Soaring oil prices and heightened sensitivity to climate change have added new urgency to accelerating the transition to clean energy. The solar industry is one of the main constituents of the renewable energy sector, and the beneficiary of greater demand for it.
Solar adoption is having its day in the sun. Annual renewable capacity additions broke a new record in 2021, rising 6%, and are expected to grow another 8% in 2022, according to International Energy Agency (IEA) forecasts. The agency says solar power accounts for 60% of all renewable capacity additions.
Along with this secular trend, other factors such as falling prices, wider adoption, and technological innovations will continue to drive a tailwind for the renewable energy industry. The following stocks are well positioned to benefit from solar’s growing footprint and a long growth streak as the global transition to renewables continues to gain momentum.
SolarEdge (SEDG) is the world’s largest manufacturer of solar inverters, based on revenue. Inverter is considered as the brain of a solar power system and is used to convert the direct current produced by the solar panels into the alternating current used by the households/grid and optimize the energy production.
SolarEdge’s products relate to a wide range of solar market segments – from residential solar installations to commercial and small-scale solar installations.
“The company sells its products directly to solar installers, engineering, supply and construction companies and indirectly to solar installers through electrical equipment distributors and wholesalers,” said a stock report. Morningstar.
SolarEdge initially targeted the residential market, but has expanded its product offering to the commercial market and, more recently, the utility market. “This strategy has expanded the company’s total addressable market, or TAM,” says equity analyst Brett Castelli, but cautions that average selling prices and gross margins typically deteriorate as project sizes increase.
SolarEdge has a proven track record as a market leader capable of achieving consistent profitability in the distributed solar inverter market. “Similarly, we expect the company’s storage efforts to be successful given the close connection between UPS and storage,” says Castelli, whose $254 fair value estimate for the stock is underpinned by the continued growth of the company’s solar business and its energy storage segment.
The company’s foray into other areas of smart energy technology, including energy storage, electric mobility and uninterrupted power supply, offers the opportunity to significantly increase its TAM.
However, Castelli is taking “a wait-and-see approach with the company’s entry into” these new markets.
A historic solar company, First Solar (FSLR) designs and manufactures solar photovoltaic panels, modules and systems for use in large-scale development projects.
The world’s largest thin-film solar module maker has production lines in Vietnam, Malaysia and Ohio, and plans to add a large factory in India.
The company returned to its origins as a supplier of thin-film solar modules after exiting its North American development business and operations and maintenance business in 2021.
The company’s development business supported profits until 2017, when the module business faced challenges, but “the company’s margins have compressed in recent years, and we believe the company has made a cautious decision to exit the U.S. development business in 2021,” said a Morningstar equity executive. report.
Earlier this year, the company also announced plans to exit its development operations in Japan, as it completes its transition to a pure-play mod supplier.
Additionally, the company has increasingly focused on certain end markets for its sales efforts. “The United States and India account for nearly 90% of booking opportunities, where policies put the company in a more favorable competitive position,” says Castelli, who pegs the stock’s fair value at $77.
In particular, the company is doing well in the US utility market, where its market share is around 30%.
First Solar remains closely tied to US solar trade and manufacturing policy since the US is its largest market. “We also expect First Solar to be the primary beneficiary of any US solar manufacturing incentive,” Castelli adds.
A global energy technology company, Enphase Energy (ENPH) offers smart, easy-to-use solutions that manage solar generation, storage and communication on a single platform. Enphase is the world leader in microinverter technology for solar projects. The technology serves the rooftop solar market and produces a fully integrated solar-plus-storage solution.
Enphase is transitioning from a microinverter company to selling home energy solutions. “Enphase aims to create a one-stop shop for solar installers: microinverters, energy storage, electric vehicle charging, and digital services for installers and homeowners,” a Morningstar stock report said.
This strategy leverages its existing position with installers to expand its total addressable market, the report adds, while maintaining the company’s primary end market, distributed generation.
Geographically, “Enphase generated about 80% of its revenue in the United States and only served the residential market,” says Castelli, who puts the stock’s fair value at $132.
However, Enphase is now placing greater emphasis on diversifying its end markets by geography and market segment. “The company is looking to build on its domestic success to expand internationally,” notes Castelli, noting that Enphase also plans to introduce a microinverter for the small commercial segment in 2022, its first. produced outside the residential market.
Additionally, trade tensions between the US and China have made it difficult for Chinese competitors to enter the US market. This has contributed to an oligopolistic market in the United States, says Castelli, but warns that there is not enough evidence that this will continue to be the case over time.