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 alone.

The global solar power market size was estimated to be worth $67.83 billion in 2021 and $234.86 billion in 2022. It is expected to reach $373.84 billion by 2029, growing at compound annual growth rate of 6.9% during 2022 to 2029.

Overall, global renewable power capacity is expected to grow by 2,400 gigawatts (GW) over the 2022-2027 period, a figure equivalent to China's entire power capacity, according to the International Energy Agency's most recent annual report.

According to the US Energy Information Administration, non-hydro renewable energies – mainly wind and solar – made up 10% of US electricity sources in 2018. 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.

President Joe Biden's $369 billion Inflation Reduction Act, meanwhile, signed in 2022, has been hailed as the largest climate investment in America's history. This takes the form of tax credits payable to renewable companies to incentivise investment in the sector and is expected to provide a major boost to the industry.

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

There are two ways to take a position on solar stocks depending on your overall strategy and personal preferences. You can:

1. Invest in solar company shares by opening a share dealing account
2. 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.

Find out more about IG’s share dealing service

How to trade solar stocks

Alternatively, you could speculate on the price of solar stocks by using derivative products, such as spread bets or 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.

When you spread bet, you’re placing a bet on which direction the market price of a solar stock will head. The profit or loss you make is dependent on how far the market moves in your chosen direction. Spread bets are completely free from stamp duty and capital gains tax.

Learn more about spread betting

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 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 some of the top solar stocks by market capitalisation. These are:

1. First Solar
2. Iberdrola
3. SolarEdge Technologies
4. SMA Solar Technology

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.

These stock selections have been made on the basis of their market capitalisation, past performance and growth prospects. Only invest money you can afford to lose.

First Solar - $19.8 billion

Shares in First Solar have risen an impressive 50% this year to $189. Formed in 1999, the US-based company makes solar photovoltaic panels and systems. It is the biggest manufacturer of these products in the Western hemisphere and invests heavily in R&D to ensure it remains innovative.

Second quarter net sales were $811 million, up $262 million compared to the first quarter. This was due to an increase in the number of modules sold and the introduction of First Solar’s new next-generation Series 7 modules, as well as a price increase, which the company successfully pushed through.

The company is investing $1.1 billion in a new US manufacturing facility – its fifth in the country. The shares trade on a humungous price earnings ratio of 127 but may be worth buying on weakness. Analysts at broker Guggenheim recently trimmed their price target from $334 but still think they could reach $332.

Iberdrola – €70 billion

Spanish clean energy provider Iberdrola is not a pure play solar power company. The utility firm formed in 1870 also operates in the gas, nuclear and wind energy sectors. However, it has been busy beefing up its solar capacity in the European market, especially in the UK. Last year it picked up 17 solar projects in the UK through its subsidiary Scottish Power, investing £500 million.

It also has 31 GW of solar projects under development in Spain, US, Mexico, UK, Portugal and Italy. From 2020-2025 it plans to increase its PV capacity to 14 GW installed by 2025. The company also operates in Spain, the US and Brazil.

In the first half of 2023 the company saw net profits increase by 21% to €2.5 billion, boosted by investments in networks and renewables, following the recovery of last year’s regulated standard variable tariff deficit in the UK. Production and prices also improved in its European markets, the company says.

Iberdrola has invested €10.5 billion in its assets this year, with the aim of establishing a networks asset base of €40 billion euros and 41,250 MW of installed renewables capacity.

The shares are up 7% this year to €11 and trade on a price earnings ratio of 15. They also yield 4.4%. Analysts at broker Barclays think they could reach €14.10, although other brokers, such as Goldman Sachs have reduced their recommendation on the shares to neutral from buy.

SolarEdge Technologies – $9 billion

Shares in Israeli company SolarEdge Technologies (SEDG) have slumped by 40% this year. Stock in the smart energy technology firm was hit for six by a summer ratings downgrade from analysts at broker Bank of America.

Analysts there cut their recommendation on the shares to neutral from buy and slashed their price target to $181 from $320, arguing that they felt the outlook statement in the company’s recent half-year results was uncertain. The shares, already under pressure from the high interest rate environment in the US, which has dampened solar panel sales, fell 20%.

The company makes components such as inverters and power optimisers for solar panel systems. At $991 million, recent second quarter sales came in at record levels, up 5% on the previous quarter and up 36% on the same quarter last year ($727.8 million).

Of that, sales from the solar segment were a record $947.4 million, up 4% on the previous quarter. Net income was $150 million and chief executive officer Zvi Lando says the company has enjoyed a strong performance in Europe, both in residential and commercial sales. At these levels, the shares could be worth buying for recovery and their longer term growth prospects.

SMA Solar Technology - €2 billion

German company SMA Solar Technology develops, produces and sells photovoltaic inverters and monitoring systems, as well as charging systems for electric vehicles. The company has longevity, having been around since 1981.

Half-year sales increased by 65% to €778.9 million (from €471.8 million in the first half of 2022), while EBITDA (earnings before interest, tax, depreciation and amortisation) of €125.3 million dwarfed that of the previous year (€15.9 million in 2022).

Both domestic and commercial sales were strong and SMA says sales benefited from improvements on the supply side, production cost reductions and a mix of higher margin products sold. The company says it has an order backlog of €2.5 billion compared to €1.3 billion last year, while positive free cash flow of €80.6 million has boosted its coffers to €304.6 million.

Meanwhile, earnings guidance for the full-year was increased to revenues of between €1.7 billion and €1.85 billion, with EBITDA of between €230 million and €270 million. SMA also has a new credit line of €380.0 million in place for “further growth financing”.

Meanwhile, Dr. Jürgen Reinert, SMA’s CEO at SMA, says the company plans to create another 2 GW of capacity with its new gigawatt factory. The shares are up 44% this year to €75, however they trade on a reasonable PE of 15. Analysts at broker Jefferies recently set a price target of €85 on the shares.

Past performance is not a guide to future gains.

Footnotes

¹BCC Research, 2019
²EIA, 2019
³National Solar Jobs Census, 2018
⁴Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK