Lower Costs, Tax Incentives Could Push More Customers to Solar

The global transition to renewable energy sources like solar power could be accelerated with lower costs and tax incentives, paving the way for strength in the Invesco Solar ETF (TAN).

It’s not that the solar industry needed resuscitation. The aforementioned global shift to alternative energy was helped by federal government subsidies — most recently, by the Inflation Reduction Act last year as mentioned by CNET.

Additionally, the cost of solar power is also going down. This could allow homeowners to give it a second look if the trend of lower costs continues. According to another CNET article, the average 8-kilowatt residential solar power system fell by 29 cents per watt in 2022 compared to the year prior.

Expanding the time comparison to 10 years ago shows a cost savings of 50%. The average solar power system was closer to a brand-new luxury vehicle at $50,000, and now it’s half that.

The Inflation Reduction Act included a tax incentive for prospective solar power system purchasers in the form of a residential clean energy credit. It essentially covers 30% of the cost of new, qualified clean-energy home improvements that are made now up until 2033.

“If anything, the IRA just helped supercharge an already-hot market,” said Shawn Rumery, senior director of research for the Solar Energy Industries Association.

CNET noted that this tax credit is certainly a boon for the industry. It allows solar companies to anticipate growth. And thus, invest in scaling their operations to accommodate the potential for higher demand.

“The permanence of it is good for the industry, it’s a good signal for developers,” said Pamela Frank, vice president of Gabel Associates, an energy consulting firm. “That generally will benefit consumers.”

Diversified Solar Exposure

TAN follows the MAC Global Solar Energy Index (Index). It is, quite simply, comprised of companies in the solar energy industry. As of June 14, its asset allocations are focused on 52 holdings.

Its sector focus and country breakdowns speak to the fund’s diversification. In terms of the latter, a majority of the holdings are in the U.S. (48%), while the rest are spread out over countries such as China, Spain, Germany, and others for international exposure.

The fund also skews more towards a growth component with its holdings focused on mid- and small-cap growth. That’s almost 70% of the fund. To help offset the risk of smaller-cap companies, the fund also adds holdings that focus on a large-cap blend.

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