How to Invest in Solar Energy

Key Points

• Solar investments include both direct, such as investing in a company that makes solar products, and indirect, such as buying solar stocks or ETFs.
• Solar energy investments offer benefits like diversification, inflation hedging, income generation and government incentives.
• Solar investments come with risks relating to technology, market conditions and politics that can affect ROI.

Investing in solar energy has exploded as people seek ways to generate steady, long-term returns while contributing to a cleaner, greener planet.

How do you invest in solar energy? Read on to learn more about how to invest in solar energy. In this article, we'll look at the basics of investing in solar energy, including the different types of investments and the risks and rewards.

Overview of Solar Energy

Since the mid-19th century, solar energy has been produced by harnessing energy from the sun and converting it into electricity, known as photovoltaics (PV). Solar panels, made up of photovoltaic cells, absorb sunlight and convert it into electric current. 

Solar energy can be stored in batteries for later use or directly used to power homes and businesses. Unlike investing in oil and gas, solar energy is an abundant, clean and inexhaustible resource that doesn't emit pollution.

The solar industry has grown in recent years due to technological advances and governmental investments. Governments are now offering incentives such as tax credits and subsidies that can help reduce the cost of installation.

Additionally, many U.S. states are opening their grids so that more people can access solar without installing their equipment. This has helped make investing in solar technology easier without high upfront costs.

Why Invest in Solar Energy?

The solar industry has seen tremendous growth as it's become more mainstream. Likewise, investing in solar can be a lucrative opportunity to diversify your portfolio and put resources toward environmentally-friendly causes. Solar is a reliable, low-risk form of renewable energy with consistent returns and long-term stability. Solar investments are insulated from market volatility and can generate a steady income stream. Solar energy also has very few upfront costs as most systems generate power immediately, meaning you can earn returns on your investment immediately. As solar costs continue to drop, it's becoming cost-effective for households and businesses to use. The tax incentives available make investing in solar even more attractive.

Of course, going green is about more than just financial security — it's about positively impacting the environment. Investing in solar helps reduce dependence on fossil fuels and combat climate change. There is also less political risk associated with solar investments. Solar investments are also good for the economy and can help create jobs where employment opportunities are scarce.

Ways to Invest in Solar Energy

There are various ways to invest in solar energy, from buying shares of publicly traded solar companies and investing in renewable energy funds to developing your solar project. Here are some methods.

Manufacturing Components and Solar Panels 

Investing in companies manufacturing solar energy components can get you involved with the industry without installing any equipment. These companies make solar energy products and essential parts of a complete solar system, such as photovoltaic cells, inverters and mounting racks. They often focus on research and development to create more efficient, cost-effective solutions. 

Investing in manufacturers of solar panels and their components can be an excellent way to gain exposure to the solar industry while supporting sustainable energy.

Solar Panel Installation 

Installing solar panels in your home or business can be a great way to invest in solar energy. You can place PV cells on your roof. With the help of a professional installer, you can have a system up and running in as little as a day. 

You can save money on electricity bills and even sell excess energy back to the grid. Most states offer incentives for those pursuing how to make money with solar panels, like tax credits or even cash rebates. 

These incentives can offset the cost of installation and increase returns on your investment. Many companies offer leasing options rather than owning the equipment outright. When considering a solar panel investment, be sure to factor in the upfront costs of purchasing the materials, any necessary permits and installation fees.

Solar Facilities

Another way to invest in solar energy is through investing in solar farms and power plants. These range from small community solar gardens to large-scale solar farms that power entire cities. 

This can provide stable returns over time since they typically have long-term contracts with utilities to purchase electricity. You can invest through publicly-traded companies that develop and operate solar facilities or private investments in solar projects.

Funds specializing in renewable energy projects can provide access to these types of investments, whether mutual funds or exchange-traded funds (ETFs). They provide a diversified investment that mitigates the risk of investing in a single project. You'll get diversification and a way to contribute to the industry's growth directly.

While solar energy has a proven track record of being a reliable, low-risk investment, constantly research the specific project or company you're investing in to ensure it's viable and consider the project's environmental impact.

Types of Solar Energy Investments

You can break down solar into two categories: direct investments, which involve working with solar companies to produce and distribute solar power, and indirect investments, which involve investing in solar stocks and mutual funds. Direct investments can be an intelligent way to generate consistent returns from solar projects. In contrast, indirect investments can provide you access to the industry's growth potential without engaging directly.

The most common direct investment is to partner with a solar company and provide capital to finance its projects. In return, you'll get a share of the project's profits, with the payout size based on how much capital you provide. Another option is to purchase debt instruments, such as solar bonds or notes, which earn you a fixed rate of return. You can also purchase equity in solar companies through stock purchases or ETFs.

Solar Stocks 

When it comes to indirect investments, there are a variety of solar-related stocks and mutual funds to choose from. Purchase shares in solar companies, such as SunPower Corp. NASDAQ: SPWR, Canadian Solar Inc. NASDAQ: CSIQ or First Solar Inc. NASDAQ: FSLR, directly on the stock market or investigate the many mutual funds that also specialize in solar investments. In an overview of stock sectors, some even focus exclusively on solar.

