Solar Energy Investing: Pros and Cons

As more individuals, companies and governments become concerned about global climate change caused by carbon emissions, there’s an increased interest in renewable energy as part of a socially responsible investing portfolio.

One of the most often-cited types of alternative energy is solar power.

[See: 6 Places to Find Sustainable Investments.]

For those who expect renewable energy to become more popular in the coming years, the idea of solar investing might be appealing. After all, it’s widely considered one of the most exciting and viable alternatives to fossil fuels.

Here’s a look at:

— What is solar investing?

— Pros to investing in solar.

— Cons to investing in solar.

What Is Solar Investing?

Solar investing encompasses investments in various aspects of the solar energy supply chain. Perhaps you invest in companies like First Solar (ticker: FSLR) that produce large-scale solar panels. It might even mean investing in a popular company like Tesla ( TSLA) that hopes to create smaller solar products for homes.

Additionally, for those more interested in funds, it’s possible to get exposure to solar-related companies through alternative energy funds and even exchange-traded funds, or ETFs, that focus solely on firms involved in the manufacture and distribution of solar panels and related products.

No matter how you do it, though, it’s important to understand the challenges facing the solar industry. While there is plenty of promise in the future of solar, there are also some drawbacks to consider.

Here are some of the solar energy pros and cons an investor should consider as you make your decision.

Pros to Investing in Solar

The biggest advantage of solar investing is the fact that it’s sustainable. Eventually, there will be no more oil to drill, natural gas to frack or coal to mine. The sun, however, still has billions of years in it.

Additionally, particularly in the United States, there are wide swaths of land that have a high percentage of sunlight each year. This is especially true in the Southwest.

Another pro of solar investing is the fact that there’s a relatively low environmental impact as compared with fossil fuels. While anything will have some impact, solar-powered electricity offers much lower greenhouse gas emissions than oil and coal, and it doesn’t do the same damage to the land that you see with fracking.

Finally, solar investing could lead to a degree of energy independence. Rather than relying heavily on certain areas where there are deposits of fossil fuels, it’s possible to rely on your own energy generation with the help of the sun. Plus, the fact that solar panels can be installed on your own home can lead to a certain degree of energy self-reliance in the population.

[See: 7 Habits of Successful Investors.]

It’s true that solar energy has been rather expensive in the past, but prices are coming down and increased efficiency with solar panels and solar cells is making solar power more practical for more people. That reality means that there’s potential to buy in now and potentially reap gains down the road.

Cons to Investing in Solar

It’s not all sunshine and rainbows, though. Solar investing still comes with challenges to overcome.

The biggest issue is the fact that solar power is, by its nature, intermittent. Solar energy is only generated during daylight hours — and significant cloud cover can interfere with this. The good news is that there are efforts to solve this problem with storage. Consider looking to Germany for potential opportunities in solar power storage.

Solving the power storage problem is small potatoes, though, when compared with the issue of materials used for solar power production. Many of the components used in solar technology involve rare earth metals. Extraction can be an issue, but so is demand. Other electronics make use of these materials.

Plus, in addition to concerns about future demand, there is also the problem of disposal. The same materials that make electronics disposal a concern also impact solar-related manufacturing.

Until substitutes for these materials are found or recycling of different components becomes more available, this could continue to be a challenge for solar investing.

Finally, don’t forget about the space that large solar arrays need. This might disrupt animal habitat or cause other problems. Some suggestions have been to put solar panels on large buildings and warehouses, as well as follow current electric transmission lines to reduce some of the impacts on nature.

The reality, though, is that until technology develops and solar panels for mass energy production get smaller, there are definite land-use issues. It’s one thing to get solar panels and cells to power a residence, but quite another to power an entire city.

Bottom Line

Being an investor in solar energy has potential, especially as technology advances and research focuses on finding solutions to the challenges presented in the solar industry. While some analysts predict that solar investing will bear fruit in the future, others are a little more skeptical.

There is the chance that a resurgence in nuclear energy, thanks to small modular reactor technology, or the development of other, less-expensive, renewable resources might be found.

[See: 7 Alternative Investments That Might Fit Your Portfolio.]

Carefully consider the implications of your own desire for solar investing, and figure out where this type of sustainable investing might work in your portfolio and help you accomplish your goals.

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