Special Report: 3 Big Profit Opportunities in Solar

In 2017, the U.S. added 16.7 gigawatts (GW) of net electricity capacity. And nearly 95% of that came from renewables — namely solar and wind. 

And that was a DOWN year. 

Just 7.7 GW of solar power was installed, about half of the record 14.5 GW of solar power that was installed in 2016. 

The point here, obviously, isn't that solar is on the decline but rather that the sector sees explosive growth even in off years. 

That fact is further evidenced by the rapid solar revolution that's taking place overseas.

China hit record levels of clean energy investment in 2017.

The country increased its clean energy spending by 24% — to $132.6 billion — with $86.5 billion going to solar. And it installed an industry-dominating 53 GW of PV capacity.

This is something that China — a country suffering serious health and quality of life issues due to its rabid coal consumption — is serious about. It's pledged to reach an emissions peak around 2030 with nonfossil fuels making up only 20% of the nation’s energy generation.

India is in a similar situation. 

In just the first week of 2018, the central government-run Solar Energy Corporation of India (SECI) has tendered out over 1,200 megawatts (MW) of projects. The company has a yearly target of 15,000 MW for the 2018 financial year. 

This is all part of a $100 billion government investment plan.

Meanwhile, Australia grew renewables investment by 150% in 2017, to a record $9 billion. 

Outside the Asia-Pacific region, oil-producing powerhouses of the Middle East are going green, too.

Saudi Arabia is pouring $7 billion into renewable energy projects this year. Beyond that, the kingdom is investing more than $100 billion in solar energy with a plan to get at least one-fifth of its electricity from solar by 2032.

The UAE is planning to generate the vast majority of its electrical energy from solar and nuclear by 2050.

Sheikh Mohammed bin Rashid, vice president and ruler of Dubai, wants solar panels on every roof by 2030. The Dubai Clean Energy Strategy is aiming to provide 7% of Dubai’s energy from clean energy sources by 2020. And it will increase this target to 25% by 2030 and 75% by 2050.

Kuwait has also announced plans to generate 15% of its energy needs via renewable sources by 2030.

It's pretty much an arms race at this point, with all these oil-producing countries racing to build capacity. Indeed, with oil on its way out, their ultimate goal is to generate so much solar power that they can export it and continue dominating the energy market the way that they have for centuries.

All told, clean energy investment reached a record annual total of 160 commissioned GW. Last year's total annual investment, $333.5 billion, equals the second highest after 2015:

Solar 2022So, how could you profit?

Profit Opportunities

There are a great many ways to profit from solar...

First Solar (NASDAQ: FSLR) is a standard. It's been very active in the U.S. And it recently got a huge bump in 2016 when it signed an $850 million deal with Apple.

In 2017, the stock more than DOUBLED in value, soaring 110%. 

Better still, the company's profits are rising due to huge increases in efficiency. It's squeezing more energy from each panel installed and cutting costs on installations.

Production, sales, and earnings all beat expectations last year.

Bookings have expanded to 6.7 GW, or nearly two years of full production. However, 2018 figures are estimated to be more of a transition year because the company is rolling out its new line of solar panels.

The Series 6 solar panel will be more efficient than the Series 4 product that it's replacing, lowering the cost and time of installation.

This added efficiency comes at a cost, however.

First, lower production will mean less revenue — $2.3–$2.5 billion in 2018, compared to $3–$3.1 billion in 2017.

And second, the company is expecting $650 million in capital expenses in 2018, with net cash falling roughly $500 million to $1.6 billion–$1.8 billion. Though, management still forecasts ending the year with $1.6 billion–$1.8 billion in net cash. 

Regardless, First Solar is one of the largest, most consistent, and most profitable solar companies in the sector. Its long-term prospects remain exceptionally bright.

Just don't expect another 100% rise in share prices.

JinkoSolar Holdings (NYSE: JKS) is another good option if you're looking for exposure to China.

The company specializes in low-cost production and supply of solar panels with operations spanning across Europe, North America, and Asia. It's the third-largest solar module producer in the world.

The company has the full backing of the Chinese government, but its operations extend well beyond the mainland to the U.S., Japan, Germany, the U.K., Chile, South Africa, India, Mexico, Brazil, United Arab Emirates, Italy, Spain, France, Belgium, and beyond...

It has a vertically integrated solar product value chain, with an annual capacity of 3.5 GW for silicon ingots and wafers, 3.5 GW of solar cells, and 6.5 GW for solar modules. The company also sells electricity in China and has connected approximately 1,130 MW of solar power projects to the grid.

Jinko recently announced a 47.8% year-over-year increase in solar module shipments and a 20% surge in revenue. It also raised its full-year 2017 total module shipments guidance by 12%, to 9.6–9.8 GW.

Another company we like is Vivint Solar (NYSE: VSLR).

Vivint is a small company with a market cap of just $462 million. However, it's still one of the top residential solar installers in the U.S. Basically, the company signs customers to long-term leases or power purchase agreements, creating a stream of cash flows that can last 20 years or more.

More recently, though, it's begun shifting away from leasing solar systems toward flat-out system sales. In its most recent quarter, 10.4 MW of Vivint's 46.5 MW installed (nearly a quarter) were from system sales. These sales bring in immediate cash rather than a steady trickle of money financed over decades. 

Vivint also partnered with Mercedes-Benz Energy Storage in a move to address the growing home battery market.

Vivint's stock jumped 59% in 2017 when management pointed out that the company ought to be worth twice what it was trading at.

It's still about 50% undervalued based on the $723 million — or $6.30 per share — of net estimated retained value on its balance sheet. 

And these are just three companies in a bustling sector.

If you look at other solar investment opportunities — and you should — keep an eye on these five characteristics: 

  1. Government support
  2. Low cost
  3. Branding
  4. Efficiency and R&D dollars
  5. Low debt

You might also want to consider the Guggenheim Solar ETF (NYSE: TAN). It offers exposure to a wide range of solar companies, diversifying investors' exposure.

Whatever you choose, you'll want to get in on the solar phenomenon. It's the future of energy.

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