In order to successfully invest in solar energy, you need to know what you are investing in. There are several important sectors within the solar industry. Also, companies reap different amounts of their income from solar operations. These sectors are outlined in the chart below.
See full size chart here
Equipment Manufactures for Solar Industry sell machinery and materials that solar factories use to make photovoltaics. Photovoltaic Production companies build the solar cells. Downstream companies produce the more basic components: raw materials, silicon ingots and silicon wafers. Upstream companies manufacture solar cells and fabricate panels. Integrated companies span several areas of production. Distribution/Instillation/Service companies are primarily involved in taking solar products and building the arrays. Utilities are selling power to the customers.
Companies in the chart are sorted by market capitalization within each sector, so the largest companies are on top. Note, however, that the largest companies (JKS for example) are not always the leaders in sales. The last column shows what percentage of a company’s revenue comes from solar related activities. So for example, WFR is one of the largest silicon wafer manufacturers out there, but only about half of their business comes from solar. Also note that although the utilities listed are involved with large solar projects, solar is only a small part of their total energy portfolio (usually around 1-2%)
What does this mean for investors? There is much competition in the solar manufacturing sector. It is a very crowded field that many argue are supplying more panels than there is demand for. I believe the larger, more integrated solar companies are the best long-term investment prospects - they are most likely to benefit from the utility-scale solar projects that are will be built in the years ahead. Also, I find equipment manufacturers attractive as a group, since they should benefit regardless of which solar production companies win out.
For more information on solar and other renewable energy industries, visit the Roen Financial Report website.
Disclosure: Long TSL, WFR