry in Europe, which has suffered in recent years due to a significant cut in subsidies. A boom for solar in Asia was also struck by a bearish period for the market in China starting in 2016.

The declining price of solar panels has also been a blow to industry leaders, as firms such as First Solar Inc. (FSLR) try to offset losses with costly, widespread restructurings​ in order to streamline more cost-effective models. (See also: Can First Solar Rebound After 2016's Decline?)

Solar Now Cost-Competitive

Despite the short-term shock, signs point to the solar industry’s long-term health. As an industry affected by changes in subsidies, the fact that solar contracts are now competitive with fossil fuel contracts for bids around the world is assuring. Now that solar is cost-competitive with traditional energy, the industry no longer relies on subsidies that manipulate regular supply-demand dynamics.

Countries around the world—including Mexico, Chile and the United Arab Emirates—have chosen solar over fossil fuels. When Mexico opened an auction for wind, hydro, combined natural gas and solar for a new electricity capacity, solar providers won 74% of the available capacity while wind companies won the remaining 24%. Similar auctions in nations such as Brazil, Chile and Argentina will lead to the development of actual power plants in 2018 and 2019, indicating a long-term demand from new energy contracts.

A stable and growing demand for solar is also driven by overall sentiment regarding the segment at the forefront of renewable energy. Despite the surprise election of climate-change skeptic Donald Trump, a majority of the world is planning for a wide-scale transition away from polluting industries so to protect against resource scarcity and the looming implications of global climate change. 

 

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