Solar Power: Investing Essentials

There's only one energy source that has the potential to power the world with clean and renewable energy for centuries to come: the sun.

Over the past decade the solar industry has made incredible progress in lowering costs and increasing efficiency so that it can compete with fossil fuels. That progress has led to costs lower than grid parity in many locations around the world -- and with costs falling even further every year, there's an incredibly large opportunity for investors in the solar energy revolution.

Source: SEIA and GTM Research.

There are a number of factors that go into the cost of a system, but one of the most important drivers is panel efficiency. If a solar module can be made more efficient, an installer can pack more power production onto a rooftop or in a field, improving system economics. This is particularly important in residential solar where space is limited. Companies that can improve efficiency while keeping costs down will generate more income for investors long-term.

One under-appreciated driver of solar power is the financing behind projects. Solar power projects act similar to bonds, as they have a large initial cost and then provide consistent cash flow for 20 years or more. So, the lower the borrowing cost, the lower the cost per kW-hr of electricity from a project. New financing structures like solar leases, asset-backed securitization, and equity financing options have helped lower costs for installers over the past decade.

Investors have a great opportunity in the solar power industry given its nearly limitless market potential. The sun is challenging energy sources that have been entrenched for over a century, and could change everything we know about energy.

The article Solar Power: Investing Essentials originally appeared on

Travis Hoium manages an account that owns shares of SunPower and is personally long shares and options of SunPower. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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