Solar ETFs 

Solar ETFs, such as Invesco Solar ETF NYSEARCA: TAN, focus on solar panel manufacturers, service providers, renewable energy producers and clean technology companies. You can gain exposure to a broader range of solar investments at once through them. You also gain access to the industry's growth potential while cultivating a more diversified portfolio. 

Solar Bonds

Investing in solar bonds can be a low-risk way to earn returns on investment in the solar industry. Solar bonds are fixed-income investments that pay interest based on the performance of the projects they finance. Companies or developers issue them to finance the upfront costs of projects.

How to Invest in Solar Energy

To get started with investing in solar energy, follow these steps.

Step 1: Understand your investment goals.

When first exploring how to invest in solar energy, understand what you hope to achieve. Do you want to generate income from your investments or seek long-term growth potential? Knowing what your goals are will help narrow down your options.

Step 2: Research different solar investments.

 After determining your investment goals, it's time to research different types of solar investments. Consider direct and indirect investments, including solar stocks, mutual funds and bonds. Look for companies with a track record of success and a robust strategy for the future. Find out what technologies they invest in and what markets they target. Also, consider how each investment fits with your values and goals.

Step 3: Consult a financial advisor.

Once you've researched solar investments, consult a financial advisor specializing in sustainable investing. They can offer insight into potential risks and suggest alternatives that meet your financial needs and consider environmental concerns.

Step 4: Invest strategically. 

Solar energy is still relatively new, so invest strategically. Be aware of market conditions. Analyze market trends to determine the best time to search for clean energy stocks to buy or sell. Pay attention to things like stock prices, industry news, government incentives and technological advances affecting the performance of even the best E/V stocks list.

Step 5: Manage your portfolio wisely.

Keep abreast of market conditions and rebalance your portfolio accordingly. Follow industry news so you can make informed decisions about when to buy or sell shares to maximize your ROI.

Pros and Cons of Investing in Solar

Investing in solar comes with pros and cons, like any investment. Before making a decision, consider the following.

Pros

Solar energy investments can offer numerous benefits. Among them include:

• Long-term growth potential: The industry should grow steadily over the next several years as renewable energy becomes increasingly attractive.
• Diversification: Solar energy can also provide portfolio diversification, meaning you can reduce your risk by spreading your investments across multiple sectors. Plus, you can participate in a growing industry while not relying on just one sector or asset class.
• Environmental sustainability: Besides financial gains, investing in solar has environmental benefits, helping reduce air pollution and greenhouse gas emissions, which can help protect public health and slow climate change. By investing in solar stocks or mutual funds, you can be part of the drive toward more sustainable energy.
• Inflation hedge: With electricity prices rising as demand increases, solar power is a reliable option that typically costs less than traditional sources. Also, government incentives like tax credits, renewable energy credits (RECs) and loan guarantees can reduce your cost of going solar even further and help counter inflation.
• Income generation: If you sign a solar lease agreement with a third-party company, you can generate income by selling excess electricity back to the grid. You can also access discounted rates on electricity and receive other financial incentives, such as tax credits or grants, depending on your location.

Cons

Solar has drawbacks like any investment, so be aware before committing your funds. Some include:

• Risks: Governments may change their policies on renewable energy, which could affect the performance of solar stocks and mutual funds. Risks relating to technology and volatile market conditions can also affect ROI.
• Costs and illiquidity: Your initial investment costs can be high. In addition, direct investment in solar has limited liquidity compared to stocks and bonds.
• Slow ROI: Your return on investment may be slower. Solar investments often focus on long-term returns, so be prepared to wait for any payoff.
• Physical and environmental barriers: Solar system installation may come with delays, maintenance and repair costs. Your location also may need more infrastructure or resources to maintain large systems of solar panels. Solar can also be negatively affected by weather patterns and other environmental conditions.

Future of Solar Energy

The future of solar energy is bright. Increasing demand and advancements in technology are driving its growth. With government incentives and more public awareness, the industry should continue its positive trajectory. Not only does it offer the potential for long-term returns, but it also contributes to creating a sustainable future for all of us.

You can choose the solar investment that best suits your financial goals, from solar stocks to solar panel installation. Investing in this industry can provide attractive financial returns and the satisfaction of building a greener planet.

FAQs

You may still have some questions if you're considering investing in solar energy. Here are answers to some of the most common.

Is it good to invest in solar energy?

Investing in solar energy can be a great way to generate long-term returns while also doing your part to reduce our reliance on fossil fuels. To find a good investment, always research the specific project or company to ensure it's viable and consider its environmental impact. Consulting with a financial advisor can also help.

How much does it cost to invest in solar energy?

The cost of investing in solar energy varies. Buying mutual funds or the best renewable energy stocks on MarketBeat may come with brokerage fees. Installing solar panels may involve high upfront costs, but you may be eligible for government incentives that reduce them.

Is it worth investing in a solar farm? 

Investing in a solar farm can be a great way to generate long-term returns with minimal risk. Solar farms are often eligible for government incentives, and they help reduce our reliance on fossil fuels. Consider all the associated costs and risks — including installation, maintenance and repair — before deciding whether it's right for you.