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.

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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.

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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.

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