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Investing in Solar Energy Stocks

Updated: Dec. 7, 2021, 12:56 p.m.

The solar industry builds and installs devices to capture energy from the sun and convert it into electric power. Companies in this industry are working together to help transition the global economy away from fossil fuels such as oil and natural gas and toward renewable energy sources. It will take trillions of dollars and many years to complete this conversion. That makes 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.

The Motley Fool

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 per year in the 2023-2030 timeframe. Powering that surge is a dramatic decline in costs. Amazingly, 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 of them have strategies designed to increase value for their shareholders. However, these three companies seem most 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 (NASDAQ:FSLR) 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 warm weather, these panels perform better than competing ones made with silicon. 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. These factors put First Solar in an excellent position to thrive as the solar industry continues expanding.

2. Brookfield Renewable

Brookfield Renewable (NYSE:BEP) (NYSE:BEPC) 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. This business model provides it with steady cash flow to pay attractively yielding dividends.

Brookfield Renewable is a global leader in hydroelectric power plants. It compliments those facilities with rapidly expanding onshore and offshore wind, utility scale and distributed generation (e.g., rooftop) solar, and energy storage platforms. However, the clean energy company believes that within the next decade, solar could make up the majority of its production capacity. 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’s solar-powered growth has it on track to expand its cash flow per share at an 11% to 16% annual rate through 2025. That should support 5% to 9% yearly increases in its high-yielding dividend. Those two factors should enable Brookfield Renewable to generate attractive total returns in the coming years. They also make it one of the top renewable energy dividend stocks.

Solar feels to me like the ultimate form of energy we'll be using on this planet for as long as we're around. It's taken us a long time to get there and there's still a lot of technological improvements that we need in things like storage to make it work for everybody. But it seems blindingly obvious to me that, looking backwards from the future, we'll say the sun made so much sense that it would be the biggest form of energy generation for us on Earth.

David Gardner, cofounder, The Motley Fool

3. SolarEdge Technologies

SolarEdge Technologies (NASDAQ:SEDG) manufactures power optimizers and inverters used to convert the sun's energy into usable 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, for example, uses a microinverter built by a company such as Enphase Energy (NASDAQ:ENPH) 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.

The company 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 technological lead over its competitors. It has also given SolarEdge the flexibility to expand into other energy market segments, including storage, electric vehicle (EV) charging, batteries, uninterruptible power supply (UPS) systems, EV powertrains, and grid services solutions. Those factors 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 Joe Biden as the country’s 46th president. However, with his pledge to put the U.S. on a path toward an emissions-free future, the new administration could supercharge the sector’s expansion. He set a bold goal for the U.S. to generate 100% carbon-free electricity by 2035. The president is 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 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.

FAQs

Is solar energy a good investment?

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 per year in the 2023-2030 timeframe. Powering that surge is a dramatic decline in costs. Amazingly, solar is on track to be the lowest-cost source of bulk power in the coming years.

What are the types of renewable energy sources?

These green energy sources include:

  • Wind
  • Solar
  • Hydro
  • Biomass
  • Geothermal
  • Ocean waves and currents
  • Green hydrogen

What are the best solar energy companies to invest in?

These three companies seem most worthy of investors’ consideration:

First Solar: Manufactures thin-film solar panels.

Brookfield Renewable: Operates solar-energy-generating facilities, wind farms, and hydroelectric power plants.

SolarEdge Technologies: Manufactures power optimizers for solar panels.

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