Of all the renewable energies, solar is the one that catches
the most attention. Solar energy has been around for decades, but
until recently high costs have prevented it from really gaining
steam and posing a real threat to the traditional electricity
The good news is that costs for solar panels, and for solar
energy storage systems, have been falling, and will most likely
continue their downward trend. The primary reason being that
solar energy is a technology. The great thing about technology is
that over time, it gets cheaper. That is just the nature of the
beast, and solar energy is no exception.
At the same time, fossil fuel extraction is going to get more
expensive. It will become increasingly more difficult over time
to pull fossil fuels out of the ground, and this will continue to
push fossil fuel prices higher.
With solar prices falling, and fossil fuel prices rising,
there is no reason why solar power cannot continue to gain
importance around the globe.
Even as recently as five or ten years ago analysts questioned
whether or not solar power would ever gain enough momentum to
pose a threat to the electric sector, but that view has started
to shift, as solar power's importance and competitiveness
continues to grow.
In May, Barclays took the bold step of
downgrading the entire electric sector
of the U.S. high-grade bond market. Barclays said that falling
prices for solar panels and energy storage systems are likely to
disrupt the status quo in the next few years.
Barclays pointed out that in Hawaii, for example, the costs
for residential solar power is already competitive with the
traditional utility grid. And soon Hawaii will not be alone…
California is expected to follow suit in 2017, and New York
should get to that point by 2018.
I have written a
couple of reports on solar
over the last year, the most recent being in March. At that time
I was bullish on the sector, and I remain so at the current time.
In my previous article, I pointed out how solar represented 29%
of all new energy capacity last year, which was up from just 10%
during the same period last year, a trend which I expect to
This ties back to lower costs. Last year, solar systems cost,
on average $2.59 per watt, dramatically lower than the $9 it was
as recently as 2009. With prices expected to continue falling,
the future is looking bright for the solar industry.
In March, we took a look at the Guggenheim Solar (
) exchange-traded fund. TAN holds some of the biggest names in
the industry, with First Solar (
), SunEdison (
) and SunPower (
) among the fund's top ten holdings. When we last took a look at
TAN, it was trading at $46.04, and I suggested a 31/35 bull put
credit spread. Since that time, TAN has fallen to $41.57, but the
trade still remains on track for a full return.
While TAN has fallen from its recent highs, it appears to have
formed solid support, and is once again trending higher, and the
opportunity still exists to pull in some more profits from the
growing popularity of solar power.
A nice hedged trade on TAN at the moment would be the October
30/34 bull put credit spread. To set up this trade, you would
sell the October 34 put while buying the same number of October
30 puts for a credit of 45 cents. This trade has a target return
of 12.7%, which is 36.4% on an annualized basis (for comparison
purposes only). With TAN currently trading at $41.57, this trade
has built in 17.1% downside protection.