Nearly five months ago, the Asian Development Bank started a major drive to promote the use of solar power throughout the continent which could eventually lead to positive price support in the Guggenheim Solar ETF (NYSEARCA:TAN) and the Market Vectors Solar Energy ETF (NYSEARCA:KWT).
Under this initiative, the Asian Development Bank aims to put in place solar power projects with a total capacity of 3,000 megawatts by 2013, pushing capacity to six times what it currently is. The solar move is especially taking place in India, where the government has committed $20 billion to its solar program in hopes of having 20,000 megawatts of grid-connected solar energy by 2022 and nearly 200 megawatts of off-grid solar energy by 2013.
Furthermore, some of the cost barriers that were inhibiting many consumers from using solar power are beginning to ease. Due to the global financial crisis, capital funding and financing came to a halt in the sector resulting in a glut of solar panels and ample supply to meet lackluster demand. Additionally, costs of solar panels have dropped due to technological advances and manufacturing in low-cost labor nations.
Lastly, some solar companies have been able to convince local Asian banks, which were once reluctant to lend to poor consumers that these poor consumers are creditworthy enough to borrow and solar-related credits bring in sustainable and solid business. As consumers are more likely to attain financing for the implementation of solar panels and other solar power initiatives, demand in Asia for these solar products is likely to increase.
As previously mentioned, some ETFs that could be influenced by the potential increased demand of solar power in Asia include:
- Guggenheim Solar ETF (TAN), which boasts China as its top geographic weighting at 28.72% of its assets and includes Chinese-based JA Solar Holdings Co (NASDAQ:JASO) and Yingli Green Energy Holding Company (NYSE:YGE) in its top holdings.
- Market Vectors Solar Energy ETF (KWT), which allocates nearly 37.5% of its assets to allocated Asia
Although demand in Asia is expected to increase in solar power providing positive price support for the sector, there are still many risks that are inherent with the sector. To help protect against these risks, the use of an exit strategy which identifies specific price points at which downward price pressure is likely to be seen is important. Such a strategy can be found at www.SmartStops.net.
Disclosure: No Positions