One of last year’s best performing sectors was solar energy.
Heightened interest in clean power and falling costs of components like solar panels gave solar companies a new appeal. Many observers called it a breakthrough year.
This year though, is different, with all renewables, including solar stocks selling off sharply as investors perceived they went too far too fast in 2020. The fundamentals remain stronger than ever and for those who are patient and feel comfortable with the volatility, the current environment is an opportunity.
Solar is a big piece of the renewable energy equation. Two decades ago, it was a new and promising technology going through a rapid evolution and dependent on subsidies to make economic sense. After plenty of stops and starts, the technology has come of age with a dozen or more companies now sporting market capitalizations in the billions. They have established businesses, size, scale, and financial resources. The sector no longer needs subsidies and solar is now cheapest source of power in some parts of the world.
The leaders have moved on from making solar panels, which are a commodity business, to turnkey solar farms and power plants. These include the panel arrays, the systems to store the collected energy, and the software to manage them. These are higher margin products and increasingly in demand.
So, the outlook remains better than ever even as hot money pulled out this year. Climate change headlines are a catalyst that underline the need for alternates to fossil fuels. Among the recent one is a report from the United Nations’ Intergovernmental Panel on Climate Change that says the earth is warming at a faster rate than thought and the window is closing to avoid catastrophic outcomes.
Another is the news that, in early August, rain fell on Greenland’s highest point for the first time in recorded history. The heat dome in BC in late June broke 59 temperature records, including a Canadian high. The new record is Lytton, BC with 46.6C.
If that’s the big picture, down at street level, the industry faces short-term issues. The cost of panels has come down dramatically in the last decade, but the gains are slowing. The pandemic has created shortages of basic materials to make them, including silica. That is pushing prices up. Trade frictions between the US and China are creating uncertainty about the delivery and cost of shipments.
But for investors with a long term interest in this sector, the selloff provides an opportunity at attractive prices.