As the 2010s drew to a close, a report published by the World Meteorological Association (WMO) issued the following stark assessment of the current global climate situation: “The year 2019 concludes a decade of exceptional global heat, retreating ice and record sea levels driven by greenhouse gases from human activities. Average temperatures for the five-year (2015-2019) and ten-year (2010-2019) periods are almost certain to be the highest on record. 2019 is on course to be the second or third warmest year on record.” 

The report outlines the increasingly frightening consequences of global climate change, including warming ocean temperatures, deepening droughts, and sweltering heatwaves. 

WMO Secretary-General Petteri Taalas summed up the gravity of the situation: “If we do not take urgent climate action now, then we are heading for a temperature increase of more than 3°C by the end of the century, with ever more harmful impacts on human well-being.”

Urgent climate action involves moving away from fossil fuels and toward renewable energy. This transition has been underway for years, and though there are positive signs that things are perhaps beginning to move in the right direction (global carbon emissions are growing at a slower pace, for instance), it has not been enough to adequately address the overall increase in global energy demand. 

According to the Executive Summary of the UN’s recently published Emissions Gap Report 2019, “The summary findings are bleak. Countries collectively failed to stop the growth in global GHG emissions, meaning that deeper and faster cuts are now required.” 

In order to achieve these critical emission cuts, renewable energy will need to replace fossil fuels as humanity’s primary energy source in the coming decade. One sector that has already made remarkable progress on this front, and that is poised for even greater progress in the coming decade, is that of solar energy. 

Solar energy has become a serious global energy contender over the past decade as solar technology has become more efficient and affordable. According to the UN, global solar capacity increased from 25 gigawatts in 2009 to 663 gigawatts in 2019. This increase in installed capacity was greater than any other generation technology, fossil fuel or otherwise, yet solar energy still has tremendous room for growth. 

In the U.S., for instance, solar energy accounted for only 1.6% of the total electricity budget in 2018, and all renewable energy sources combined accounted for 17% of the total. As policymakers and the public come to terms with the fact that rapid and dramatic cuts to carbon emissions need to be made to lessen the blow of climate change’s fury, the solar energy sector is extremely well-positioned to play a critical role in meeting the energy demand as renewable energy replaces fossil fuels.

For those interested in the investment potential of this rapidly-growing sector, there are a few important points to understand.

What is Solar Energy?

Solar energy is energy that is generated from the sun and converted into thermal or electrical energy

There are three primary ways to generate solar energy: photovoltaics, solar thermal, and concentrated solar power. 

  • Photovoltaics directly convert sunlight into electricity by harnessing the electrical current produced when semiconducting materials are exposed to sunlight. Solar panels on the roof of a home or in an array on a satellite are examples of photovoltaics. 
  • Solar thermal technology works by absorbing heat from sunlight and using it to warm air, water, or other materials. A roof-mounted solar water heater is an example of solar thermal technology. 
  • Concentrated solar power works by using mirrors spread over a large area to concentrate the sun’s rays to one small point in which water is heated to steam to drive a turbine. If you fly from Las Vegas to Los Angeles and look out your window as you head southwest, you will likely spot the intense glow of the Ivanpah Solar Power Facility in the desert below you. The facility is one of the largest of its kind in the world, and according to the facility’s owner, BrightSource Energy, “the electricity generated by all three plants is enough to serve more than 140,000 homes in California during the peak hours of the day.”

Why Invest in Solar Energy?

The most compelling reason to invest in the solar energy sector comes down to the simple fact that renewable energy is actively replacing fossil fuels as the dominant global energy source. This replacement is likely to accelerate as energy demand increases and as the public demands a faster transition and a more significant commitment to clean energy. 

Solar is well-positioned to capitalize on the rapidly-changing energy landscape because the sector has undergone incredible innovation in recent years. 

One recent breakthrough in material science, for instance, boosted the maximum efficiency of a photovoltaic solar cell from 29% to 35%

Another breakthrough is the development of perovskite, a synthetically manufactured material that is more efficient and cheaper to produce than the silicon in traditional solar cells. Another key reason solar energy is well-positioned for the coming changes in the energy market is cost-competitiveness. 

According to a November 2019 piece in Bloomberg: “The levelized cost of any particular energy technology is the break-even price that companies investing in that technology need in order to see a competitive rate of return. In the case of both utility-scale solar and onshore wind power, this rate has dropped to about $40 per megawatt hour — which is lower than the cost of building new power plants that burn natural gas or coal. It’s even close to being competitive with the marginal costs of running the coal and nuclear plants we already have.”

According to market analysis by the International Energy Agency, global renewable energy capacity is expected to grow by 50% between 2019 and 2024, with solar photovoltaics accounting for almost 60% of the total expected growth. Private and public investments in solar energy are rapidly increasing, and the sector’s cost-competitiveness, combined with increased efficiency and the urgency of combating climate change, make solar energy a smart investment for the future.

How to Invest in Solar Energy

Given the volatility of the energy sector, however, investing directly in solar energy-related companies can be risky. A search on Magnifi suggests that there are a number of different ways for investors to get involved in solar without opening up their portfolios to undo concentrated risk in this new and growing sector.


 

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