A place in the sun: The investment case for solar energy
By Jane Edmondson, Co-founder of the Solar Energy UCITS ETF
Though the move towards renewable energy, and in particular Solar Energy, may feel like a recent trend, the advent of our working relationship with the Sun goes back several millennia.
Records dating as far back as 7th century B.C. detail humans using the sunlight to light fire with magnifying glass materials and though we have not looked back since, it is only now that Solar looks set to truly catch fire.
As the renewable energy revolution enters an important inflection point this decade, the case for solar energy investing is more compelling than ever amid two potential catalysts: the commitment from many countries to promote a clean-energy future and the significant decline in renewable energy costs. Together, these factors may lead to increased adoption of solar and other clean energy sources.
On the policy side, governments of more than 100 countries have pledged to achieve net-zero carbon emissions by 2050 due to climate-change mitigation and economic considerations.[i] Affordable and clean energy technologies will have meaningful benefits for the world over the long term, according to the International Energy Agency (IEA).
These benefits include improved energy security among countries through reliance on an indigenous, inexhaustible, and mostly import-independent resource, enhanced sustainability, reduced pollution, as well as lower costs of alleviating global warming and keeping fossil fuel prices lower.[ii]
As countries pivot towards clean energy in a bid to meet their net-zero carbon emission goals, over $15 trillion is expected to be invested globally in new power capacity (an average of $486 billion per year) between 2020-2050. Solar is expected to account for 28% of all renewable energy investment globally, suggesting that over $4 trillion ($135 billion per year on average) will be invested in the energy source.
Many countries are expected to prioritise converting or substituting dirty-energy powered utilities for clean-energy alternatives. For example, U.S. President Joe Biden has set a goal of zero emissions from electric utilities by 2035 and a broader goal of net-zero greenhouse gas emissions by 2050.
Approximately 50% of all U.S. carbon emissions come from utilities [see chart below], while the rest come from sectors like transportation and industries where technologies may be slower to evolve from dirty energy to clean energy (i.e., airlines still need to fly on jet fuel, not electric vehicle technology).
Global Electricity and Heat Producers: Largest Contributors to Carbon Emissions
Sources: IEA and Morgan Stanley Research, November 2020; Based on IEA data collected from countries.
The illustration shows electricity and heat producers account for 51% of carbon emissions globally, while industries account for 28% of total emissions, transportation’s share is 10%, residential’s share is at 4%, other energy industries at 3%, commercial and public services at 2% and others at 2%.
On the cost side, it is important to note that conventional energy from fossil fuels (i.e., coal, oil and natural gas) has dominated the global power supply because until recently, electricity from fossil fuels, especially coal, was far cheaper than electricity from renewables (i.e., solar, wind, rain and geothermal heat). This has dramatically changed within the last decade. In most places across the globe, power from new renewable energy sources is now cheaper than power from new fossil fuels.[iii]
In fact, solar energy is now the cheapest new source of global electricity in most developed countries. With solar less expensive today than fossil fuels, this may serve as a key driver of rapid wide-scale adoption.[iv]
In the United States, there has been an ongoing trend away from conventional toward renewable energy. The U.S. Energy Information Administration (EIA) forecasts that the share of renewables in the U.S. electricity generation mix will increase from 21% in 2020 to 42% in 2050. Wind and solar are responsible for most of that growth. The renewable share is projected to increase as nuclear and coal-fired generation decrease and the natural gas-fired energy generation share remains relatively constant.[v]
From a bottom-up perspective, growing global demand for sustainable green energy solutions has created investment opportunities for companies throughout the solar energy supply chain, meaning that-the transition to clean energy is seen as net-jobs positive.
At this point, the investment case for Solar Energy, like with many ESG related themes, has moved beyond pure altruism.
Its innovation born out of necessity, with a powerful blend of socio-economic need backed by a shift in global government policy ushering Solar into the mainstream consciousness.
It has been said before that ‘Green is the new Growth’ and given the pivotal shift toward renewable energy, and the continued development of the technology to support it, Solar Energy may present an opportune entry point for investors looking for their day in the Sun.
Investing in Solar Energy
Investors looking to get a slice of themes such as the solar energy sector can consider exchange traded funds (ETFs). ETFs enable investors to invest in a broad basket of securities that represent companies from a specific sector or theme such as cloud computing, the space economy or solar energy.
HANetf is an issuer of a wide variety of megatrend thematic exchange traded funds (ETFs). When you invest in ETFs, your capital is at risk.
Jane Edmondson is the Co-founder of the Solar Energy UCITS ETF – follow the link for more information
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HANetf's Solar Energy UCITS ETF shines on LSE delivering investors exposure to solar energy area
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[i] Sources: Bloomberg Energy & Climate Intelligence Unit; Wikipedia https://en.wikipedia.org/wiki/Renewable_energy; Net-zero refers to new annual carbon emissions on a net basis.
[ii] Source: Wikipedia, ‘Solar Energy’ https://en.wikipedia.org/wiki/Solar_energy; Fossil fuels contain high percentages of carbon and include petroleum, coal and natural gas.
[iii] Source: Our World in Data, ‘Why did renewables become so cheap, so fast? And what can we do to use this global opportunity for green growth?’ Max Roser, Dec. 1, 2020 https://ourworldindata.org/cheap-renewables-growth
[iv] Source: Bloomberg Energy & Climate Intelligence Unit; Net-zero refers to new annual CO2 emissions on a net basis.
[v] Source: U.S. Energy Information Administration, ‘Annual Energy Outlook 2021’ Feb. 8, 2021 https://www.eia.gov/todayinenergy/detail.php?id=46676#:~:text=In%20its%20Annual%20Energy%20Outlook,for%20most%20of%20that%20growth.
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