Solar stocks have seen many ups and downs in recent years. However, they have become increasingly popular with the growing interest in environmental, social and governance (ESG) investing.
Interest in investing in solar energy grew after President Joe Biden was elected in November 2020. Running on a platform that included green energy initiatives, Biden’s victory signaled that alternative energy sources may experience a resurgence in popularity with support from the federal level.
Since then, issues ranging from supply constraints to political gridlock have caused turmoil for solar stocks. But despite the events currently affecting solar energy investments, there are plenty of reasons to keep these green energy companies on your radar.
Why Solar Inventory Matters
Climate change is the most important factor that has pushed solar energy into the limelight. Global temperatures for the past seven years have been the highest ever recorded. These unprecedented temperature changes are accompanied by heat waves, heavy rains and other extreme weather conditions that have affected most Americans.
In 2021, 40% of Americans were affected by a climate catastrophe and 80% experienced a heat wave that lasted several days. As a result, climate change mitigation is a growing concern.
After transportation, which accounted for 29% of emissions in 2019, electricity generation was the second largest source of greenhouse gases contributing to climate change. Fossil fuel combustion accounts for 62% of US electricity, making green energy sources like solar energy attractive alternatives.
According to a study conducted at the Massachusetts Institute of Technology (MIT), solar energy will be a “necessary component of any serious strategy to mitigate climate change”. When the results were released in 2015, solar power accounted for about 1% of electricity generation in the United States and globally.
However, Up to 40% of electricity in the United States is expected to come from solar resources by 2035. That number could rise to 45% by 2050. And to reach those estimates, solar deployment would need to grow up to four times its current rate.
In the quest for a zero-carbon electricity grid, the demand for solar power will increase dramatically. “Preliminary modeling shows that decarbonizing the entire U.S. energy system could result in up to 3,200 GWac of solar power due to increased electrification of buildings, transportation, industrial energy, and power generation. clean fuels. This leaves plenty of room for related companies to increase their earnings and stock.
How does solar energy work?
Solar energy is collected using three methods. The first concerns photovoltaic (PV) technologies, which collect energy from sunlight and convert it into electricity. PV modules can last 30 years without intensive maintenance. They are also relatively versatile, as they can be used in roofing panels or solar farms.
As for solar panels, sunrun (NASDAQ:CLASSES) is an industry leader. The company specializes in residential services, allowing customers to purchase or rent panels for their homes. This too has a partnership with the electric vehicle (EV) manufacturer You’re here (NASDAQ:TSLA) to deploy Powerwalls from the latter company. Phase (NASDAQ:ENPH) is also a key player in PV technology for residential and small business applications.
A current limitation of this method is that it uses semiconductor materials, which have been experiencing shortages. PV technology is usually made of silicon, but to ease supply constraints, some companies manufacture thin film panels. These PV modules are generally more affordable and easier to manufacture. Such a company is First Solar (NASDAQ:FSLR), which makes solar panels that use less energy, water and materials.
Another form of solar energy comes from concentrated solar power plants (CSP). Those “use mirrors to concentrate heat energy from the sun drive a conventional steam turbine to generate electricity. This energy can also be stored to generate electricity as needed.
Most companies focused on CSP technology are private, but Heliogen (NYSE:HLGN) trades on the New York Stock Exchange. The company specializes in heating, power and fuel solutions that use solar energy.
The third and final method is solar heating and cooling technology. This process uses a variety of collectors to collect thermal energy for heating purposes. It is used in residential, commercial and industrial settings to heat water and manage space temperatures.
Solar stocks face near-term risks
Solar Inventory generally underperforming in 2021. Market-wide movements in growth stocks and supply chain issues, including semiconductor shortages, contributed to the downward trend.
One of the most important news that has impacted solar stocks is that of Biden Build Back Better Program. Notably, the plan includes “the largest climate change effort in American history,” according to the White House. This includes investments in alternative energy technologies like solar power.
If the Biden administration can meet its ambitious climate change mitigation goals, solar stocks will undoubtedly make a comeback. However, the Build Back Better plan must first overcome several obstacles.
For example, the Build Back Better Act will need to be passed by Congress. Many Democrats agree with this, but so far every Republican member has opposed it. The bill depends on the narrow majority of Democrats in the Senate to pass, making its future precarious at best.
So far, Democratic Sen. Joe Manchin has been a vocal opponent of the bill. Solar stocks have collapsed in december when he announced he would not support the Build Back Better Act due to several concerns including inflation. Since then, talks about the bill have been deposited and its future is uncertain.
Solar energy has a bright future
The political turmoil surrounding alternative energy right now is creating uncertainty in solar stocks. However, this could be a short-term setback due to climate change concerns and the growing popularity of solar power.
In December 2019, the Pew Research Center found that 6% of households in the United States are already using solar panels for energy. Additionally, 46% of respondents were seriously considering installing signs, up from 40% in 2016.
Solar energy is becoming more and more important more affordable and accessible, with panel prices down 70% since 2014. It is also abundant energy; the Department of Energy’s Office of Energy Efficiency and Renewable Energy reports that just 22,000 square miles of solar panels could power the entire United States
Additionally, a growing number of Americans are concerned about climate change. According to a Pew Research Center poll released in 2020, 67% of respondents felt that the US government’s response to climate change was insufficient. More than 50% of respondents think climate change should be a top priority for presidents and Congress.
Therefore, while the political climate may be inhospitable for solar stocks today, that could change in the years to come. And even if solar power isn’t boosted by initiatives at the federal level, growing interest in alternative energy sources may draw investors’ attention to these stocks.
Top solar stocks to watch
As of the date of publication, Sydney Sweeney did not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.
Sydney Sweeney is Associate Editor at InvestorPlace.