Could there be fresh impetus for solar stocks after Bloomberg Philanthropies and the International Solar Alliance announced a partnership to mobilise $1tn in global investments in solar? Added to the mix, Atrato, an investment trust focused on renewable energy, particularly solar, is planning a £150m IPO next month, supporting hopes for the progressive integration of solar in energy-sourcing networks.
While these developments indicate a positive future for solar stocks, it’s also weighed down by the reality that the solar market’s growth trajectory is flattening out, in the midst of a global energy crisis.
Solar stocks facing short-term headwinds
The solar sector is being hit by a plethora of issues, including rising material costs, forced labor accusations in China and a trade war, reports Bloomberg, resulting in annual solar panel prices rising for the first time since 2013.
A key issue revolves around the raw material polysilicon, which is refined predominantly in China factories using largely coal-based energy. A shortage of coal has cut supplies of the metal used to make polysilicon, sending prices soaring. On top of this, rising steel, aluminum and freight costs are also weighing. The situation has even led to Guggenheim Securities removing its ‘buy’ rating on four solar stocks, citing rising risks to 2022 revenue, reports Bloomberg.
Total Bloomberg Philanthropies and International Solar Alliance are planning to invest global solar power by 2030
Adding to this problem is that almost half of the world’s polysilicon supply is made in Xinjiang, a region in western China facing allegations of forced labour and human rights abuses. It’s led to the US government blocking imports of materials made by supplier Hoshine Silicon Industry.
There is hope on the horizon though. Solar panels remain cheaper than in October 2018, and new polysilicon factories, coupled with an eventual end to China’s power shortages, should mean prices falling back by 2023. Solar companies are also continuing to improve technology, which should lead to further cost improvements.
Will solar stocks get a lift from $1tn solar investment?
Bloomberg Philanthropies and the International Solar Alliance (ISA) have announced a partnership to inject $1tn globally by 2030 to help scale up solar energy across the 80 ISA member countries. They will develop a ‘solar investment action agenda’, alongside the World Resources Institute, set to be launched at the COP26 United Nations climate conference, reports powerengineeringint.com.
Bloomberg Philanthropies founder, Michael Bloomberg, who is also the UN secretary general’s special envoy for climate ambition and solutions, said: “global energy demand is rapidly rising, especially in developing countries, and the price of solar power is rapidly falling – but there is not enough of it being deployed … fixing that requires more collaboration ... and more data to identify challenges and opportunities.”
Director-general of the International Solar Alliance, Dr Ajay Mathur, said “ISA has a vital role to help establish the infrastructure for a zero-carbon emission future … our immediate focus is to identify and mobilise the opportunities and capital to accelerate our solarisation goals in the interim and long term.” This news comes as the ‘scaling up solar in ISA member countries’ report showed that Covid-19 prompted investment in solar projects last year to plunge 44% below 2019 levels in developing countries, and that financing for energy startups dropped 24% to $440m 2020, versus 2019.
Drop in investment in solar projects between 2019 and 2020
This injection of funds, in tandem with fresh impetus from the current COP26 summit and an easing of the current roadblocks, should give solar stocks a significant boost over the rest of the decade and beyond.
Atrato IPO adds to solar feelgood factor
Atrato Onsite Energy is poised to become the first UK-listed investment trust offering investors exposure to 'onsite green energy generation', with a planned £150m IPO on the London Stock Exchange by the end of November, under the ticker ‘ROOF’. Its main investments will target solar photovoltaic (solar PV) generation systems and related infrastructure, which is predominantly located on the roofs of commercial buildings, reports thisismoney.co.uk.
As well as aiming for capital growth and “long-term, secure and progressive income”, the trust wants to contribute to the UK's net zero transition, adding renewable energy capacity and clean energy solutions. Good Energy founder, Juliet Davenport OBE, will chair the board, with the portfolio managed by London-based asset management group Atrato. With electricity demand forecast to double by 2050, solar will be “a key part of the solution”, say Atrato.
Invesco Solar ETF offers industry-wide investment to solar stocks
Our ETF performance scanner shows that solar, represented by Invesco Solar ETF [TAN], ranked as the top-performing tracked theme last week – and over the last month – rising 12.07% and 23.20% respectively as at Friday 29 October’s close.
Invesco Solar ETF stock increase over the last month (as of close 29 October)
Investors can gain industry-wide exposure through an ETF, which invests in multiple solar stocks – the Invesco Solar ETF has over 50 stocks in its holding. The fund’s biggest-weighted solar stocks are currently Enphase Energy [ENPH], with a 12.42% weighting, SolaEdge Technologies [SEDG] with an 11.20% weighting and First Solar [FSLR], which has a 7.01% weighting.
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.