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. The solar energy industry has grown at a rapid rate since 2010, increasing by approximately 150% by 2018 – from 100,000 workers to 243,000. The industry is expected to grow at a compound annual rate of 14.9% until 2023, at which point it will have an estimated worth of $286.3 billion.¹

According to the US Energy Information Administration, non-hydro renewable energies – mainly wind and solar – made up 10% of US electricity sources in 2018 but will increase to 12% by 2020. 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.²

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 after the Trump administration slapped tariffs of 30% on solar panels imported to the US. This move was part of a larger effort to promote US manufacturers over competitors in China, Malaysia and elsewhere. Some companies and products were exempt from these tariffs, which led to increased share prices for some US-based companies.

While many US companies came out in favour of the tariffs, there was a large amount of criticism as some believed they would lead to job losses and uncertainty about the renewable energy’s future. However, the solar energy industry has still grown by approximately 7% in 2019, up to a workforce of 259,400.³

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

You can 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.

How to trade solar stocks

Alternatively, you could speculate on the price of solar stocks by using derivative products, such as 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.

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 10 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 the top ten solar stocks by market capitalisation.⁵ These are:

1. Brookfield Renewable Energy Partners (BEP)
2. First Solar (FSLR)
3. SolarEdge Technologies (SEDG)
4. Enphase Energy (ENPH)
5. TerraForm Power (TERP)
6. Pattern Energy Group (PEGI)
7. SunPower Corporation (SPWR)
8. SunRun Incorporated (RUN)
9. Canadian Solar (CSIQ)
10. Vivent Solar (VSLR)

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.

Brookfield Renewable Energy Partners (BEP) – $6.64 billion

Brookfield Renewable Energy Partners (BEP) is, at its heart, a completely different kind of company than the other players on this list, as it is not a producer or installer. BEP is an asset management firm that has a significant focus on renewable energies.

The company is most well-known for its investment in hydroelectric power, however, the industry behemoth’s interest in solar energy cannot go ignored. In 2017, BEP acquired a 51% interest in TerraForm Power, as well as paying $500 million in 2019 for a stake in X-Elio, a Spanish solar developer. For traders interested in solar, but looking to diversify their ethical investments, Brookfield Renewable Partners can offer exposure to a range of different renewables.

The company does have a renewable power platform, which includes its own utility-scale solar projects. Any renewable energy the company makes is mainly sold to customers at fixed-rates, which gives the company some stability amid volatile power prices. Despite this volatility and a competitive solar industry, BEP has seen sustained share price growth. The company’s stock reached an all-time high in August 2019, trading at $37.43.

However, a lot of its operations take place in emerging markets, such as Brazil, which means that BEP reduce their risk through hedging against changing prices and currency rates.

First Solar (FSLR) – $6.43 billion

First Solar (FSLR) is considered a leading producer of photovoltaic (PV) solutions – the method used to harvest solar power. The American-based company has a large focus on research and development, which has given it an edge in an increasingly competitive sector. FSLR has been at the forefront of increasing the amount of energy each solar panel can make, while ensuring costs are affordable.

Things were looking up for FSLR in 2018 after the company was excluded from the US President Donald Trump administration’s tariffs on solar panel imports – with shares of FSLR rising to an all-time high of $81.70 in the first four months of the year. However, shares fell to $55.52 in June and July after the solar power systems company missed its profit and sales targets.

FSLR managed to regain stability in the latter half of 2018 and the first few months of 2019, climbing back up to $64.24 in June 2019. In the same month, it was announced that a new kind of panel – bifacial modules – would become exempt from Trump’s tariffs. This would mean that a number of companies who produce the technology – including Canadian Solar – could regain some of the market share. The news caused FSLR to slump by 6.8% in June.

Despite this dark cloud on the horizon, FSLR shares have stabilised after the company sold out all of its modules for 2020 and 2021, and announced that it would be entering deals to provide Microsoft, Facebook and Kellogg’s with solar panels for various projects.

