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Solar Installation Hits a Record in 2020: ETF to Tap the Boom

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The U.S. solar industry has been shining bright and has strongly survived the coronavirus pandemic. This is especially true as solar installation jumped 43% year over year in 2020, reaching a new high of 19.2 new capacity, per the latest report from the Solar Energy Industries Association (SEIA) and Wood Mackenize (see: all the Alternative Energy ETFs).

The jump came primarily on the back of strong demand in the second half of the year as well as accommodative policies that offset the impacts of the coronavirus crisis. In particular, residential solar installation picked up in the second half to a record boosted by higher demand for home improvement during the lockdown. The solid trend is likely to continue this year given the attractive loan offers, surging interest in home improvement and power outages from extreme weather events.

In fact, solar currently represents 43% of all new electricity-generating capacity in the United States, its largest ever share of new generating capacity. Investors should note that solar has become the cheapest form of new power in many places.

Per SEIA, the U.S. solar market is expected to quadruple by the end of the decade driven by the extension of a key industry subsidy late last year and booming demand for carbon-free power. President Joe Biden called for an emissions free power sector by 2035 as part of his $2 trillion infrastructure and climate package unveiled last July. The sector will install 324 gigawatt (GW) of capacity over the next decade, more than three times the nearly 100 GW installed by 2020 (read: Clean Energy ETFs to Keep Soaring in Biden Era).

Additionally, the recent two-year extension of the investment tax credit will drive greater solar adoption through 2025. The credits have helped to reduce the cost of solar projects and saves homeowners 26% of the cost of their solar installation. The credit will stay at 26% for projects in all market segments — residential, commercial, industrial, utility-scale — that begin construction in 2021 and 2022, and then drop to 22% for projects that begin construction in 2023. After 2023, the residential credit will drop to zero while the commercial and utility markets will sit at a permanent 10% credit beginning in 2024.

Further, the industry fundamentals have been robust for the solar energy. This is primarily thanks to declining solar panel prices that will continue to attract new buyers, who want to save on otherwise uncertain energy costs. Rising demand for a broad range of solar products such as solar-powered generators, portable smartphone chargers, outdoor motion sensor lights, backpacks, and cookers also bode well for the industry (read: A Complete Guide to Clean Energy ETFs).

Given the encouraging trends, industry research firm IBISWorld estimates that U.S. solar power revenues will more than double at $19.4 billion by 2026 from the 2020 revenues of $8.23 billion.  

In order to capitalize the booming solar industry, investors should invest in the only pure-play Invesco Solar ETF (TAN - Free Report) .

TAN in Focus

This ETF offers global exposure to the solar industry by tracking the MAC Global Solar Energy Index, holding 37 stocks in the basket. It is concentrated on the top two firms — Enphase Energy (ENPH - Free Report) and SolarEdge Technologies (SEDG - Free Report) — with 11.5% and 8.6% of assets, respectively, while the other firms hold no more than 7% share in the basket.

American firms dominate with 48.2% of the fund’s portfolio, followed by China (26.1%) and Spain (6.7%). The product has amassed $3.7 billion in its asset base and trades in a solid volume of around 2.8 million shares a day. It charges investors 69 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

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