Investing in Solar Energy

by Mike Kapsch

Solar Power ETF

It almost doesn’t make sense...

Last year, Germany, the United States, Italy and the U.K. all installed a record number of solar panels in their respective countries.

In fact, Germany installed more solar panels in December than the United States did in all of 2009.

Yet solar stocks were blindsided by investors in 2011. Top firms like First Solar (Nasdaq: FSLR) fell as much as 80% during the year. Many others fell more than 50%.

What happened?

As our own energy guru David Fessler explained last week:

“Polysilicon prices have collapsed 90% in the last five years. By the end of 2011, they were halved to $0.90 per watt.”

This epic price collapse, coupled with the fact that manufacturers had ramped up production, sent most solar manufacturers plummeting.

Today, most investors see the huge sell-off as a reason to steer clear of solar stocks. But these crash-level prices have also created a number of opportunities to scoop up great companies at deep discounts.

A Solar Comeback

In addition to being undervalued, there are three more reasons 2012 is set to be a banner year for solar stocks...

  1. Record low prices boosting global demand: Some analysts worry a supply glut will continue suppressing solar stocks in 2012. Yet solar’s new low prices are sending demand for solar products much higher. Demand is expected to jump in the United States, Europe and Asia this year. China is poised to double its solar capacity for the second year in a row, 4 to 5 GW. Not to mention, solar is also quickly becoming a viable solution for the 1.3 billion people around the world with no access to grid energy.

  1. Solar is more efficient than Ever: On top of record low polysilicon prices, solar efficiency is also making leaps and bounds. According to MIT’s Technology Review, conventional silicon solar panels typically convert less than 15% of light. Yet a startup out of North Carolina, Semprius, just tested its solar panels and scored a 33.9% efficiency rating. This is the first time ever any solar module has been able to convert more than one-third of the sunlight that falls on it into electricity. And it makes solar energy generation look much more promising for the future.

  1. Big investors are getting involved: Even though government subsidies are set to wind down over the next few years in Europe and the United States for solar, big investors are already picking up the slack. Berkshire Hathaway owned MidAmerican Energy Holdings announced in December it purchased a solar farm in Southern California for $2 billion. Google reported it invested over $450 million last year as well in solar projects. GE announced in 2011 that it’s going to build the largest solar plant in America, capable of powering 80,000 homes each year. Billions of dollars more is expected to flood this market over the coming months.

The Solar ETF That Covers it All

There’s no doubt, the solar industry is set to grow immensely over the coming years. But tariffs, expected consolidation, and the steady removal of government subsidies make it hard to tell who is and isn’t set to profit.

Perhaps the easiest way to invest in solar today is simply looking to an ETF like the Global Solar Index ETF (NYSE: TAN). This fund is currently comprised of 33 securities all relative to solar energy. About a third of its holdings are in the United States, a third is in China and the rest is spread out between Europe and Canada.

Good investing,

Mike Kapsch

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