Solar Energy and its so many resources was once regarded as too expensive and
inefficient, solar energy is now becoming a more viable option for consumers
and businesses alike. Alternative 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, as they are now, 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. So-called photovoltaic (PV) energy
is created using flat solar panels which 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 to a single point, turning water into
steam which then turns a turbine. For consumer and business applications,
photovoltaic solar panels are much more common than other types.
According to the U.S. Department of Energy, solar energy
generation today costs around 13 cents per kilowatt-hour. This accounts for
state and federal subsidies awarded to solar power and is nearly 14% more
expensive than the cost of electricity provided by fossil fuels. The price and
efficiency of solar panels have already fallen quite a bit to come down to this
level, and research and
development is underway to further decrease the cost of
production.
New materials known as perovskites have been
incorporated into solar cells and have increased solar cell efficiency in
laboratory tests, from a 3.8% efficiency in 2009 to just over 20% by 2014. If
technological development in solar continues at this pace,
PV electric generation could increase to produce 50% more energy per square
foot of solar paneling in just a few short years. If progress to increase
energy efficiency stays on track, this renewable energy source will be able to
compete head to head with traditional fossil fuels, even at today's low oil
prices.
Another reason that the price of solar has
dropped recently is due to an increase in supply – especially
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 and the time required to do so has fallen
due to more efficient methods and specially designed tools. A typical
residential installation today might take four hours while the same
installation just a few years ago would have taken two or three full days of
work.
Profiting by Getting Solar Panels Installed
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 reduced from 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 don't
use back to the grid. This billing method credits solar customers against their
electricity consumption, lowering their monthly bills. According to the
National Renewable Energy Laboratory, a typical residential 4 kilowatt PV systemwould reduce a
homeowner's utility bills by approximately $400 a year. 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.
Depending on the region, the system may be
too costly to earn a positive return on
investment even after incentives. As the price of solar panels
and their installation continues to drop, profiting by producing solar energy
may become more commonplace.
Investing in Solar Stocks
According to a report by analytics firm IHS Technology, the market for
solar electricity installations is poised to grow by 16% worldwide this year.
In 2014, the amount of PV solar power generation in the U.S. grew by 36%, with
an anticipated further output growth of 26% in 2015, amounting to more than 8.2
gigawatts of capacity. As the supply glut from Chinese production is met by
increasing demand, the profits to solar companies are likely to increase
One of the most convenient ways to invest in
the solar energy sector is
through the Guggenheim Solar ETF (TAN). According to its prospectus,
the ETF consists of approximately 25 global stocks selected based on their
relative importance in the solar power sector. 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. Despite falling 2.1% in
2014, TAN has returned nearly 41% year to date.
The Bottom Line
Solar power is becoming more affordable and
more efficient at turning the sun's energy into usable electricity. Despite an oversupply issue
attributed mainly to Chinese exports, 2015 has been a banner year for solar
stocks so far. As the prices of oil and fossil fuels begin to rise, solar
energy will be viewed as a more competitive option, further increasing its
demand.
For those seeking a broad investment option
in the solar sector, the Guggenheim Solar ETF, TAN, is a good option. People
might 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.
