The rise of solar stocks: Up in the 2021 too
Why are solar stocks on the up? And will they continue to boom? We delve deeper into the rapid rise of solar stocks and how they fare going into 2021.
Here’s some good news to start 2021: the clean energy industry is growing at a rapid pace. Businesses, governments, and socially-minded organizations are working to displace fossil fuels and tackle the impact of climate change.
Despite the challenges presented by the COVID-19 pandemic in 2020, which had been expected to take a toll on the industry, renewable energy grew by almost 7% while global energy demand declined by 5%.
While the financial markets were in turmoil last year, investor interest in renewable energy remained robust. In fact, between January and October, the amount of renewable capacity auctioned was 15% higher than for the same period in 2019. Share prices for clean energy equipment and vehicle manufacturers also accelerated, outperforming the broader markets.
As public awareness of green initiatives grows and governments set increasingly ambitious targets to reach net-zero carbon emissions, investing in clean energy stocks, such as renewable power companies and electric vehicle manufacturers, has become much more attractive.
It’s no exaggeration to call it a ‘boom’ either:
The share price for electric vehicle (EV) maker Tesla jumped by 700% in 2020.
Shares in hydrogen fuel cell company Plug Power soared by 1,000%.
The share price for Chinese EV manufacturer NIO rocketed by almost 2,000%.
Plus, these stocks are among the most frequently traded on popular investing platform Robinhood, and analysts expect them to make even further gains in 2021 as vehicle sales take off.
Shares in US utility NextEra Energy rose by 27% last year as the company increased its financial expectations for 2021 and 2022 and extended its longer-term growth outlook to 2023. In fact, the company has a backlog of renewable power projects that is larger than its existing portfolio — which is already one of the largest wind and solar portfolios in the world.
Shares in First Solar climbed by 75% as the solar panel maker beat analysts’ earnings estimates. The company is expected to benefit from strong growth in the demand for renewables in the coming years under the new US administration under Joe Biden.
Stock in SolarEdge, which makes components for solar panels, climbed by more than 200% as its strong balance sheet and expansion into new products attracted investors. During the third quarter of 2020, the company’s solar business outside the U.S. reached an all-time high and the US market showed signs of a return to pre-pandemic installation levels.
SolarEdge is expanding into new technologies such as EV charging, energy storage, and grid services, which are also expected to benefit from the move towards clean energy under a more environmentally friendly US administration.
What is behind investors’ confidence in continued share price gains in the clean energy sector after such massive rallies? Well, there are several main drivers:
COVID-19 highlights emissions reduction
The COVID-19 crisis increased the impetus for installing more renewable electricity generation capacity around the world. With energy demand dropping sharply in March during the height of government-ordered lockdowns, lower pollution levels in various cities raised public awareness of the need to reduce carbon emissions.
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And, as a result, global energy-related carbon emissions are estimated to have fallen by 8% in 2020, the largest decline since World War II, the IEA said.
During lockdowns, the share of wind and solar power as a percentage of total generation grew, and wholesale electricity prices fell. Renewable power producers saw stable revenues, however, as they tend to have long-term fixed-price contracts.
Declining costs increase viability
The overall cost of solar power generation is reaching parity with fossil fuels, in most countries, even at a time when subsidies to support adoption are expiring. This is encouraging governments and utilities to opt to install solar as an affordable, cleaner option. In the first half of 2020, 13 countries held auctions to award licenses for a record 50GW of new renewable capacity to become operational during 2021-2024.
Government policy provides support
Governments are also taking further notice. Some are introducing economic stimulus packages that include provisions for investment in renewables as a way to create new jobs and drive growth at the same time as meeting environmental targets. As an example, the European Union has allocated €500 billion of its €1.8 trillion post-COVID economic recovery package, a record sum, for tackling climate change.
In the US, the new administration led by Joe Biden is expected to invest heavily in policies to drive an energy revolution. The Biden/Harris election platform includes a pledge to invest $400 billion over 10 years as part of a broad mobilization of public investment in clean energy and innovation. The administration will look to accelerate the deployment of clean technology throughout the economy.
The effects of 2020, plus the rise of global energy demands, meant that many solar companies began their IPO process last year. And, since this gained much traction from investors, we can only predict that 2021 will see further attention shined on solar stocks.
Going into 2021 experts have highlighted some of the most promising solar stocks with the highest year-on-year increase. If you’re interested in investing keep your eyes peeled on the likes of: First Solar Inc, JinkoSolar Holding Co. and Daqo New Energy Corp.
And, it’s no wonder that those already investing are continuing to broaden their investments. Afterall, as we mentioned above, with President-elect Joe Biden gearing up to take the presidency, financial advisers are suggesting that now is one of the best times to make solar investments.
What you should do now
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