As global attitudes toward fossil fuels continue to shift, the renewable energy sector becomes an increasingly attractive portfolio addition. But until technology costs come down, solar energy may remain a luxury in the eyes of most consumers.
What are solar stocks?
Solar stocks are stocks from companies involved in the generation of solar energy and the manufacturing of solar energy technology.
Solar energy is one of several forms of renewable energy — an emerging market category that continues to gain traction as we pivot from oil reliance to more sustainable energy technologies, including solar, wind, hydro, tidal and geothermal energy.
There are numerous companies in the solar energy space. These companies produce the technology that allows us to capture energy from the sun and convert it into electricity. The types of companies that fall within the solar energy category:
Manufacture solar modules and cells
Manufacture power optimizers and inverters
Install solar panels
Design solar power systems
Operate solar energy generators
Why invest in solar stocks?
Energy fuels our world. It’s a global resource we rely on and the way we produce and consume energy is changing. In light of growing environmental concerns, there has been a global shift from traditional energy stocks toward renewable energy. And solar power is a massive component of the renewable energy market.
According to Allied Market Research, the global solar energy market was worth $52.5 billion in 2018. And that figure is projected to rise to $223.3 billion by 2026. The market is changing. The demand for oil is dropping. And solar stocks present a potentially lucrative long-term growth opportunity.
Investing in renewable energy also gives you the opportunity to add assets to your portfolio that impact the environment in a positive way. Solar energy can help reduce carbon dioxide emissions and lessen our impact on the environment. If you’re looking to add some socially conscious investments to your portfolio, solar stocks fit the bill.
Risks of investing in solar energy
Two major concerns for investors interested in solar energy are expenses and manufacturing.
Right now, solar energy is expensive. It’s expensive to manufacture, it’s expensive to install and it’s expensive to maintain. And while the high cost of solar energy means higher profits for solar companies, it also acts as a deterrent for consumers. To outfit a residential home with solar panels, consumers can expect to pay between $2.34 and $4.00+ per watt depending on the province or territory in which you live. This shakes out to about $20,000 to $30,000 for the installation when all is said and done.
Solar energy is less of a novelty than it once was, which means it’s becoming more affordable as the technology advances. But it still has a ways to go before it’s as accessible and mainstream as fossil fuel.
Another concern for investors is how solar cells and modules are manufactured. Some of the components of solar technology require rare earth metals that are acquired as a byproduct of other mining processes. Should the demand increase, the supply chain could be threatened. Other solar materials make use of the same hazardous materials as electronics, which presents disposal challenges.
Before you buy in, investigate the companies you’re interested in backing to find out more about their manufacturing processes and protocols.
Solar stocks
There are a variety of companies in the solar energy category, including module developers, cell manufacturers, renewable energy generators and more.
Etrion focuses on developing wind and solar energy solutions. The company has launched several solar parks in Japan — its primary market — but has also worked on projects around the world. Etrion is publicly listed on both the NASDAQ OMX in Sweden and the TSX in Canada. It has a market capitalization of 116,932,904, as of November 25, 2020.
Algonquin Power & Utilities Corp. operates dozens of renewable energy facilities using hydroelectric, wind, thermal, and solar power. It’s also involved in sustainable utilities distribution (water, electricity and natural gas) across North America. The company trades on both the NYSE and the TSX and has a market cap of roughly $12 billion CAD as of November 25, 2020.
Brookfield operates more than 5,000 renewable energy facilities across North America, South America, Europe and Asia. The majority of its assets are in hydroelectric power, but it has been actively expanding its ownership of utility-scale solar resources in the United States with the acquisition of TerraForm Power in 2017. (Full ownership was acquired in 2020, after which, TerraForm was privatized). Brookfield trades on both the NYSE and the TSX. As of November 25, 2020, the company has a market capitalization of nearly $15 billion.
US-based, Pattern Energy, is one of the largest private renewable energy companies in the world with 28 utility-scale wind and solar power facilities in the US, Canada and Japan. The company has been exploring plans to open a 1,000 acre solar energy farm in Pennsylvania, US. Pattern Energy was only founded in 2009, but already boasts a market capitalization of $3.68 billion as of November 25, 2020. It trades on both the NASDAQ and TSX.
Northland Power Inc. develops and operates natural gas, wind, solar and efficient natural gas power facilities in North America, Latin America, Europe, Asia and other regions. Its solar energy facilities are primarily located in Canada, but it’s also in the process of constructing a large-scale solar power facility in Mexico. Northland Power trades on the TSX and has a market capitalization of over $8.84 billion as of November 25, 2020.
Do solar stocks pay dividends?
Some do. For example, Algonquin Power & Utilities Corp. (TSX: AQN), Brookfield Renewable Partners LP (TSX: BEP.UN) and Northland Power Inc. (TSX: NPI.TO) all issue dividends to shareholders. As of the time of writing, Etrion (TSX: ETX) does not pay dividends.
What ETFs track the solar energy category?
There’s only one exchange-traded fund solely focused on the solar energy category: the Invesco Solar ETF (TAN).
Outside this, you can invest in renewable energy ETFs that contain solar stocks, but be aware that these ETFs also track a number of other companies in the renewable energy category, including wind and hydroelectric energy.
Invesco Global Clean Energy ETF (NYSEARCA: PBD)
First Trust ISE Global Wind Energy Index Fund (NYSEARCA: FAN)
First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (NASDAQ: GRID)
Invesco Cleantech ETF (NYSEARCA: PZD)
Invesco Solar ETF (NYSEARCA: TAN)
Global X YieldCo & Renewable Energy Income ETF (NASDAQ: YLCO)
SmartETFs Sustainable Energy II (BATS: SULR)
SPDR S&P Kensho Clean Power ETF (NYSEARCA: CNRG)
Are there any solar energy ETFs that trade on Canadian stock exchanges?
As of the time of writing, no. To invest in solar energy ETFs, you have to access stock exchanges outside Canada like the NASDAQ or NYSE in the US. There are several Canadian-based brokerages that offer access to international exchanges on which solar energy ETFs trade including Interactive Brokers and Questrade.
Alternatively, you can also buy stocks in clean energy companies that trade on Canadian stock exchanges like Etrion (TSX: ETX) and Algonquin Power & Utilities Corp. (TSX: AQN), both of which deal heavily in solar energy technology.
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Solar energy offers investors a socially conscious investment opportunity with long-term growth potential. But until the technology becomes more widespread, the high cost to consumers may impede profitability.
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Shannon Terrell is a lead writer and spokesperson at NerdWallet and a former editor at Finder, specializing in personal finance. Her writing and analysis on investing and banking has been featured in Bloomberg, Global News, Yahoo Finance, GoBankingRates and Black Enterprise. She holds a bachelor’s degree in communications and English literature from the University of Toronto Mississauga.
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