Solar ETF’s 90% Rally May Only be the Beginning

ETF Trends

An ETF investing in solar energy companies has soared 90% in 2013 after a multiyear downdraft. There are several reasons why the solar ETF’s rally could be in the early innings with plenty of room to run.

The U.S. is increasing solar panel installations, supporting the fledgling photovoltaic industry, along with related exchange traded funds, as we try to wean ourselves off fossil fuels.

Americans are installing one solar photovoltaic system every four minutes, and given current market growth projections, we could be installing one system every minute and twenty seconds by 2016, reports Stephen Lacy for Greentech Media. In comparison, systems were being stalled every 80 minutes in 2006.

GTM Research calculates that about two-thirds of all distributed solar in the U.S. was installed in the past two and half years, and cumulative installations of distributed photovoltaic systems will double by 2016.

With installations going up every 83 seconds, capacity is projected to hit 9 gigawatts by 2016.

View gallery

.

Greentech_Media_Solar_Installation_Rates_580_325

Source: Shayle Kann, GTM Research

View gallery

.

GTM_Research_Solar_Installation_580_325

Source: Shayle Kann, GTM Research

Deutsche Bank’s Vishal Shah, Jerimiah Booream-Phelps and Susie Min are even more optimistic, projecting U.S. solar capacity could hit 50 gigawatts by 2016, reports Rob Wile for Business Insider. However, this would only make up 2% of overall U.S. electricity capacity.

Deutsche Bank attributes the solar industry boom to a number of factors, such as lower costs and increasing competitiveness to traditional retail electricity.

“Considering the improved economics of solar in these markets along with other growth enablers such as solar leasing, availability of low cost financing, we expect installed capacity growth of ~600% over the next 4 years,” Deutsche Bank analysts said.

Renewable companies are are being structured as “C” corporations that act as holding companies, similar to real estate investment trusts and master limited partnerships, which enjoy certain tax breaks.

“If investors value MLP and REIT assets at 7% to 8% distributable cashflow yield, there is good reason to believe they will value renewable assets at similar, if not lower, yields,” Deutsche Bank said.

The solar investment tax credit will expire in 2016, so many are installing now while they can take advantage of the incentive program. Additionally, solar leasing, which allows residents to install solar systems for free and pay nothing for maintenance, is on the rise. [Solar ETFs Can Keep Shining]

Investors can play the solar industry with some ETF options, including the Guggenheim Solar ETF (TAN) , which is up 92% year-to-date, and the Market Vectors Solar Energy ETF (KWT) , which is up 59%. [Solar ETFs’ Holdings See Spike in Short Interest]

For more information on the solar industry, visit our solar category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

View Comments