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Investing in Solar Energy Stocks

Updated: May 2, 2022, 11:23 a.m.

The solar industry builds and installs devices to capture energy from the sun and convert it into electric power. Companies in the industry are working together to help transition the global economy from fossil fuels such as oil and natural gas to renewable energy sources. It will take trillions of dollars and many years to complete the transition, making solar energy a compelling opportunity for long-term investors.

The sector encompasses a wide variety of companies with the following functions:

Here are the different functions of solar energy companies: 1. Manufacturing components and panels, 2. Installing solar panels, and 3. Operating solar energy generating facilities.

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Best solar stocks to invest in

The solar energy market is accelerating. According to the National Renewable Energy Laboratory, the industry will add 10 gigawatts (GW) of new solar capacity annually through 2022. That should increase to an average of 18 to 20 GW annually from 2023 to 2030. The surge is being powered by a dramatic decline in costs, and solar is on track to be the lowest-cost source of bulk power in the coming years.

While several large companies focus on solar energy and should benefit from its expansion, not all have strategies designed to increase value for their shareholders. However, three companies seem worthy of investors’ consideration:

First Solar

Brookfield Renewable

  • (NYSE:BEP) and (NYSE:BEPC)
  • Operates solar energy generating facilities, wind farms, and hydroelectric power plants.

SolarEdge Technologies

  • (NASDAQ:SEDG)
  • Manufactures power optimizers for solar panels.

Here's why these solar stocks shine brightly in this rapidly expanding industry:

1. First Solar

First Solar is a global leader in developing solar energy solutions. It develops, manufactures, and sells advanced solar modules.

One thing that sets First Solar apart from other solar panel makers is its focus on manufacturing a proprietary, advanced thin-film module. In less than ideal conditions such as low light and hot weather, these panels perform better than competing silicon modules. They’re also larger in size, which helps reduce the cost per watt. Those factors make them ideal for utility-scale solar energy projects.

First Solar further distinguishes itself from its peers in the solar sector by having one of the strongest balance sheets. It routinely has more cash than debt. That gives it the financial flexibility to continue executing its strategy of developing and building thin-film solar modules for utility-scale customers, including expanding its manufacturing capacity. These factors put First Solar in an excellent position to thrive as the solar industry continues expanding.

Solar Panels on Roof of Home

Source: Getty Images

2. Brookfield Renewable

Brookfield Renewable is a renewable energy yieldco created by leading alternative asset manager Brookfield Asset Management (NYSE:BAM). The energy company generates renewable energy that it sells to end users under long-term power purchase agreements. Brookfield’s business model provides it with steady cash flow to pay an attractive dividend yield, hence the yieldco designation.

Brookfield Renewable is a global leader in hydroelectric power plants. It complements those facilities with rapidly expanding onshore and offshore wind energy, utility scale and distributed generation (e.g., rooftop) solar, and energy storage platforms.

The clean energy company believes that solar could make up the majority of its production capacity within the next decade. That’s not because it doesn’t believe in wind or hydro, but because it sees greater opportunity in solar. Declining costs are making solar development projects increasingly lucrative.

Brookfield has made several acquisitions in recent years to increase its solar energy development capabilities. In 2022, it purchased Urban Grid, a leading developer of utility-scale solar and energy storage projects in the U.S. The acquisition tripled its U.S. renewable energy development pipeline.

Brookfield’s solar-powered development pipeline has it on track to expand its cash flow per share at a 6% to 11% annual rate through 2026. On top of that, it sees up to 9% of additional growth potential per year from acquisitions. That should support the company’s plan to increase its high-yielding dividend by 5% to 9% and enable Brookfield Renewable to generate attractive total returns in the coming years. These growth and development trends also make it one of the top renewable energy dividend stocks.

Renewable energy plants, aerial view of solar panels.

Source: Getty Images

3. SolarEdge Technologies

SolarEdge Technologies manufactures power optimizers and inverters used to convert the sun's energy into electricity. These components have improved the way solar panels convert DC power produced by the sun into the AC electricity used by the electrical grid. A system that utilizes SolarEdge's power optimizers will cost less than one that uses a microinverter built by a company such as Enphase Energy (NASDAQ:ENPH), for example, and with minimal efficiency loss.

SolarEdge's focus on manufacturing low-cost power optimizers has enabled it to win market share from competitors as solar project developers emphasize cost. The company has also invested money to acquire and develop new products in the energy storage and energy management spaces, as well as smart modules to help increase its average revenue per installation.

SolarEdge complements its leading market position with a strong, cash-rich balance sheet. That gives it the financial flexibility to invest in expanding its manufacturing capacity and its technological lead over competitors.

It has also given SolarEdge the flexibility to expand into other smart energy market segments. The company has made investments and acquisitions in storage, electric vehicle (EV) charging, batteries, uninterruptible power supply (UPS) systems, EV powertrains, and grid services solutions. These initiatives could accelerate its growth in the coming years and have set SolarEdge up for success in implementing its plan to expand its reach in the fast-growing clean energy sector.

Solar energy’s future has never looked brighter

Solar energy was already on track for significant growth before the election of President Joe Biden. However, with his pledge to put the U.S. on a path toward an emissions-free future, his administration could supercharge the sector’s expansion. He has set a bold goal for the U.S. to generate 100% carbon-free electricity by 2035. Biden is also proposing extending tax credits and making direct investments to accelerate the shift to clean energy.

If Biden’s plan passes Congress, the solar industry could grow even faster in the coming years than current projections suggest. That’s another reason why investors should consider investing in solar energy stocks. First Solar, Brookfield Renewable, and SolarEdge Technologies stand out as being among the best options, thanks to strong financial profiles and visible growth outlooks.

Solar Energy FAQs

Is solar energy a good investment?

Solar energy has the potential to be a good investment over the long term. With development expected to accelerate in the coming years, solar energy companies should grow rapidly, thereby boosting stock prices.

What is the best solar energy stock to buy?

There are many well-run solar energy companies. That gives investors lots of good options. Investors might want to consider taking a basket approach. For example, they could buy several solar stocks such as First Solar, Brookfield Renewable, and SolarEdge Technologies that should all benefit from the renewable energy megatrend. By diversifying their holdings, investors are less likely to miss out on an overall trend by selecting a solar energy stock that significantly underperforms the sector.

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