I have heard the solar industry referred to as a "bubble," a "fad," and a "dying industry." Of course, anyone who bought First Solar (NASDAQ:FSLR) at $300 in 2008 has every right to hate everything about solar energy, however I urge investors not to write the solar stocks off just yet. The solar stocks have been absolutely pounded over the past several years, with the past few months being especially bad. Instead of looking at this as most other investors do, as a "burst bubble", I see this as an amazing buying opportunity to get in on an industry that will inevitably become an ever-increasing way of meeting our energy needs.
World energy needs are expected to increase from approximately 10 TW (Terawatts) today to around 50TW in 2050. This means that the world will consume approximately FIVE TIMES the amount of energy as it currently does. Where is this extra power going to come from? Unless a massive underground oil field is discovered, it isn't coming from fossil fuels. Existing oil refineries are currently operating at or near capacity, and it would take far too much time and investment to quintuple the production capacity of the world's oil fields, plus this would deplete the world's oil reserves at an alarming rate. It probably won't come from nuclear power. The sheer cost of building a nuclear plant alone is prohibitively expensive to most of the developing nations where this increased need in power is going to be. Sources of power such as wind, geothermal, and coal are not practical either. They just cannot be implemented on a wide enough scale to meet the growing power needs of the world. Solar is going to be the only practical solution.
Another factor working in favor of solar is cost. The cost of solar PV panels especially has consistently dropped year after year. On the other hand, it doesn't take an energy expert to realize that the exact opposite is true for oil. Oil and other fossil fuels won't get cheaper over time, and at some point the cost of producing solar energy will decrease to a point where it is the more affordable option. The book "Solar Trillions" by Tony Seba makes a great detailed case for the long-term viability of solar power, and I would highly recommend it for anyone considering investing in the sector.
My favorite individual name in the sector still is First Solar, which continuously breaks its own records for PV panel efficiency. However a great way to play this space is with a solar ETF. The two main solar ETFs on the market are the Guggenheim Solar ETF (NYSEARCA:TAN) and Market Vectors Solar Energy Index ETF (NYSEARCA:KWT). Both are great choices and are great ways to take out some of the guesswork in picking solar stocks. They are both heavily invested in foreign solar companies as well, and are better positioned to take advantage of generous foreign subsidies.
Now, I'm not encouraging solar stocks as a short, or even an intermediate-term trade. Buying a stock like FSLR may not make you happy in the near term, in fact, with all of the subsidies being cut in Europe, they may have a little bit further to fall. You may not see significant returns in five weeks or even five months, however I am betting a significant chunk of my portfolio that investing in solar energy will make you a very happy investor in five years.
Disclosure: I am long FSLR.