By Clint Brewer, Analyst, Rogue Economics
Things are getting back to normal.
Supply chain bottlenecks are easing across various industries, delivering much needed components to complete manufacturing.
This goes for everything from cars to refrigerators.
And it’s clearing the path for renewable energy projects to resume their breakneck pace of growth in the U.S.
That’s especially the case for solar power.
You see, 2022 was a difficult year for new solar projects. But the situation is starting to let up.
In fact, growth in domestic solar power is ready to surge. The Solar Energy Industries Association (SEIA) is expecting a 41% increase in installations this year. But that could just be the beginning.
The SEIA estimates that the U.S. solar fleet could grow five times larger over the next decade.
But for that to happen, there’s one key development needed to secure and drive the long-term fortunes of the solar industry and its stock prices.
So today, I’ll talk about what this development is… how it’s being supported by major policy in Washington… and one way you can position yourself to profit.
Demand Isn’t the Problem
Like we mentioned above, solar projects didn’t see a good year in 2022.
Solar installations fell by 16%, driven primarily by disruptions from China-based suppliers.
Whether it’s solar energy or semiconductors, we’ve seen firsthand that relying too much on one company or region for critical supplies can disrupt entire industries. And renewable energy is no different.
The U.S. relies heavily on Asian countries like China for panels and modules that make up solar power systems.
In 2021, about 80% of U.S. solar panel module shipments were imports from Asia.
And the drop last year in solar installations was due to supply chain issues.
When components for solar projects can’t reach U.S. shores, big projects get stuck in limbo.
In fact, more than 53 gigawatts of renewable energy projects ran into delays at the end of 2022. Solar comprised more than 67% of those projects.
That’s enough to power over 10 million homes. Instead, these projects sat idly waiting for completion.
That’s why last year’s drop in solar wasn’t a demand issue.
While the drop in solar was the first decline in five years, there are early signs that things are back on track.
Supply chain bottlenecks are easing up.
For example, containers carrying solar modules to the U.S. increased 39% in the last quarter of 2022 from a year earlier. This set up a strong start for 2023.
Assuming no more supply disruptions, solar growth is expected to explode higher. You can see this in the chart below…
Over the next five years, solar power generation is expected to grow by 206%.
The demand is so great for solar that President Biden recently vetoed something surprising.
He blocked a bill that would have reimposed tariffs on solar panels coming from four foreign countries. This was meant to level the playing field.
But there simply isn’t enough manufacturing capacity on U.S. shores to meet rapidly growing demand. So the White House doesn’t want to risk another bottleneck that would kill the momentum behind growing solar installations.
Even though Biden vetoed this bill, government officials don’t want to keep depending on foreign countries for basic components.
That’s why a transformation of the solar industry is underway.
And it’s one that will be critical to realizing the growth of solar power.
Homegrown Solar Power
As you may know, supply chain issues peaked during and after the pandemic.
Here’s how Inside Wall Street’s editor Nomi Prins put it last May:
The supply of certain items or services has stopped or been curtailed for various external reasons.
The war in Ukraine is having an effect on the global food supply and prices.
Before that, we had one of the world’s biggest container ships running aground in the Suez Canal. It blocked a main supply artery for nearly a week. This caused major disruptions to global trade for months…
And before that again, we had the much-talked-about impact of Covid-19 lockdowns on the global supply chain. Due to staff and raw material shortages and factory shutdowns, goods just weren’t being manufactured in the same quantities as before.
Each one of these “supply shocks” sent shock waves through the global economy. Prices soared. Supply chains broke down.
Fortunately, supply chains are finally working once again.
As we mentioned above, imports of major components are resuming.
This is part of the reason the SEIA expects a surge in solar installations this year.
But the long-term growth of the solar industry will rely on manufacturing that takes place on U.S. shores.
And government officials in Washington are putting in the work to make this a reality.
For instance, part of the $500 billion Inflation Reduction Act incentivizes domestic production. It provides federal tax credits for companies that manufacture solar components domestically.
We’ve already seen these incentives bear fruit. Following the act, First Solar (FSLR) announced a $1.2 billion investment in new and expanding manufacturing facilities in the U.S.
That’s happening across the industry and all along the solar supply chain.
Take polysilicon as a case in point. This is the raw material for creating wafers that are then processed into solar cells.
While the U.S. currently has limited polysilicon capacity, the Department of Energy is forecasting domestic polysilicon production to jump over 400% just in the next three years.
Overall, building out the domestic supply chain will be critical to enable the growth projections shown in the chart above.
And despite the quickly evolving dynamics of the solar industry, solar stocks have been collectively trading in a sideways range since the start of 2022. We’ve seen this reflected in the Invesco Solar ETF (TAN).
If you’d like to position yourself to benefit from the transformation of the solar industry, watch out for developments in this exchange-traded fund.
If TAN starts to move higher out of the range with a close above $80, that’s a sign that investors are realizing the growth potential in solar companies and their stock prices.
And it’d be a good time for you to jump in.
In the meantime, if any new advances occur in the solar space, we’ll be sure to alert you.
Best regards,
Clint Brewer
Analyst, Rogue Economics
P.S. In the next two decades, our world will need more energy to meet rising demand. Solar is part of the plan to fulfill this extra growth.
But my colleague Nomi Prins has also discovered a new technology that can help solve our global energy problems.
And if you get in early, you can profit from this new subsector of energy. For more details, click here to watch a video presentation Nomi put together.