Should You Still Make An Investment In Solar Energy Stocks?

No one wants to lose money on their investment. At the same time, you want to make specific investment choices based on the morality of the investment itself. Big oil is out among the environmentally conscious. Green energy is in, but does it give you green?

Solar Is A Proven Technology

Beyond the obvious realization that the sun is still shining, solar is a proven technology. Even though the technology has changed a lot over the years, panels from the 1970s are still operational. This isn’t a shiny new object. It’s a stable and mature technology with a relatively small market size. That means that you’ve got a good product that still hasn’t been realized for its greatness yet.

That’s changing, but right now the costs are high enough to make it a viable growth investment. At the same time, long-term cost projections all show the same thing: costs are falling, making it a mature long-term investment.

Solar Projects Are Real

Sometimes, it’s hard to see where your money is going in business. With traditional investments, you buy stock. That company stock may be backed by a company’s products or services, but it’s not always clear what the company does with the money.
An investment in solar is different. You’re buying into a solar project, and that project yields a tangible panel – something you can use to generate electricity. If you invest in a company, you’re reasonably certain that it’s making solar panels that it will sell to consumers and businesses. It’s a simple business model. And, for investors, simple is good.

Solar Saves You Money

A bad investment is one that’s not practical. If there aren’t any tangible benefits, then all you really have is an idea, and ideas tend not to have staying power. But, solar has an attractive price point.

A new report put out by Tracking the Sun, from the Department of Energy Lawrence Berkeley National Labs (LBNL), confirms that solar power’s cost continues to drop. This is good for anyone that’s manufacturing components. And that, in turn, is good for investors.

According to the report, the median installed prices of solar power generators fell by an average of $0.5/W (6-7 percent) annually between 1998 and 2012.

That rate has been accelerating recently. Specifically, we’re saw a drop of $0.3-0.9/W (6-14 percent) between 2011 and 2012. This is a significant change, and is the reason why we’re seeing a nearly fourfold increase in U.S. solar installations between 2009 and 2012. That trend is continuing into 2015 and expected to continue into 2016.

The LBNL report also found that prices tend to vary widely between states and even within the same state.

This is due to regional differences including labor costs, the total market size in the area, and competition from installers. A local installer who represents the “only game in town” can charge higher rates than a contractor competing with 10 other dealers.

Most of the price drops come from the falling cost of modules. Costs, like permitting and customer acquisition (marketing), have remained relatively flat. But, this is good news for investors. It means that price drops in the future are likely, since there’s still room for growth. And, even with price drops, an expanding marketplace means a more stable one – one that support regular income. And, that means potentially more dividend players in the industry.

A Few Reasons You Might Not Want To Invest In Solar

According to the Energy Informative, it’s not all sunshine and rainbows when it comes to solar investing.

There are a few disadvantages, including the expense, the intermittent nature of the energy, the pollutants generated during manufacture, and the sheer space required to produce energy not to mention a growing environmental problem no one is talking about.

First, the expense. The initial fees for manufacturing and installing, panels are high. This is good for investors, since it means high revenues for solar companies. But, if this causes the market to shrink, it doesn’t matter what the panels cost. There’s an inherent market risk for new entrants into the solar industry, and that may cause a lot of startups to fail, putting your money at risk.

Secondly, the intermittent nature of solar energy makes it difficult to impossible to rely on it throughout the day. Cloud cover and the fact that there’s no sun at night means that companies can only generate solar power at very specific times of the day and throughout the year.

While there is a market for solar energy among environmentally-conscious businesses and individuals, even the most ardent supporter must admit that backup sources are needed for mass adoption and power generation.

There are also significant resources that go into producing panels and power plants. These resources, and the production cycle, produces generous amounts of greenhouse gases, like nitrogen trifluoride and sulfur hexafluoride.

There is also the matter of space. A solar power generator can take up 20 acres, but only generate 5 MW of power. Compare this to a coal power plant, which takes up just a tiny fraction of that space, and can produce 500 megawatts of energy.

Personal solar generators need significant space too – usually on rooftops which were not engineered for the added weight.

Finally, solar power plants can sometimes disrupt the wildlife in the area, killing birds and causing additional maintenance for panels that weren’t originally projected in operating and maintenance cost projections.

A Final Thought

One reason many investors are eyeballing solar is because of the drop in stock prices in the industry. In 2015 alone, the industry saw a 10 to 20 percent drop which, for some, is probably the best buying signal of all.

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Elizabeth Goldman is the editor of AlternativeInvestmentCoach.com. She has written for Investing.com, Bullbearings.com and many others.