Investing in solar energy – what are the best picks

The growth potential for solar energy in 2025 is quite promising. Renewable energy, including solar, has been identified as an area with the fastest growth in the next ten years. However, due to lack of profitability solar sector has underperformed the broad market. We share our picks for profitable investing.

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Globally, the year 2025 is expected to witness significant technological advancements in solar panel efficiency, which could potentially double the energy output compared to current standards. The IEA (International Energy Agency) forecasts that solar power will supply almost all growth in U.S. electricity generation through 2025, which underscores the increasingly central role that solar energy is anticipated to play in the electric power sector.

The Global Solar Power – Market Size and Projections

Market Size and Projections:

• In 2023, the global solar power market was valued at $253.69 billion.
• By 2024, it is projected to reach $273 billion, +7.61% growth.
• Looking ahead, according to Fortune Business Insights, the market is estimated to grow to $436.36 billion by 2032, exhibiting a compound annual growth rate (CAGR) of 6% during the forecast period.

Market Dominance:

• North America dominated the solar power market in 2023, accounting for a share of 41.3%.
• Other regions are also witnessing increased demand due to the transition to clean energy and continued expansion of solar installations.

Global Solar Capacity:

• Solar remains the fastest-growing renewable energy technology.
• In just three years, Solar Power Europe predicts that global solar capacity will more than double to 2.3 terawatts (TW) by 2025.
• The number of countries with at least 1 GW of solar installations is expected to grow from 17 in 2021 to over 50 by 2025, contributing to the overall capacity.

Manufacturing and Supply Chain:

• Approximately 70% of the world’s solar panels are manufactured in China.
• Chinese companies working in Southeast Asia also contribute to the solar reserve.
• The pandemic impacted solar activity, but the industry continues to adapt and expand.

Moreover, the world connected 239 GW of new solar capacity to the grid in 2022, marking an all-time record and registering an impressive 45% annual growth rate. This trajectory suggests that the growth potential for solar energy will continue to be robust in the near future (Solar Power Europe).

Solar power generation in the United States alone is expected to grow by 75% from 2023 to 2025, rising from 163 billion kWh to 286 billion kWh. This substantial increase is indicative of the broader trend in the solar energy sector.

The EU Market Outlook’s PV market scenarios predict continuous, two-digit annual growth rates, adding around?162.7 GW?of solar capacity by the end of 2025 from the current capacity of 165 GW. Europe’s solar power capacity is on an upward trajectory, with significant growth expected in the coming years. Solar energy is set to play a pivotal role in the region’s transition toward cleaner and more sustainable electricity generation and is projected to reach 328 GW by the end of 2025.

While Europe has made significant progress, challenges remain, such as grid integration, storage, and cost reduction.

Germany, Spain, Italy, and France have been significant contributors to Europe’s solar capacity.

As of the end of 2022, Austria boasts a cumulative photovoltaic (PV) capacity of nearly?3.8 gigawatts (GW)?in solar power.?This impressive capacity contributes to approximately?4.2%?of the nation’s total electricity generation. The country has been making significant strides in adopting solar energy, and its commitment to renewable electricity production aligns with its goal of achieving?100% renewable electricity generation by 2030. To put this into perspective, Austria installed?1,009 megawatts (MW)?of solar in 2022 alone, surpassing previous years’ installations.?With a cumulative capacity of?3.79 GW, Austria continues to embrace solar as a vital part of its energy mix.

The largest players in solar power industry

So far both, solar panel manufacturers and solar power generators encounter significant challenges. The solar panel manufacturers produce solar panels (photovoltaic modules) that convert sunlight into electricity. Profitability for solar panel manufacturers depends on factors like production costs, technological advancements, and market demand. The profitability of solar panel manufacturing is influenced by cost reductions due to technological progress.?While revenue may degrade over time, falling costs help maintain profitability.

First Solar (FSLR)?is a notable American solar panel manufacturer, but it produces less than 15% of the total solar capacity compared to the largest Chinese brands e.g. JinkoSolar Holding (JKS).

A quick look at FSLR

First Solar, Inc. (FSLR) is a prominent American solar technology company that specializes in manufacturing solar panels. The company, founded in 1999, has established itself as a global provider of eco-efficient solar modules. First Solar has a significant track record in developing, financing, engineering, constructing, and operating some of the world’s largest grid-connected photovoltaic (PV) power plants, demonstrating their expertise in the solar energy sector.

The company is headquartered in the Southwest United States and is recognized as an American success story, with its products being shipped worldwide. First Solar is driven by innovation and a commitment to responsible production, which aligns with the growing emphasis on sustainable and renewable energy solutions.

As a leader in the production of thin-film solar panels, First Solar commands approximately 45% of the global market share for this technology. Their solar panels are designed for high performance and sustainability, which positions the company as a significant player in the fight against climate change (according to Statista).

First Solar, Inc. announced their first quarter 2024 financial results, which included net sales of $794 million and a net income per diluted share of $2.20. This performance represents a significant increase, with earnings per share up an impressive 450% from the prior-year quarter’s reported earnings. The company exceeded market expectations, beating the Zacks Consensus Estimate of $1.90 per share by 15.8%. Additionally, First Solar reported a substantial net cash balance of $1.4 billion. FSLR’s short-term assets $4.6B exceed its short-term liabilities $1.3B, which is positive. We believe that FSLR has sufficient cash to invest in cost reduction activities and expansion projects.

