Solar PV is a key part of the world addressing climate change as, along with wind power (especially offshore), solar PV is the only way that replacing fossil fuels in power generation will be possible in the timeframe that we have to mitigate a looming climate crisis. This is a huge task but it is now apparent that there is a capacity to do this technically. The remaining problem is how to achieve the transition quickly enough and with least disruption. With dramatic cost reductions and ability for rapid implementation, solar PV and wind power are making progress with private sector investments, aided by focus on ESG (Environmental, Social, Governance) investing and initiatives such as RE100 which involves more than 300 major corporate members. However, it is clear that Government actions are needed especially to facilitate overcoming temporary cost issues and social changes such as workplace disruption (e.g. retraining) due to different skills required in the renewable and fossil fuel industries. Massive adoption of solar PV to help decarbonization is a case in point. Here I look at investment opportunities in selected solar stocks in 2022 and show that Governments are having an influence at this time.
Governments are making waves for solar stocks
There is no clearer indication of how Government can influence the investment environment than the current hiatus concerning Chinese solar PV panel sales to the US, which has the potential to mess up the US market for a lot of solar industry stocks, which depend on Chinese panels. Some US solar stocks are advantaged by this, including First Solar (NASDAQ:FSLR).
On the other hand, developments in China, India, and Europe (especially Russian invasion of Ukraine) all indicate massive expansion of the solar industries of these countries. The respective Governments have major roles in promoting fossil fuel replacement with solar energy.
My take on the politics is that Government has the capacity to affect share prices of key solar companies, but that the industry is now unstoppable. My solution is to have a portfolio of solar investments and ride out the politics.
Setting the scene
Revolutionary technologies are the wild west for investors. Three-time cuts for a select group of solar stocks make this as a point. Here I compare First Solar, Enphase (ENPH), JinkoSolar (JKS), SunPower (SPWR), and finally, the Invesco Solar Portfolio ETF (TAN).
While all of the stocks in this chart have outperformed, Enphase is the standout performer, up 14171%, while the others are grouped between being up 210% (FSLR) and 438% (SPWR).
The past year has been mixed for the solar stocks, with SunPower (down 26.5%) and the Invesco Solar ETF (down 9.8%) underperforming. First Solar was up just 3%, while Enphase (up 37.6%) and JinkoSolar (up 34%) were the best performers.
The past month has been volatile although all stocks are up between 7.2% and 20.3%.
The three charts above show the history. The stocks I’ve chosen cover a range of investment issues. JinkoSolar gives exposure to a major Chinese solar PV manufacturer, while First Solar gives exposure to a major US solar PV manufacturer. SunPower is a tightly focused US household solar PV and energy management play, while Enphase is about solar energy manipulation and management. The Invesco Solar ETF gives a broader view of the industry. In the past year, all of these companies have similar charts indicating a broad industry pattern, although there is a big variation in volatility, with JinkoSolar being the most volatile.
Next, I’ll give a big picture view of each of these stocks.
The easy way out, TAN Invesco Solar Portfolio ETF
TAN’s focus is heavily skewed towards solar energy manipulation and management, with its major investee companies being Enphase (11.14%) and SolarEdge Technologies (SEDG) (10.26%) as of March 25, 2022. I have a significant investment in Enphase and so TAN is of less interest to me as a vehicle for solar PV generation stocks. TAN’s major holding in solar PV generation is First Solar at 6.29%.
For those who want exposure to the solar industry, the Invesco Solar Portfolio ETF is worth considering. It is however overweight with Enphase and SolarEdge stocks, probably reflecting amazing capital gains in these stocks over the past 5 years.
JinkoSolar: Exposure to Chinese solar PV manufacturing
JinkoSolar is an outstanding manufacturer of high-performance solar PV panels and it has scale with 22.2 GW of module shipments in 2021, up 18% year-on-year. The big concern for US investors is that JinkoSolar is a Chinese company and recently it listed a principal operating subsidiary, Jiangxi Jinko, on the Shanghai stock exchange. For some investors, this is a big concern. However, as a result of the Chinese listing, JinkoSolar is now committed to 45 GW of high-quality N-type panel manufacture. The plan is to build 30 GW of capacity in Xining City, Qinghai Province. This is a very big deal. JinkoSolar has 12 production facilities, and 22 overseas subsidiaries in Japan, South Korea, Vietnam, India, Turkey, Germany, Italy, Switzerland, US, Mexico, Brazil, Chile, Australia, Portugal, Canada, Malaysia, UAE, Denmark, and major sales teams in the key markets, including China, US, Germany, Italy, Japan.
