A disastrous year has characterized the performance of solar energy. Will it be an opportunity in the second half of 2024?
The solar energy market has experienced unprecedented growth in recent years, fueled by growing demand for sustainable energy solutions and concerns related to climate change. However, despite the increase in demand and production of solar energy, ETF funds dedicated to this sector recorded a significant negative performance in 2023, with losses reaching 40%. This paradox raises a crucial question: are we facing an investment opportunity or a solar crisis?
Improve for investments in renewable energy
The war in Ukraine triggered an energy crisis that pushed many countries to review their energy strategies, accelerating investments in renewable sources. In Europe, in particular, the push towards solar energy has been notable. According to analysis by SolarPower Europe, the European Union is on track to meet ambitious solar capacity expansion goals, with several countries potentially even exceeding their targets. In total, EU Member States have planned to install 90 GW of new solar capacity by 2030.
The Paradox: high production, low profits
Despite encouraging data on the growth of solar energy production, investments in the sector are not performing as one might expect. Anyone who had invested in a thematic ETF dedicated to solar energy a year ago would today find themselves with losses of between 37% and 46%. This scenario seems paradoxical at a time of maximum expansion of solar production capacity.
The causes of this contradiction are multiple:
- first of all, the supply of solar modules has far exceeded demand, bringing prices to historic lows of 16 cents per watt. While this makes the adoption of solar technologies more accessible, it has also reduced profit margins for manufacturers.
- the increase in material costs,
- delays in authorizations and high interest rates have contributed to putting pressure on the balance sheets of companies in the sector.
Analysts also highlight the role of high prices for polysilicon, a key component for solar panels, which has led to higher costs throughout the production chain. These factors combined to make 2023 a particularly challenging year for solar ETFs, despite growth in installed capacity and political support.
Production overcapacity is not the only problem plaguing photovoltaic panel manufacturers. The market is currently saturated, with supply exceeding demand. This dynamic has brought the prices of solar modules to historic lows, certainly encouraging the spread of solar energy but at the same time putting a strain on the profit margins of manufacturing companies.
The drastic reduction in the costs of photovoltaic panels – which have fallen by 90% in the last decade has made solar energy more competitive and accessible, contributing to the achievement of global climate goals. However, this decline has had significant consequences on the company’s balance sheets. Manufacturers face rising material costs, approval delays, and political uncertainty affecting many key markets.
Prospects for the solar market
Despite the current difficulties, the long-term outlook for the solar market remains promising. The recently released "Global Market Outlook for Solar Power 2023-2027" provides an optimistic view of the future, highlighting continued robust growth.
Forecasts indicate that 26 countries increased their renewable energy production in 2022, up from 17 in 2021, and more than 50 countries are expected to reach an installed capacity greater than 1 GW by 2025. By 2027, total operational capacity is expected to exceed 2 TW at the beginning of the year and 3.5 TW by the end. These numbers reflect sustained growth that, despite the current turbulence, suggests a bright future for solar energy.
In this context, investors may see the current difficulties as an interesting situation to consider. Could depressed valuations of solar ETFs represent an opportunity, considering the long-term outlook and global commitment to the energy transition?
Focus on a Solar ETF
A relevant example in the panorama of solar ETFs is the Invesco Solar Energy UCITS ETF Acc, which replicates the MAC Global Solar Energy index. This ETF invests in a broad range of solar energy companies globally. With a total expense ratio (TER) of 0.69% per annum, it offers investors direct exposure to the renewable energy sector, accumulating and reinvesting dividends.
Although the Invesco Solar Energy UCITS ETF Acc is relatively small in size, with assets under management of approximately €59 million, it includes holdings in industry leaders such as First Solar, Enphase Energy, and SolarEdge Technologies. However, the recent performance has been disappointing: in 2023, the yield fell by 29.46%, highlighting the volatility and difficulties of the sector.
Conclusion
Solar ETFs, with their diversified and accessible exposure, remain an attractive vehicle linked to a green future. However, investors must be prepared to navigate periods of volatility while keeping an eye on the long-term outlook. With careful analysis and a well-thought-out strategy, the solar energy sector could represent a sector worth evaluating.
| Disclaimer The information and considerations contained in this article should not be used as the sole and principal basis on which to make investment decisions. The reader retains full freedom in his own investment choices and full responsibility in making them, since he alone knows his risk appetite and his time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation to public savings. |
Original article published on Money.it Italy 2024-06-01 18:53:00. Original title: ETF Energia solare -40% nel 2023. Un’occasione d’ingresso nel secondo semestre?