FSLR currently trades at P/E ratio of 26.2x; P/Sales ratio of 7.5x and P/BV of 3.9x. FSLR currently has BUY rating with target price of $262 per share thus, implying only 5% upside potential. In our view, FSLR is a solid company which is worth to watch for an attractive entry point.

On the insider information, we noticed that institutional investors decreased holdings by -19.77% last quarter, based on disclosures of 555 investors. In a recent transaction, Paul H. Stebbins, a director at First Solar, sold 4,000 shares of the company’s common stock. The sale took place on May 23, 2024, and amounted to a total of $1,001,400. The shares were sold at a weighted average price of $250.35 each, with individual transactions occurring at prices ranging from $250.04 to $250.51.

Our view on First Solar

In our opinion FSLR looks attractive when we consider the company’s developments for the second half of the year 2024 (our view is based on FSLR’s full-year guidance). We expect stronger financial performance of the company in 2H 2024. The company also guided for stronger Net Cash Balance than previously and reduced Capex. In our view First Solar should visibly improve its operating efficiency in 2024 and should be well-positioned for further growth in 2025.

Market sentiment related to First Solar

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Closer look at European solar companies

In 2024, the European solar panel production landscape features several notable companies. Among the best solar panel manufacturers in Europe, we would like to highlight the following:

AESolar – German company, established in 2003, known for their high-quality solar products and solutions. SoliTek – A company that prides itself on producing solar panels with exceptional durability and performance. Lithuania. MetSolar – Offers a range of innovative solar products. Vilnius, Lithuania. Sonnenstromfabrik – Recognized for their efficient and sustainable solar panels. Bauer Solar – Focuses on advanced solar technology and sustainability. Austria FuturaSun – A company that combines design and efficiency in their solar solutions. Italy.

Centrotherm International AG (CTNK) – is a German company specializing in solar photovoltaic equipment and technology.

Most of the European solar panel producers are privately-owned companies. In our view, the reason behind is to protect European solar panel industry against competitors (mainly Chinese).

Europe’s solar panel industry faces several challenges, and one of them is the reliance on imports. Let us break it down in the following key points:

1. Supply Chain Dominance by China: Currently, Europe relies almost entirely on imports from China for solar PV panels.?China dominates the solar-PV supply chain, with nearly 95% of the world’s wafer production. Chinese companies lead in both manufacturing at scale and deploying new technologies, making solar PV the cheapest renewable energy source in many markets.
2. Ambitious European Goals: Europe aims to address its energy challenges, including climate ambitions, electrification, decarbonizing the electricity grid, and reducing reliance on others.?As part of its “EU solar energy strategy,” the region has set a target of 750 GWDC installed solar-PV capacity by 2030, up from 224 GW in 2022.
3. Energy Security and Dependency: The geopolitical context is evolving. The Ukraine conflict highlighted the risk of relying on imports for critical energy. Europe is becoming increasingly sensitive to potential supply-chain risks for solar-PV products.?Labor concerns in polysilicon production have also raised worries related to ESG and human rights issues.
4. Private Ownership and Business Models: While the solar industry in Europe has seen growth due to business models like power purchase agreements (PPAs), most European solar panel producers are privately owned.?These companies navigate the challenges of supply chain resilience, technological advancements, and market dynamics.
5. Opportunity for High-Tech Manufacturing: Building a competitive solar-PV supply chain in Europe is not only an opportunity for high-tech manufacturing but also a way to enhance energy security by reducing dependency on imports.
6. Scaling Up: Efforts are underway to boost solar manufacturing in Europe.?Some EU member states have officially backed an Important Project of Common European Interest (IPCEI) for PV production, but more support is needed from larger countries like Germany, France, and Italy.

In general most of the European solar companies are loss-making due to high costs. In our view, there is a long way to optimize the costs structure. In addition, a lot of private investors and venture capitalists are willing to provide financing for the European solar manufacturers. We believe that European companies would be ready for IPOs (as an exit strategy of private equity and venture capitalists) in the coming years.

From the investment point of view we recommend to watch U.S. solar manufactures as one of the key competitors to the Chinese producers. In addition, investments in Asian companies, e.g. Indian solar manufacturers offers attractive investment opportunities.

A quick look into Indian solar IPO of 2024

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The?Alpex Solar IPO?took place from?February 8, 2024?to?February 12, 2024. It was a?book-built issue?with a total value of??74.52 crores. The IPO consisted entirely of?fresh shares, totaling?64.8 lakh shares. The price band for the Alpex Solar IPO was set at??109 to ?115 per share. Retail investors needed a minimum investment of??138,000, while HNIs (High Net Worth Individuals) were required to invest in?2 lots (2,400 shares), amounting to??276,000. The allotment for the Alpex Solar IPO was finalized on?Tuesday, February 13, 2024.?The shares were listed on the?NSE SME?on?February 15, 2024 under the ticker: ALPEXSOLAR.

Since its IPO,?Alpex Solar Ltd?has shown a?positive trend?in its stock price. Below we highlight the key points of the share price performance:

As of?May 24, 2024, the?Alpex Solar Ltd?stock price is??666.55?INR. It’s worth noting that this price is?7.01%?away from its?52-week high?of ?753.40 and has experienced some fluctuations recently. Technically, I would expect some correction in the share price (which could create attractive entry point).

Our view on ALPEXSOLAR

We keep an eye on developments of the companies which we cover in our Insights. So, we provide regular updates for our customers.

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