How to invest in solar energy stocks

What you need to know about the solar energy industry

Global energy demand is growing, but so is the reluctance to invest in energy sources that damage the environment and contribute to climate change. This is why investment has grown in areas of sustainable energy, such as solar, wind, hydroelectricity and tidal.

According to Fortune, the global solar power market was valued at $253.7 billion in 2023 and is projected to be worth $273 billion in 2024 — and the reach $436.4 billion by 2032, at a CAGR of 6%. And the data also suggests that North America dominates the global solar power market, with a share of 41.3% last year.

Overall, global renewable power capacity is expected to grow by 2,400 gigawatts (GW) over the 2022-2027 period, a figure equivalent to China's entire power capacity, according to the International Energy Agency's most recent annual report.

However, the solar sector works in what is known as a feast and famine cycle. The fluctuations in growth stem from the capacity of companies to supply materials, as well as the demand from consumers – both of which can change from year to year.

When there are large scale projects and investment in the industry, companies benefit and revenues go up. But when there isn’t enough demand to keep production steady, or an abundance of cheap supply floods the market, it prevents companies being able to grow.

The industry has seen its fair share of ups and downs, especially with tariffs continually being imposed on two-way trade between the US and China.

President Joe Biden's $369 billion Inflation Reduction Act, meanwhile, signed in 2022, has been hailed as the largest climate investment in America's history. This takes the form of tax credits payable to renewable companies to incentivise investment in the sector and is expected to provide a major boost to the industry.

But it’s not just the US. Similar policies on a smaller scale are being implemented across Europe, and most recently down under via the ‘Future Made In Australia’ program.

What are the different types of solar stock investments?

There are three main categories of companies that investors focus on in the solar industry. These are:

1. Solar panel manufacturers. The companies that produce components of each panel including inverters, batteries and software
2. Solar panel installers. The companies that sell solar panels and components directly to consumers
3. Solar financing companies. The companies that fund solar projects for companies, or provide consumers with loans to pay for solar installation

How to take a position on solar stocks

There are two ways to take a position on solar stocks depending on your overall strategy and personal preferences. You can:

1. Invest in solar company shares by opening a share dealing account
2. Speculate on the prices of solar company shares by opening a trading account

If you don’t feel ready to trade on live markets, you can build your solar trading strategy in a risk-free environment first by creating an IG demo account. Alternatively, you can learn more about financial markets by exploring IG Academy’s range of online courses.

How to invest in solar stocks

When you invest in a solar stock, you’d do so by buying shares in a company outright in the hope that they increase in price and you could then sell them at a later date for a profit. When you buy shares, you would gain shareholder rights such as dividend payments and voting rights.

Normally, you would invest if you have a much longer-term view of the market and want to profit from annual dividends as well as changes in the share price.

Find out more about IG’s share dealing service

How to trade solar stocks

Alternatively, you could speculate on the price of solar stocks by using derivative products, such as spread bets or CFDs. When you trade solar stocks, you’d never take ownership of the underlying shares – although this means you wouldn’t gain any shareholder rights, it does mean that you can take advantage of price movements in either direction. Being able to go short as well as long gives you a much wider range of opportunities than would be available with traditional investing.

When you spread bet, you’re placing a bet on which direction the market price of a solar stock will head. The profit or loss you make is dependent on how far the market moves in your chosen direction. Spread bets are completely free from stamp duty and capital gains tax.

Learn more about spread betting

If you trade CFDs instead, you would be entering into an agreement to exchange the price of a solar asset from when your position is opened to when it is closed. CFDs are particularly useful for hedging a share portfolio, because you can offset any losses against profits for tax purposes.⁴

Learn more about CFD trading

Top solar energy stocks to watch

As there are so many different solar energy stocks you can trade or invest in, and so many different kinds of solar companies, we’ve taken a look at some of the top solar stocks by market capitalisation. These are:

1. First Solar
2. Iberdrola
3. Nextracker Inc
4. SMA Solar Technology
5. Enphase Energy

These companies have gained market interest over the course of their lifespan, not just for positive market movements but for negative periods too. When traders open a position to sell a company’s shares in a period of economic downturn and declining industry interest, it is known as shorting a stock.

These stock selections have been made on the basis of their market capitalisation, past performance and growth prospects. Only invest money you can afford to lose.

First Solar

Formed in 1999, US-based First Solar makes solar photovoltaic panels and systems. It is the biggest manufacturer of these products in the Western hemisphere and invests heavily in R&D to ensure it remains innovative.

Shares in First Solar have risen by almost 400% over the past five years to $277. In Q1 2024 results, net sales came in at some $794 million while the net cash balance fell slightly to $1.4 billion, However, the company maintained its 2024 profit and loss guidance, with an expected sales backlog of 78.3GW.

