The 10 Biggest Solar Stocks in the World
A good idea and $4.50 won’t get you a gallon of petrol in the U.S. these days. The ability to execute is what separates wantrepreneurs from entrepreneurs. And of course, a willingness to expend every iota of your time and energy trying to build a business in the face of a dismal failure rate. Similarly, just because a technology is growing like mad doesn’t mean you’ll be able to reap the rewards by investing in it. Solar investors have learned this the hard way over the years.
As we plan to rid our portfolio of the two remaining ETFs we’re holding, we’ll be losing our exposure to the solar industry. Maybe it’s time to evaluate why we want exposure to solar in the first place. To do that, we want to consider what sort of growth is expected going forward. Since we’re already holding the biggest renewable energy company in the world, we’ll need a pretty compelling reason to replace our solar exposure. Turns out there are plenty of good reasons to want solar exposure right now.
According to the International Energy Agency (IEA), 95% of all power capacity increases globally will be renewable energy. Of those, 60% will be solar and 29% will be wind. Below you can see the capacity expansion that’s expected for both over the next five years with solar expecting much stronger growth than wind.
While these estimates extend over the next four years, the growth of wind and solar are expected to continue for decades. The below chart was taken from a SolarEdge investor deck and shows solar growing to represent 38% of all power generation capacity by 2050.
Solar might be a good place to park some cash from our ETF sale, but we need to find a good solar stock first. Easier said than done.
A Good Solar Stock
Before going further, we will define what a good solar stock might look like. Topping the list would be international diversification. That’s because every country has their own government subsidies and tax benefits that can suddenly change and impact industry participants. The more countries you operate in, the less regulatory risk you incur.
Although China dominates the industry currently with 36% of the world’s installed solar capacity, we’re not interested in holding any Chinese stocks. We’ve talked before about the risks for foreign investors who dabble in China, and the inability to easily research Chinese firms means we’re going to give them a pass.
An ideal solar stock would provide holistic solutions that extend beyond a single hardware product such as inverters or panels and not just be focused on niche applications like rooftop residential but across commercial as well. Ideally, we want to invest in a market leader. With these criteria in mind, let’s take a look at the top-ten solar stocks today.
The Top-10 Solar Stocks
|SolarEdge Technologies Inc (SEDG)||US||11.67%|
|Enphase Energy Inc (ENPH)||US||9.05%|
|Xinyi Solar Holdings Ltd (0968.HK)||China||7.11%|
|First Solar Inc (FSLR)||US||6.89%|
|Sunrun Inc (RUN)||US||5.12%|
|Daqo New Energy Corp ADR (DQ)||China||4.85%|
|Atlantica Sustainable Infrastructure PLC (AY)||UK||3.32%|
|Jinko Solar Holding Co Ltd ADR (JKS)||China||3.31%|
|Hannon Armstrong Sustainable Infrastructure Capital Inc (HASI)||US||2.91%|
|Encavis AG (ECV.DE)||Germany||2.80%|
The Chinese firms are off our radar so that leaves seven companies. Starting from the bottom, Encavis acquires and operates solar and onshore wind parks in Europe. Managing a portfolio of renewable energy projects is a business model that closely resembles the biggest renewable energy company in the world that is presently our biggest tech holding. The same can be said for Atlantica, a sustainable infrastructure company that operates out of the United Kingdom. Then there’s Hannon, a “climate solutions” REIT which doesn’t present the sort of solar exposure we’re looking for. We’re then left with four candidates to evaluate. Here’s a brief description of what each does along with their current market caps.
- Sunrun ($5.4 billion) – Operates the largest fleet of residential solar energy systems in the United States. More than 40% of their cumulative systems deployed are in California.
- First Solar ($7.6 billion) – The only surviving domestic manufacturer of solar panels in the USA where multiple markets accounted for 84% of 2021 net sales. Needs to compete with China who dominates solar panel manufacturing.
- Enphase ($21.2 billion) – Provides residential and commercial solar plus storage solutions. 80% of its revenues are generated from the U.S. market.
- SolarEdge ($15.5 billion) – Provider of power optimizer, solar inverter, and monitoring systems for photovoltaic arrays. In 2021, 45.4% of revenues were generated from Europe, 40.0% from the USA and 14.6% from Rest of the World.
Based on the criteria we mentioned earlier, Sunrun’s U.S. residential exposure with heavy concentration in California eliminates them from consideration. With $6 billion in debt on their books, they’re just one regulation change away from breaching a covenant.
As for First Solar, they’re building solar panels and selling them predominantly in the United States. A recent letter by the CEO talks about how China is being overly subsidized and First Solar has to compete against them unfairly. Be that as it may, we’re not in the business of investing in David when Goliath accounts for about 71% of the world’s total photovoltaics manufacturing capacity.
We’re now left with the two biggest companies on the list – Enphase and SolarEdge – both of which are focused on selling components for solar systems known as inverters. In a coming piece, we’ll look at how these two companies compare and find out if either can find a place in our own disruptive tech stock portfolio.
Of all renewable energy types, solar is expected to grow fastest in the next five years. It’s also expected to be the dominant form of power generation by 2050 at 38% followed by wind energy at 20%. Since energy makes the world go round, it makes sense that we have exposure to both wind and solar in our portfolio. After vetting the top-ten solar stocks out there, we’re only left with two – SolarEdge and Enphase. The next step is to examine these companies in detail to learn more about what makes them tick.
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