Everything You Need To Know About Solar Energy And More

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About: Invesco Solar Portfolio ETF (TAN)
by: William North
Summary

Solar energy has been exponentially growing over the past few decades.

A movement towards environmental sustainability has led to the increasing popularity of renewable energy sources.

Better technology will increase the feasibility of large scale solar implementation and fix one of solar's most pressing problems.

One of the world’s biggest problems is not only supplying energy for an exponentially growing global population, but to do so in a way that is not detrimental to the environment. As a result, many cities, states, and countries are looking for a way to solve this problem. A very popular answer is in the form of renewable energy. In this article, I will highlight solar’s current state, potential, problems, and catalysts.

Where Is Solar Now?

The use of solar energy has been increasing across the world due to better, more efficient technology as well as the push towards a environmentally conscious world.

Source: Wikipedia

One aspect of solar that many people are not aware of is that solar panels are not completely efficient. For example, the most advanced solar panels are around 45% efficient, meaning that less than 50% of the sun's energy received is transformed into usable energy. Although 45% may not seem high, it is much higher than the highest of 29.8% efficient solar panels from 2016 or the 22% efficiency from 2015. However, as you can see with these numbers, the efficiency of solar panels has been drastically rising. Since each solar panel can generate more usable energy as it becomes more efficient, the cost of each gigawatt of energy created using solar goes down as each solar panel can generate more energy.

Source: Energysage

As environmental responsibility becomes a more pertinent theme throughout the world, many governments have been investing millions of dollars into building solar energy infrastructure. For example, in the United States, there was a recent (but unsuccessful) push for a renewable energy revolution, known as the “Green New Deal.” Although this bill did not pass, the truth of the matter is state governments have already been creating their own mandates for renewable energy, solar included. Additionally, countless other countries, such as China, Israel, and the United Arab Emirates, have been implementing solar energy generation. In the United Arab Emirates, there is current construction on a $13.6 billion solar park in the Dubai desert, which is expected to be completed in 2030.

Source: Vox

These trends are quite important as increasing the scale of solar energy can greatly reduce the cost. According to Bloomberg, each time the use of solar power doubles, the cost is reduced by 24%. This creates what is known as a positive feedback loop. More scaling of solar energy results in a lower cost. As a result, more people buy solar energy as it is cheaper, which then results in more scaling. The more scaling lowers cost and the cycle continues.

At the end of the day, solar energy will take a large piece of the energy market when it becomes cost comparable if not cheaper than other methods of energy generation. The new solar PV projects across the world, in countries such as Chile, Mexico, Peru, Saudi Arabia and the UAE, have seen a the cost of electricity level off as low as $0.03/kWh, which is very promising as it is lower than the typical fossil fuel range of $0.05/kWh to $0.15/kWh.

Problems With Solar

With all of these benefits of solar, it is hard to understand why more solar has not been adopted thus far. However, solar energy does have some issues that keep it from being adopted at an even faster rate. First, the production of solar energy throughout the day does not align very well to demand, known as the duck curve. In simplest terms, the duck curve is a graph of power production over the course of a day that shows the timing imbalance between peak demand and renewable energy production.

As a result of this phenomena, solar energy is not always easily accessible by grid managers as fossil fuel energy needs to be ramped up when the sun isn’t shining and rapidly reduce fossil fuel production when the sun is shining or risk shorting the electric grid. For a more comprehensive explanation of the duck curve click here. But as you can tell, it would be much simpler to use fossil fuels throughout the day and avoid the headache of including solar energy, which can vary day to day depending on environmental conditions.

Catalysts For Solar

As a result of this problem, solar is not usable on such a massive scale. There are two solutions to the problem: storage or immediate usage. The first of these two solutions is finding a way to store the energy so it can be used whenever it is needed. The obvious answer would be some kind of battery; however, using large-scale batteries is currently not feasible due to its price and limited battery life. As of now, a large concentration of solar energy storage is done through pumping water up a hill during the day and then having the water run back down through turbines when the energy is needed, such as nighttime (pictured below). That being said, many companies, including Tesla (TSLA), SunPower (SPWR), and Sunrun (RUN), are working towards better storage systems that will one day be feasible to provide solar storage on a macro scale.

Source: Solarquotes

A second solution to his problem is creating a way in which the energy being generated can be instantly used, leaving no energy left to store. That being said, as mentioned before, this is difficult because solar energy is not always available to fit demand. However, there is a solution known as a supergrid. A supergrid is defined as a wide-area transmission network that makes it possible to trade high volumes of electricity across great distances.

For example, when it is sunny in California but dark in New York, solar energy could be captured in California and then sent to New York to be used. As of now, there are official talks of creating an Asia Super Grid, while the idea in Europe is currently gaining momentum. Although it might seem quite complicated on the surface, a supergrid, or collection of supergrids, might be the best long-term solution for integrating renewable energy into the electric grid.

Conclusion

In a world where the future of the environment is in jeopardy, people are searching for alternatives to better protect the environment. As a result, there has been a trend towards using more clean energy, such as solar. Solar energy use has been on the rise and will likely continue to grow as government and citizens integrate the clean energy source into their daily energy consumption. That being said, the disconnect between solar energy supply and solar energy demand makes it difficult to completely rely on solar energy. However, in the future, better technology and an increase in research will create a world in which solar energy, in addition to other renewable energy resources, will dominate.

What Is The Best Way To Invest In Solar?

As you can tell, it is clear that I believe that solar energy is a good investment for the very long term. That being said, I do believe that Invesco’s Solar ETF (TAN) is one of the best ways to invest in solar. There are many moving parts to the current solar trends, making an ETF the safest way to invest.

Additionally, given that solar energy may become more prominent in certain areas before others, owning companies across a variety of countries further decreases the risk of missing out on the solar energy boom. As you can see by TAN's holdings, it includes many of the most prominent companies across a variety of countries including First Solar (FSLR) out of Arizona, Daqo New Energy Corp. ADR (DQ) out of China, and Canadian Solar Inc (CSIQ) out of... you guessed it, Canada.

Source: Invesco

TAN is geologically diversified, including countries in North America, Europe, and Asia, all continents in which solar energy has the potential to become a major player. For these reasons, I believe TAN provides a good long-term play in the solar energy industry.

Source: Invesco

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in TAN over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.