The just out Q4 2021 earnings report transcript is essential reading for solar investors. There is a lot of detail. It is worth noting that Chinese solar PV demand in 2022 is going to be more than 100 GW! JinkoSolar also has major interest in Europe (shipments to 30 countries in Europe) and India. In Q&A on the Q4 earnings report, Chief Marketing Officer Gener Miao indicated that the Russian invasion of Ukraine has produced a big increase in interest from Europe in JinkoSolar’s products; there is also a rush in India and further strong push in China. This sounds like busy times for the JinkoSolar crew!
One has to take JinkoSolar seriously as a major player in the solar scene.
SunPower: a focused US home solar play
I think of SunPower as part of the TotalEnergies (TTE) family of solar companies. Total has a big focus on solar and it is managing its solar growth through internal programs on commercial and big solar, as well as major stakes in US home solar SPWR and solar PV manufacturer (Maxeon Solar Technologies (MAXN)). I plan to cover the SPWR business in another Seeking Alpha article which will be published soon.
Enphase: The Tesla of the solar industry
Enphase has had a wild ride. The company has outstanding technology that involves superior inverter technology and bringing together solar PV generation with its use for power management and integration with batteries and other power devices (e.g., electric car). The company had a checkered history in its early days as its outstanding technology was not matched by management that was able to keep the company growing. With new management, the company has achieved remarkable success and future growth seems very likely, because at this stage, its key market remains the US (~80%), yet its products are global and it is just starting international expansion. Its new manufacturing facility in Europe is timely with major interest in renewable energy to help exit from dependence on Russian gas.
TJ Roberts is the Seeking Alpha Enphase guru. I recommend that investors interested in Enphase read TJ Robert’s latest article where he considers the revolutionary nature of Enphase’s new IQ8 grid-forming inverters. Enphase’s annual revenue increased 77% over the past year to $1.37 billion. They now have 2 million systems sold worldwide.
First Solar: A major US solar PV manufacturer with outstanding technology
First Solar is the US solar company that analysts consider will benefit from favorable US Government solar policies. Nevertheless, the path to dramatic expansion of renewable energy in the US remains fraught, notwithstanding the ambitions of the Biden Administration. This is why solar stocks have not seen clean air in the past year.
However, there is plenty of evidence that First Solar, which is a pretty conservative company, is backing its view that the solar industry is just getting started. Two huge new plants to come online in 2023 make this clear; they will manufacture First Solar’s next-generation Series 7 panels.
One of these new factories is a third 3.3 GW capacity, $680 million, US manufacturing facility, which is being built in Ohio. This will make First Solar the largest fully integrated solar PV manufacturing company outside of China. The Ohio investment is amplified by First Solar contracting aspects of their panels business to local companies. For example, 120 new jobs have been announced at Ice Industries in Ohio to manufacture panel back rails. This fits well with plans by the Biden Administration to support local industry.
The Indian solar PV market is set to expand dramatically. First Solar plans to participate in major growth of local manufacturing capacity with construction of the second Series 7, 3 GW plant in Tamil Nadu, India, to be completed in H2 2023. This plant will be similar in size to the new Series 7 Ohio plant and it will contain the latest manufacturing technology of First Solar’s thin film panels. First Solar sees its thin film panels advantaged in the hot Indian climate. India has plans to double solar PV manufacturing to 16 GW annually by 2024, so the First Solar Indian initiative fits well within these Indian expansion plans. First Solar has supplied 2 GW of solar panels to India, making it the company’s biggest foreign market.
It has been reported that First Solar has 27.7 GW of mid- to late-stage booking opportunities (20.1 GW US and 3.4 GW India). Total potential booking opportunities suggest a major expansion of its Indian market potential (total opportunities 53.6 GW, with 29.5 GW in the US and 19.4 GW in India). If these numbers stack up, the future for First Solar looks very bright.
Notwithstanding the choppy waters in the solar industry recently, First Solar’s recent performance has been consistent with the company being a major beneficiary of both US and international developments that seem likely to occur in the near term. There are lots of technical and financial detail in the Q4 2021 earnings call. This is why I think First Solar is worth investigation by investors.
Notwithstanding increasing focus on issues surrounding the climate emergency, the investment scene for solar PV remains choppy. It is very hard to reach firm conclusions about which solar stocks will outperform in 2022 as lots of events are impacting on how a skittish market reacts to the electrification of power. My summary, and how I’m approaching solar PV investment, is to have a portfolio of companies that have different triggers for success. Of course, the easy way to invest is to choose solar ETF TAN, but I prefer to make my own choices about which stocks to consider. As I’ve indicated here (and soon elsewhere concerning SPWR), a number of companies have good prospects. In fact, all of the stocks I’ve indicated here seem to have good prospects, but it isn’t possible to be too certain, although First Solar looks to have very solid upside.
I am not a financial advisor but I pay close attention to the massive changes happening as the world begins to exit use of fossil fuels for power generation, with amazing developments in solar PV and wind power. I hope my high-level comments about the solar scene help you and your financial advisor to get insight into the opportunities in this space.