The world’s largest economies are beginning to take note of the lucrative opportunities offered by the evolving energy sector, as new research shows that investing in solar energy could be a sound financial strategy. According to a new study from the International Renewable Energy Association (IRENA), the global market for solar power systems (both utility-scale and rooftop) reached US$16.9 billion in 2016 and is expected to grow at a market-leading rate of 23% annually over the next three years.
With average selling prices falling and the technology becoming more affordable, IRENA expects that the market for solar energy will continue to expand, attracting more investors.
Below we explore the fundamentals of investing in solar energy and examine the potential for lucrative returns.
The Investment Opportunity
The emergence of cheap, abundant energy from the sun has created lucrative investment opportunities for savvy investors. With solar power prices declining and the cost of solar modules becoming cheaper every year, the financial upside from investing in solar energy is increasingly tempting.
According to Michael Liebreich, CEO of global advisory firm Bloomberg New Energy Finance, “we’re in the midst of a major economic and technological transformation, and the coming years will see more and more people seeking to benefit from the coming energy revolution.”
Based on an analysis of 26 countries, including the US, China, and Germany, Bloomberg New Energy Finance predicts that the worldwide market for solar power will climb from 15.9 billion U.S. dollars in 2016 to 18.8 billion dollars by next year.
The global market for solar power is witnessing a paradigm shift, as solar power systems are no longer considered expensive, luxury goods reserved for the rich – instead, they are becoming affordable and accessible to a wide range of people. This is leading to a surge in demand, with sales increasing by 25% annually and projected to rise further in the coming years.
This trend is being driven by a combination of factors, not least of which is the booming development pipeline – offering both existing and new customers attractive investment opportunities – and the rapid decrease in the costs associated with installing solar panels.
The International Energy Agency (IEA) has also predicted that by next year, 40% of the world’s energy demand will be met by solar power.
According to KPMG’s 2016 Global Power Report, investment in renewable energy projects is attracting increased interest, as the cost of installing solar panels continues to decline, while the returns can be lucrative, with energy systems typically paying for themselves within three to five years, depending on the location.
Where to Invest?
Just as with any other investment, research into the most effective places to place your money is crucial. With so much volatility and uncertainty in the energy field, it is essential to do your research and ensure you are making the right investment decision.
According to the IRENA study, the global solar market is segmented into three primary markets – utility-scale projects, large-scale commercial & community solar projects, and residential solar projects.
The demand for residential solar is surging, with many households looking to reduce their carbon footprint and become more energy independent. According to the International Energy Agency, 60% of the world’s power demand will come from buildings by next year, with the majority being residential properties.
The development of large-scale solar farms for utilities and other commercial customers, which can provide power to thousands of households, has increased as an option to meet increasing demand and to hedge against future price increases. This segment is also seeing the development of new technologies such as storage systems and microgrids, providing further investment opportunities.
What To Look Out For
As with any other investment, it is vital to do your research and make sure you are purchasing a reliable product. In the case of solar energy, this means ensuring you are purchasing a quality panel from a reputable manufacturer. With so much competition and low-cost producers entering the market, buyers can be tempted into purchasing sub-standard panels that appear to be cheaper but in reality, could pose a number of problems down the road.
The key question to ask yourself is: does the company I’m purchasing the equipment from have a good reputation? You can find answers to all of your questions about the products and services you are considering purchasing by reaching out to the manufacturer or contacting a reputable third-party quality assurance company. In the event of any problems, you can also rest assured that the manufacturer will provide you with satisfactory after-sales service.
The RISK-RETURN OF INVESTMENT
In most cases, solar energy will produce a cash flow at the end of the day, assuming you have followed the correct purchasing and installation procedures. However, this is not necessarily the case – as with any investment, you could end up wasting your time and money, if you do not do your research first and ensure you are purchasing quality equipment from a reputable manufacturer. As a general rule, energy investors should look to secure returns on their capital within three to five years (depending on the project and location), with some projects producing a profit as early as two years from project completion.
On the flip side, you should not expect to generate a high profit margin from solar energy. In fact, the initial investment and installation costs usually make up the majority of the revenue generated by these systems. However, if you are looking for a short-term high-profit investment, you should examine alternative markets, such as the cryptocurrency market, where profits are largely generated from the sale of digital assets (typically in the form of a specialized cryptocurrency such as solarcoin or bascoin).
KEY TAKEAWAYS
The world’s largest economies are beginning to take note of the lucrative opportunities offered by the evolving energy sector, as new research shows that investing in solar energy could be a sound financial strategy. According to a new study from the International Renewable Energy Association (IRENA), the global market for solar power systems (both utility-scale and rooftop) reached US$16.9 billion in 2016 and is expected to grow at a market-leading rate of 23% annually over the next three years.
With average selling prices falling and the technology becoming more affordable, IRENA expects that the market for solar energy will continue to expand, attracting more investors.
Below we explore the fundamentals of investing in solar energy and examine the potential for lucrative returns.