The solar energy sector is leading the way in the North American cleantech industry. Find out where the money’s at, where to invest and companies to watch.
When it comes to the cleantech market, solar panels may be the most recognizable example of the industry’s innovation. Relatively affordable, efficient, and popular in sunny Silicon Valley, they emblemize the multitudes of ways that cleantech is systematically transforming our everyday life.
Of course, for those individuals versed in the complexities of the cleantech market, solar panels are just one example of the many innovations flooding the market today. Nonetheless, these casual observers have something right: the solar energy sector is leading the way in the North American cleantech industry.
2016 in numbers
This year, we have seen the solar energy sector accelerate well beyond other areas of the cleantech market. For instance, Pwc’s US Cleantech Investments and Insights Report from Q2 2016 identifies solar energy as the top subsector by project finance, beating out other competitive niches such as energy efficiency, water and waste management and wind and geothermal. In Q2, the solar energy market saw around $1.5 billion in project financing, a step up from the $1 billion funneled into this market in Q1 of the same year.
This suggests a general upward trend in solar energy investment. Although final data for the year has not yet been released, investors can feel confident about a strong showing. The solid investment that we’ve seen in the first six months of 2016 bodes well for continued enthusiasm in the sector.
Where the money’s at: debt versus equity financing
Solar projects were financed by an average of 71 percent debt and 29 percent equity in Q2 2016. This relatively low percentage of equity financing may, at first glance, suggest that there are few public investment opportunities in the solar energy sector. This impression is reinforced by competing subsectors, such as the wind and geothermal market, which see a roughly equitable division between debt and equity financing.
However, in cases like these, it’s important to look at the numbers in addition to the ratios. Although equity investment constitutes 29 percent of all solar energy funding, this comes out to $476 million. For the sake of comparison, the wind and geothermal industry saw only $441 million in equity — less than solar power, despite constituting half of the industry’s total financing.
In practical terms, this means that the solar energy market presents numerous public investment opportunities that are bolstered by a large framework of reliable debt financing. In other words, you’re getting the best of both worlds when it comes to investing in solar.
Where to invest: regional view
So what are the best bets for capitalizing on this solar energy boom? If you take a broadly regional approach, Silicon Valley is where it’s at. According to pwc’s most recent cleantech report, it’s the clear leader in solar investment with $594 million being funneled into the market. North Central United States is the first runner up, with $497 million in investment. Meanwhile, the Southeast United States also gets honourable mention, bringing in $277 million in investment.
Companies to watch
In more specific terms, there are numerous companies working in these regions that are seeing significant returns on investment. For instance, California-based company Sunrun (NASDAQ:RUN) is engaged in the design, development, installation, sale, ownership and maintenance of U.S.-based residential solar systems. In the past three months, the company has seen a 21.3 percent increase in share price.
Vivint Solar (NYSE:VSLR) presents another intriguing opportunity. The company, whose share price has grown by 10.07 percent over the past three months, provides customers with distributed solar energy by installing solar energy systems near customers’ residences and businesses. As Vivint Solar and Sunrun suggest, there are numerous opportunities for investment in the growing solar market.
For investors keen to begin investing in the cleantech market but unsure which area to target, the solar energy sector looks like it has a bright future indeed. With strong investment and innovative companies, solar energy is certainly a sector to watch in the coming years.
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Securities Disclosure: I, Morag McGreevey, hold no direct investment interest in any company mentioned in this article.