SolarEdge Technologies (SEDG) – $3.72 billion

SolarEdge Technologies (SEDG) is an Israel-based technology company that produces the inverters needed to convert the energy from solar panels into the electrical current used by distributers.

SEDG has positioned itself as a market leader in solar technology, which has attracted the attention of other large companies who want to get in on the clean energy trend. For example, Tesla – famous for its electric vehicles – partnered with SEDG in 2015 to develop PV solutions for the residential solar market. The partnership saw shares of SEDG increase in value from $28.60 on 4 May 2015, the day of the announcement, to $40.82 a month later.

Three years later, and SolarEdge generated nearly $1 billion in profit in 2018 – in fact, the company prides itself that it has taken a profit every year since its inception in 2006.

However, worries over the effect of increased tariffs against solar panels did cause fluctuations in the company’s share price, which traded between highs of $68 and lows of $34 throughout the year. SolarEdge also saw a 4% decline in net-profit in 2019 as a result of the restrictions. But on 7 August 2019, SEDG stock soared by more than 23% to an all-time high of $79 after the company beat Wall Street earnings expectations for quarter two (Q2).

Its reputation as an innovator and consistently strong profits led SEDG into acquisitions. SEDG has edged into the EV market with the purchase of Italian EV systems manufacturer SMRE, and has expanded into other renewable solutions through the acquisition of South Korean battery maker Kokam and uninterruptible power supplies (UPS) company Gamatronic.

Enphase Energy (ENPH) – $3.38 billion

Enphase Energy (ENPH) is a US solar tech company that designs and manufactures a full-platform solution to residential solar power.

Enphase Energy was the first company to introduce microinverters. These combine the storage of energy with software that can control and maximise solar energy, while creating more efficient costs for consumers. The company has shipped more than 21 million microinverters to over 130 countries, which has positioned it as a world-leading solar company.

It wasn’t that long ago that the business had significant operating losses and a downcast balance sheet, but the increased interest in the solar sector has boosted the company’s profits and share price.

In 2018, Enphase Energy acquired SunPower’s microinverter business, which was predicted to bring in $60 million to $70 million in revenue for 2019. Shares of Enphase Energy rose on the back of the news, from $4.49 on 12 June 2018 to $7.02 a month later.

ENPH shares saw volatility in the first few months of 2019, with prices ranging from $4.60 on 1 January to $35.43 on 27 August. The share price was bolstered by two consecutive positive earnings announcements in Q1 and Q2.

TerraForm Power (TERP) – $3.54 billion

TerraForm Power (TERP) was created in 2014 by SunEdison, a holding company for wind and solar farms. The company held its initial public offering (IPO) on 18 July 2014 but had negative growth initially – with shares falling from a high of $42.03 to $7.26 just three months after the IPO.

Brookfield Asset Management, parent company of BEP, eventually bought a majority stake in TERP in March 2017. When the news of the acquisition hit markets, shares of TERP increased from $11.60 on 6 March to $12.62 just three days later. This was based on hopes that Brookfield had created a strategy that would boost the company’s revenues.

In 2018, Brookfield increased its stake from 51% to 65% and, in 2019, TERP announced it had successfully cut its net loss to $17 million from $28 million. The company is taking a long-term outlook on its growth, but its balance sheet is still loaded with debt. However, TerraForm is said to be on target to repay its debt and grow its revenue by 2021.

Pattern Energy Group (PEGI) – $2.62 billion

Pattern Energy Group (PEGI) is a clean energy company that owns and operates power projects in the US, Canada and Chile. They sell any output to power and utility companies in fixed-price purchase agreements.

Shares of Pattern Energy suffered in 2018, as financial issues led to the company cutting its dividend growth plan, which deterred investors. The company only sold 13,864 megawatt hours (MWh) of electricity in Q2 2019, compared with 2,262,811 MWh in the same quarter in 2018, as a result of poor wind conditions.

