How to Profit From Solar Energy

Solar energy has become a more viable option for consumers and businesses as technology has advanced and the cost has fallen. A report by the U.S. Department of Energy’s Lawrence Berkeley National Laboratory (LBNL) reports that the cost of utility-scale solar projects has fallen by 70% from 2010-2020. This decrease in production has also decreased utility prices.

Renewable energy sources are typically more in demand when the price of fossil fuels is high, but there are still many ways to profit from solar energy both when oil prices are low and when the price of oil rises in the future.

Solar Energy: An Overview

Solar energy typically works by converting light energy from the sun into electricity. Photovoltaic (PV) energy is created by using flat solar panels that can be affixed to a structure's roof or arrayed across open spaces. Another method, known as thermal solar, uses a series of mirrors to focus the sun's energy on a single point to turn water into steam, which then turns a turbine. For consumer and business applications, photovoltaic solar panels are much more common than other types.

The cost for solar power in 2020 fell below $0.06 per KWH globally, down from more than $0.38 just a decade earlier. This is still somewhat higher than some fossil fuels in certain locations, but prices are often comparable when considering tax breaks and incentives. The real savings from solar come in future years due to steadily rising costs for fossil fuel electricity. With solar, you are effectively locking in costs at a constant rate. The only additional cost factors are the upfront costs of installing a solar system and the fossil fuel electricity costs needed when solar doesn't cover all energy needs.

While the most efficient solar panels on the market today have efficiency ratings as high as 23%, the majority of panels range from a 15% to 20% efficiency rate. The most efficient solar panels and their efficiency rates are:

1. SunPower: 22.8%
2. LG: 21.8%
3. CSUN: 21.2%
4. REC Solar: 20.5%
5. Solaria: 20.4%

Another reason that the price of solar has dropped is due to an increase in supply, particularly from Chinese producers. China has over-produced solar panels relative to current demand, which is putting downward pressure on prices. At the same time, the cost of installing solar panels has fallen due to more efficient methods and specially designed tools.

Profiting From Solar Panel Installation

Most state governments offer some sort of tax subsidy or grants to encourage more widespread solar panel usage. As a result, the final cost after installation may be less than the sticker price. Furthermore, tax credits given for solar power could help reduce annual tax bills. However, the best way to profit from having solar panels installed on your roof is through net metering.

Net metering allows utility customers who generate their own solar electricity to feed some of the energy that they do not use back to the grid. This billing method credits solar customers against their electricity consumption, lowering their monthly bills. Most states have passed net metering laws, but differences between state legislation and implementation mean that the benefits of net metering can vary for solar customers in different parts of the country.

Savings from solar panels add up. According to EnergySage, homeowners in Washington will save $17,173 to $23,234, if they go solar over a 20-year period, based on 2019 costs for a 5 kW system. In California, homeowners will save $44,728 to $60,515, and, in New York, homeowners can save $17,504 to $23,683 over 20 years, based on 2019 costs for a 5 kW system. Some estimates put these savings at much higher numbers.

Investing in Solar Stocks

The Solar Investment Tax Credit (ITC), introduced in 2006, has created an average annual growth rate in solar of 52%, according to the Solar Energy Industries Association. Moreover, as the supply glut from Chinese production is met by increasing demand, the profits of solar companies are likely to increase.

One of the most convenient ways to invest in the solar energy sector is through the Invesco Solar ETF (TAN). The ETF's goal is to track the MAC Global Solar Energy Index. It includes companies that produce solar power equipment and products for end users, companies that produce the equipment used by solar panel producers, solar installers, and companies specializing in solar cell manufacturing. As of Feb. 19, 2022, the fund had a return of -15.59% (on a year to date basis), and a 41.10% return over a three year period.

Investors seeking individual companies may want to consider the following companies: 

Daqo New Energy

Daqo (DQ) is a Chinese company that makes polysilicon, an important material in the construction of solar panels. Annual total returns in 2021 was -29.71% versus -25.72% return by JinkoSolar Holding Co. Ltd.

JinkoSolar

JinkoSolar (JKS) is a Chinese solar company that produces solar panels. The company is changing its method of production, creating panels that operate at higher efficiency rates, which can be sold for more. Annual total returns in 2021 was -25.72%.

Vivint Solar

Vivint provides rooftop solar and storage solutions for residences. Vivint has some of the lowest solar installation costs in the country and is expected to show significant future growth as the residential solar industry expands. Vivint has been acquired by rival Sunrun Inc. on Oct. 8, 2020.

The Bottom Line

Solar power is becoming more affordable and more efficient at turning the sun's energy into usable electricity. For those seeking an investment option in the solar sector, solar company stocks or ETFs are a good option. People can also profit from solar energy by having solar panels installed on their own homes or businesses in order to take advantage of net metering to reduce utility bills.