Many people today are worried about the impact of fossil fuels. For those people, investing in renewable energy is important. One of the most popular types of renewable energy is solar power.
What Is Solar Energy?
Solar energy is energy generated by the sun. Specifically, it’s the use of photovoltaic cells to convert sunlight into electrical current. Photovoltaics utilize semi-conductors to absorb radiation from the sun. Then, this radiation is absorbed, the semiconductor emits electrons, which are then used as electricity.
The process is simple, and electricity is limited by the number of panels a company can produce and install.
Why Invest In It?
Solar energy is a volatile industry right now, which makes it excellent for investors. It’s considered a renewable source of energy too, which means that the energy source (the sun) won’t run out of power (at least not for billions of years).
When investors consider investing in solar, here are one of several ways they do it. First, some investors choose to invest in solar panel production. Investing in solar panels this way is what most investors think of when they think of a solar panel investment.
Photovoltaic production is the end-product of solar energy, so it’s easy to grasp, conceptually, and many people feel good about the companies they’re investing in. Within production companies, there are two types of production models.
The original photovoltaic structure was a silicon-based cell. It’s incredibly efficient at converting sunlight into electricity, but it’s also very expensive to manufacture. This is the type of solar energy most Chinese companies use.
The second type of production process involves “thin film” technology. This technology incorporates the use of thin films instead of silicon cells. They’re not as efficient, but they’re cheaper to manufacture.
Another way to invest in solar is to invest in equipment manufacturers, equipment, and related industries. Instead of backing manufacturers, you would invest in the companies that create the equipment or mine the raw materials for production companies. In a way, it’s like the people who made money from gold prospectors by selling them shovels and picks, rather than actually backing the prospectors directly.
This is considered a safer play by some, since factories can be retooled if solar companies go belly-up.
Advantages Of Investing In Solar Energy
Investing in solar energy has a lot of benefits. The most important one is that the solar energy sector continues to benefit from subsidies and special government regulations governing how it is produced and helping to bolster operations.
Once the panels are made, they require very little maintenance since there are little or no moving parts to fail or replace. Solar panels are also a silent form of energy production. Companies that produce solar energy devices benefit from strong support by both the government and environmental groups.
Solar energy can be profitable, and a diversified portfolio may return in excess of 10 percent per year.
Disadvantages Of Investing In Solar Energy
While investing in solar panels can be a good investment, it also comes with significant risks. Not all solar companies succeed. The volatile nature of the industry means that for every 2.14 companies that are winners, there is one loser. It’s still great odds, but you must be ready to accept a roughly 30 to 35 percent chance of unprofitable returns in any given year from any given company.
Also, today’s most efficient solar cells only convert about 20 percent of the sun’s rays into usable electricity. Combined with a heavy up-front cost, it can make solar too risky for some investors.