Solar sector stocks and related exchange traded funds have a lot of room to expand as the nascent industry’s competitive costs help cut out a greater share of the electric grid.
The residential solar market is experiencing a quick build up as homeowners increase photovoltaic system installation in an attempt to help the environment or simply cut down on their energy bill, reports Jackie DeAngelis for CNBC.
Currently, U.S. home solar energy only accounts for less than 1%, but market estimates indicate that the industry could grow to as much as 20% to 30% by 2020.
As more people transition to solar energy, solar sector ETFs, like the Guggenheim Solar ETF (NYSEArca: TAN) and Market Vectors Solar Energy ETF (NYSEArca: KWT), stand to benefit. Year-to-date, TAN has increased 2.7% and KWT has dipped 3.9%. [Solar ETFs: Demand Outpacing Supply for First Time Since 2006]
“The market has a ton of potential. It’s already sizable. We have three players valued at over a billion dollars, yet we’re only in less than 1 percent of U.S. households,” Lynn Jurich, CEO of privately held Sunrun, said in the article “So if you look at the 140,000 homes that received solar last year, we can be competitive with local utility power in about 20 million homes.”
With solar panels expected to take on a larger presence in producing electricity, traditional utilities companies could eventually face greater competition. For instance, the Utilities Select Sector SPDR (NYSEArca: XLU) includes a 56.4% position in electric utilities.
“Basically, we provide power to the customer just like a utility does—it’s just at a reduced rate. We like to consider ourselves a producer of power,” Tim Ferdinand, a regional operations manager at SolarCity (NasdaqGS: SCTY), said in the article. “There are government mandates in place that influence the utilities. So right now, they’re accepting solar systems on a pretty wide scale—maybe not for forever, but for the foreseeable future.”
Companies like SolarCity are operating as utility companies, providing electricity to homeowners. Additionally, current government rules require utilities to support green energy programs, so utility companies are giving solar providers some leeway and keeping solar homes on the grid for now.
For more information on the solar industry, visit our solar category.
Max Chen contributed to this article.