‘We are pleased with our start to 2024, with good operating performance, selective bookings with a year to date ASP over 31 cents per watt excluding adjusters, and solid financial results,’ said Mark Widmar, CEO of First Solar. ‘Our differentiated technology and balanced business model are enabling us to drive growth, navigate industry volatility and deliver enduring shareholder value.’

The shares trade on an expensive price earnings ratio of circa 29 but may be worth watching as the stock has surged by more than 55% in a month.

Iberdrola

Spanish clean energy provider Iberdrola is not a pure play solar power company. The utility firm formed in 1870 also operates in the gas, nuclear and wind energy sectors.

However, it has been busy beefing up its solar capacity in the European market, especially in the UK and Spain. In 2022, it picked up 17 solar projects in the UK through its subsidiary Scottish Power, investing £500 million.

It also has 31 GW of solar projects under development in Spain, US, Mexico, UK, Portugal and Italy. From 2020-2025 it plans to increase its PV capacity to 14 GW installed by 2025. The company also operates in Spain, the US and Brazil.

It recently cancelled its $8 billion deal to buy US company PNM Resources. The acquisition would have made its Avangrid subsidiary into one of the largest US utilities firms. The deal had struggled to gain traction following the rejection of it by one US regulator in 2021 and various legal battles had ensued.

On the bright side, changing tack will mean Iberdrola’s debts do not balloon to what could have been an estimated $55 billion, as analysts at Goldman Sachs have pointed out. Analysts at the investment bank suggested that the rise in interest rates had made the deal less attractive.

In Q1 results, the business saw profits rise from €1,485 million to €2,760 million, while EBITDA increased to €5,857 million. Further, 100% of 2024 volumes have already been sold.

The shares are up 45% over the past five years to €12.08 and trade on a price earnings ratio of 13. They also yield 4.6%.

Nextracker Inc

Nextracker is a slightly different proposition from other solar firms included here as it provides the software and integrated solar tracker technology for major solar generation projects. Its products enable customers’ solar panels to follow the sun’s movement across the sky and optimise performance, including coping with the demands of uneven terrain and extreme weather patterns.

FY24 results saw Nextracker’s revenue rise by 31% year-over-year to $2.5 billion, with GAAP net income driven up to $496 million. Further, adjusted EBITDA increased by 150% year-over-year. The company also launched three new products: NX Horizon Hail Pro, NX Horizon XTR-1.5 and TrueCapture’s Zonal Diffuse.

“Fiscal year 2024 was a year of strong execution and significant growth for Nextracker, and we reached a record backlog of over $4 billion that more than tripled in 2 years,” said Dan Shugar, founder and CEO of Nextracker. “We’ve accelerated our pace of product innovation, scaled global revenue and supply chain, more than doubled our profits from the prior year, and exceeded all elements of our full year guidance. We also reached a tremendous milestone being the first U.S. solar company to surpass 100 gigawatts of global shipments since Nextracker’s inception, which underscores our sustained leadership position in the market.”

SMA Solar Technology

German company SMA Solar Technology develops, produces and sells photovoltaic inverters and monitoring systems, as well as charging systems for electric vehicles. The company has longevity, having been around since 1981.

2023 fiscal results saw the company’s sales rise by 78.6% year-over-year to €1,904 million, while EBITDA improved from €70.0 million to €311.0 million. And it expects sales of between €1,950 million and €2,220 million in fiscal 2024.

‘In the fourth quarter of 2023, we once again significantly increased sales in the Large Scale & Project Solutions segment and even exceeded the upper end of our sales forecast,’ said SMA CEO Jürgen Reinert. ‘Overall, we can look back on a successful 2023 and are extremely satisfied with our operating performance. The high demand for our products and solutions, good production capacity utilization and our ability to deliver have resulted in an exceptional performance in all three segments.’

Yet the shares have slumped by 51% over the past 12 months to circa €49 over concerns that orders for its products may be slowing, regardless of corporate projections. After a strong year for solar installations in Germany in 2023, there are fears that the budget crisis could mean that sales fall.

Nevertheless, the bad news may now be priced into the shares. SMA is well financed but lowly valued on a price earnings ratio of 8 and could be worth watching.

Enphase Energy

While shares in this US provider of home solar solutions have fallen by almost two-thirds since December 2022, Enphase Energy is one of the biggest solar players on the US stock market – and globally. Its platforms enable customers to manage their home energy generation, storage and control needs in one system.

In quarterly results, revenue came in at $263.3 million, with a GAAP gross margin of 43.9%. While the company made a GAAP operating loss of $29.1 million, it ended with quarter with cash and equivalents of some $1.63 billion.

Operationally, April saw Enphase announce a new strategic relationship with Octopus Energy Group focused on deploying its Enphase IQ8 Microinverters and IQ Battery 5P in the United Kingdom.

The company also launched its IQ® Combiner Lite tech in the Netherlands to simplify installation and commissioning of small-scale solar installations on homes categorized as social housing, where rent is capped by the Dutch government to increase accessibility for people with low incomes.