The divergence between generation and returns highlights the challenge facing investors. — Reuters
COLORADO: Solar electricity generation posted its largest ever annual rise globally in 2024, yet many investors in the solar sector are nursing heavy losses after share prices in major solar firms and exchange-traded funds collapsed.
The divergence between generation and returns highlights the challenge facing investors who are looking to benefit from exposure to the world’s fastest-growing source of electricity.
Owning equity in firms engaged in the production of solar components or in the installation of panel systems at generation sites was considered an effective means of tapping continued growth in renewable energy production and demand.
But after the bankruptcy in August of the 40-year old US firm Sunpower – which both produced panels and installed solar systems – several major solar equities racked up hefty losses in 2024, forcing investors to rethink their exposure.
Going forward, renewables remain at the heart of planned expansions in electricity output worldwide, and solar systems are still the fastest and cheapest way for utilities, businesses and households to scale up clean energy generation.
But solar panel makers and installers still face challenges on numerous fronts – from low-cost competitors, labour shortages and high parts to financing costs – which means the solar sector may still face headwinds in 2025 and beyond.
Below are some key themes in the solar space that can help investors understand the main developments that stand to shape clean energy investment return potential going forward.
China remains the main driver of solar electricity production globally, and over the first 11 months of 2024 boosted solar electricity output by a whopping 44% from the same months in 2023.
This is according to energy think tank Ember.
The roughly 779 terawatt hours (TWh) of electricity produced by China’s solar farms from January through November was by far the highest in any country over that period, and helped China account for a record 41% share of global solar generation.
Additionally, Europe was the second largest market for solar generation in 2024, producing around 338 TWh of solar electricity for the year as a whole (a 17.6% share of global solar output), while the United States generated around 283 TWh (a 14.7% share).
Europe and the United States both generated record volumes of solar power last year.
However, both markets recorded declines in their global share of solar production as China’s growth rate sharply outpaced all other countries.
Solar generation levels are expected to continue growing in 2025 and beyond, but at a slower pace.
In China, Beijing has introduced quotas on new solar component production and on generation projects to rein in overcapacity – which should slow solar additions at home.
However, as China is by far the world’s largest producer of solar parts and systems, further growth in Chinese solar product exports is likely.
That may bring the country into further conflict with trade partners, especially in Europe which is the top destination for Chinese solar exports but is where Chinese firms have already been accused of unfair trade practices.
Enduring weak economic growth and high living costs are sowing widespread political acrimony across Europe, and are in turn spurring more support for protectionist policies designed to promote economic growth at home and protect local businesses.
Further economic weakness in early 2025 could also force cuts to government spending across Europe, which could in turn slow the development pace of renewable energy projects by government-run utilities.
While the pace of solar power expansion may slow in Europe and China, the growth outlook in the United States is less clear.
Incoming President Donald Trump is a climate sceptic, has referred some forms of green energy production a scam, and is a firm supporter of boosting domestic production of oil and natural gas.
However, his administration is also expected to speed up approval processes for lifting overall power output.
That means that while fossil fuel producers may get the green light to lift output, renewable energy suppliers may also gain from shorter grid-connection times and broad support for projects that can quickly boost electricity output.
And as solar projects remain the quickest and cheapest way to boost incremental electricity output across much of the United States, solar developers may remain in high demand even under a more fossil fuel friendly administration.
That means that even with a potential slowdown in solar growth in key markets such as China and Europe, solar will remain a key part of the generation mix in the United States, and solar businesses will see continued demand for their products and services.
Stock pickers who can identify the solar firms most likely to win business from firms engaged in boosting United States electricity supplies should in turn still have good growth potential in 2025.
This is especially from the current historically low valuations. — Reuters