However, as of June 2019, Pattern Energy had cash and cash equivalents of $124 million compared with $101 million in December 2018. PEGI is in the middle of what is calls a ‘building period’ – although it expects slow dividend growth in the short term, it hopes that by 2020 it will see a 10% annual growth rate in dividends. This is up from an estimate of 5% for 2019.

SunPower Corporation (SPWR) – $1.76 billion

SunPower Corp (SPWR) designs and produces solar panels for both residential and business purposes. Initially, SunPower was an industry favourite thanks to its innovative and efficient solar systems. The enthusiasm from investors saw its share price reach an all-time high of $164 in November 2007. However, the next few years saw the share price tumble to less than $15 after competitors both domestic and international entered the growing solar energy sector looking for a piece of the market share.

With China’s low-cost solar panels dominating the market and pushing down the prices, SunPower’s more expensive panels struggled to compete, which pushed down the company’s revenue and caused fluctuations in the share price. The share price fluctuated between $4.55 and $12.00 from 2016 until 2019.

Between January and September 2019, SPWR stock moved up by 169.21% but didn’t break above $12 until July. This was on the back of positive Q2 results and a strong US dollar causing revenues to accelerate.

SunRun Inc (RUN) – $1.74 billion

SunRun Inc (RUN) is the US’s largest residential solar installer, with a reach of over 255,000 consumers in Q2 2019.

Shares of SunRun increased in price by 84.6% in 2018, from $5.93 to a high of 15.94%. Although the market price fell back to $10.97 at the start of 2019, the share price hit an all-time high of $21.40 in July 2019.

However, the company released a few lacklustre earnings reports, which increased speculation that this share price growth was based on optimism for a green future rather than the company’s fundamentals. While SunRun’s revenue grew by 100.8% in the period from 2016 to 2019, the company’s debts rocketed, and net income took a nosedive. In fact, in August 2019, shares of SunRun fell by 8% after the company reported net losses in Q2 – from $18.34 to $16.36 in a single day.

This is largely attributed to the declining prices of solar panels. Although this outlook is great for consumers, as solar panels are expected to cost 86% less by 2030 than they did in 2010, for companies this means less revenue and more competition.

Canadian Solar (CSIQ) – $1.38 billion

Canadian Solar (CSIQ) was founded in 2001 to manufacture solar panels, generate energy and sell the electricity from its projects all over the world. The company has more manufacturing capacity than any other solar company.

The company’s shares have a rocky history, declining from an all-time high of $45.88 in June 2008 to $4.06 during the 2008 global financial crisis.

Over the following years, Canadian Solar shares fluctuated as the company faced stiff competition within the industry and lost some income as a result of China announcing it will not support any further solar or wind farms until prices fall in-line with fossil fuels. The company’s Q1 2019 revenue was $484.7 million, down from $1.42 billion in Q1 2018.

But in March 2019, shares of CSIQ hit their highest price since January 2016, trading at $25.87. Q2 2019, the company sales were up 59% year over year (YoY), beating expectations at over $1 billion. The result was a net profit that beat out Q2 2018, which gave investors hope that the company may recover from the impact of the trade war.

Vivint Solar (VSLR) – $1.01 billion

Vivint Solar (VSLR) is the second-largest solar installer in the US, with over 100,000 customers. Not only does Vivint Solar install solar panels, but it offers consumers loans and power purchase agreements to fund their installation.

Throughout 2015 and 2016, shares of Vivint Solar tumbled as the solar industry as a whole faced a serious decline. This was largely attributed to the Trump administration announcing it would reduce or even dismantle most of the US’s solar initiatives. The share price bottomed out at $2.66 on 13 May 2016 – a far cry from the company’s IPO price of $16.25 just two years earlier.

Footnotes

¹BCC Research, 2019
²EIA, 2019
³National Solar Jobs Census, 2018
⁴Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK
⁵At the time of writing, September 2019