4 important things to keep in mind when considering solar as an investment opportunity
As the price of solar installations and equipment continues to plummet in the United States, the demand for solar energy has soared dramatically. In addition to the ordinary consumer appeal, which is expected considering the numerous solar incentives on offer, solar energy has emerged as an appealing and promising investment opportunity both domestically and in the stock markets.
The projected growth of the national and global solar industry is mind boggling. These speculations have led to the injection of billions of dollars into the solar industry by some of the largest financiers in the world. Consequently, some reputable solar companies have already earned their place among America's corporate giants and cagey investors are yearning for an opportunity to buy their blue chip stocks.
The objective of this discussion is not to dissuade you from investing in solar. Oh no! It is to prepare and advice you on the best economic path to follow when investing in the solar industry. Reason being: Every great reward is accompanied by a tremendous risk. Therefore, before you rush into any solar-related investment decision, consider the following factors.
Why should you invest in solar?
Solar is an attractive investment option — because it offers several advantages as compared to other mainstream investment opportunities. For starters, solar is generally independent of market occurrences — solar energy is produced as long as the sun is shining. Therefore, solar investments can be trusted to generate competitive fixed income yields; and hence cushion portfolios against volatile equity markets.
Secondly, the solar market is expected to grow massively in the coming years. Using Florida as an example, any solar company in Orlando will tell you that there is great potential in the solar industry; both in the short-term and in the long-term. The main reason for this economic guarantee is that solar is characterized by stable market dynamics, driven by soaring demand and diminishing costs. Finally, solar like all other renewables offers you a sustainable investment opportunity.
Making investment decisions
When evaluating a solar investment opportunity, you should always consider the following tips to ensure and guarantee significant return on investment (ROI).
Just like any other investment portfolio, always consider the age, reputation, and industry and financial performance of a solar company before investing in it. Do not be brainwashed by heroic solar startups that promise big innovations without seeing any production proof.
Consider the company's current and future performance based on the market potential and performance of its already produced solar products. For instance, invest in a company that is already selling competitive and cost-effective solar products instead of going for an unproven solar company that hasn’t produced anything yet but is promising to create a revolutionary product in the near future.
Focus on cost reductions over technology
One of the most important solar investment lessons here today is that you must not bet against cost reductions. Although technological improvements might change cumulatively and sporadically, solar costs are falling very fast and throughout the industry. Beware!
Understand the risks
This factor is tied in with the other two because it entails understanding a company's research and development activities and their impact on its market performance. For instance, avoid companies that promise fantastic technological breakthroughs that will hopefully result in incredibly high efficiencies and unbelievably low costs. Although they promise great returns on your investment, these are high risk ventures that are likely to fail at the commercial production level.