As photovoltaic panel installations expand and solar power becomes one of the world’s biggest source of electricity, solar sector-related exchange traded funds could be a good long-term play to access this fledgling industry.
According to the International Energy Agency, solar plants could generate as much as 16% of the global electricity while concentrating solar facilities could produce another 11% by 2050, reports Marc Roca for Bloomberg. In contrast, solar panels only make up a 0.3% share of the electricity market now.
The IEA has also grown more optimistic over the renewable energy outlook, raising its photovoltaic panel installation estimates from 11% of global power by 2050. [Solar ETFs: Demand Outpacing Supply for First Time Since 2006]
ETF investors who are interested in gaining targeted exposure to the growing global solar industry have two options: the Guggenheim Solar ETF (NYSEArca: TAN) and Market Vectors Solar Energy ETF (NYSEArca: KWT). Year-to-date, TAN has increased 20.0% and KWT has gained 9.6%. [Volatility and Cyclical Trends in Solar Sector, ETFs]
TAN includes a hefty 43.3% weight toward U.S. companies, but it also includes overseas exposure to China 28.4%, Hong Kong 28.4%, Switzerland 4.1%, Germany 3.1% and Canada 1.6%. KWT also tilts toward the U.S. with a 38.5% position, followed by China 33.6%, Taiwan 13.7%, Norway 4.8%, Canada 3.3%, Germany 1.1% and South Korea 0.5%.
The solar market will continue to grow as falling costs help bolster demand and increase installations. The IEA believes the industry will grow more competitive, with the cost of electricity from panel projects falling by an average 25% by 2020, 45% by 2030 and 65% by 2050.
“The rapid cost decrease of photovoltaic modules and systems in the last few years has opened new perspectives for using solar energy as a major source of electricity,” IEA Executive Director Maria van der Hoeven said in the article.
The agency also calculates that photovoltaic capacity could surge to 4,600 gigawatts in 2050 from about 150 gigawatts now. Consequently, the industry will require more than double the current annual investments to an average of $225 billion.
For more information on the solar industry, visit our solar category.
Max Chen contributed to this article.