Investing in solar stocks from Australia
Solar energy is on the rise, but upfront consumer costs may hamper profitability.
As global attitudes toward fossil fuels continue to shift, the renewable energy sector becomes an increasingly attractive portfolio addition for investors in Australia. But until technology costs come down, solar energy may remain a luxury in the eyes of most consumers.
What are solar stocks?
Solar stocks are stocks from companies involved in the generation of solar energy and the manufacturing of solar energy technology.
Solar energy is one of several forms of renewable energy — an emerging market category that continues to gain traction as we pivot from oil reliance to more sustainable energy technologies, including solar, wind, hydro, tidal and geothermal energy.
There are numerous companies in the solar energy space. These companies produce the technology that allows us to capture energy from the sun and convert it into electricity. The types of companies that fall within the solar energy category:
- Manufacture solar modules and cells
- Manufacture power optimizers and inverters
- Install solar panels
- Design solar power systems
- Operate solar energy generators
Why invest in solar stocks?
Energy fuels our world. It’s a global resource we rely on and the way we produce and consume energy is changing. In light of growing environmental concerns, there has been a global shift from traditional energy stocks toward renewable energy. And solar power is a massive component of the renewable energy market.
According to Allied Market Research, the global solar energy market was worth $US52.5 billion in 2018. And that figure is projected to rise to $US223.3 billion by 2026. The market is changing. The demand for oil is dropping. And solar stocks present a potentially lucrative long-term growth opportunity.
Investing in renewable energy also gives you the opportunity to add assets to your portfolio that impact the environment in a positive way. Solar energy can help reduce carbon dioxide emissions and lessen our impact on the environment. If you’re looking to add some socially conscious investments to your portfolio, solar stocks fit the bill.
Risks of investing in solar energy
Two major concerns for investors in Australia interested in solar energy are expenses and manufacturing.
Right now, solar energy is expensive. It’s expensive to manufacture, it’s expensive to install and it’s expensive to maintain. And while the high cost of solar energy means higher profits for solar companies, it also acts as a deterrent for consumers. To outfit a residential home with solar panels, consumers can expect to pay about $US3 per watt — which shakes out to about $US15,000 to $US30,000 for the installation, all told.
Solar energy is less of a novelty than it once was, which means it’s becoming more affordable as technology advances. But it still has a ways to go before it’s as accessible and mainstream as fossil fuel.
Another concern for investors is how solar cells and modules are manufactured. Some of the components of solar technology require rare earth metals that are acquired as a byproduct of other mining processes. Should the demand increase, the supply chain could be threatened. Other solar materials make use of the same hazardous materials as electronics, which presents disposal challenges.
Before you buy in, investigate the companies you’re interested in backing to find out more about their manufacturing processes and protocols.
Solar stocks
There are a variety of companies in the solar energy category, including module developers, cell manufacturers, renewable energy generators, and more.
This includes dedicated solar companies like New Energy Solar, large ASX-listed energy companies like AGL and Origin, as well as mining companies like Mineral Resources.
What ETFs in Australia track the solar energy category?
While there currently isn't an ASX-listed ETF that focuses on solar energy stocks, there is an ETF for clean energy: the VanEck Vectors Global Clean Energy ETF (CLNE). This exchange-traded fund includes a range of green energy stocks, from solar energy stocks to eco-friendly utility stocks. You could also invest in eInvest Future Impact Small Caps Fund, a managed fund that offers access to solar stocks on the Australian and New Zealand market.
If you're looking for an exchange-traded fund solely focused on the solar energy category, then you might consider investing in the Invesco Solar ETF (TAN) which is available on the US market.
To achieve better portfolio diversification, Australians could invest in renewable energy ETFs on overseas exchanges, including options such as:
- ALPS Clean Energy ETF (ACES)
- First Trust ISE Global Wind Energy Index Fund (FAN)
- First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID)
- Global X YieldCo & Renewable Energy Income ETF (YLCO)
- Invesco Cleantech ETF (PZD)
- Invesco Global Clean Energy ETF (PBD)
- iShares Global Clean Energy ETF (ICLN)
- SPDR S&P Kensho Clean Power ETF (CNRG)
Compare trading platforms
To invest in solar energy, you’ll need a brokerage account in Australia. Review your options below.
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Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
Bottom line
Solar energy offers investors a socially conscious investment opportunity with long-term growth potential. But until the technology becomes more widespread, the high cost to consumers may impede profitability.
Explore your brokerage account options with multiple platforms to find the account best suited to your investment needs.
Frequently asked questions
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.
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