Taking Measure Of Solar’s Bright Future

May 28, 2015

Don’t be fooled by news out of China about a high-flying solar panel maker that fell to earth last week. (See chart below). Hanergy Thin Film Power Group’s travails—its stock lost nearly half its value last week—have nothing to do with the outlook of the solar industry as a whole and everything to do with the opacity of China’s vast markets.


In fact, the amount of solar photovoltaic (PV) electricity being installed in the U.S. is now at a record, and there’s no major slowdown in sight, particularly outside of the U.S., where growth of solar energy use is even more robust than it domestically. 


Richard Asplund, research director at MAC Solar Energy Index, the firm that designed the benchmark for the $420 million Guggenheim Solar ETF (TAN | C-33), told ETF.com that even if current U.S. subsidies dry up, domestic PV  installations will continue. Asplund, who spoke to us before the Hanergy stock drop, stressed that technological advances and falling prices are securing solar’s place as a source of electricity now and in the future.


Chart courtesy of StockCharts.com. 2015 returns of the two U.S.-listed solar ETFs, TAN and the Market Vectors Solar Energy ETF (KWT | D-29). The sharp mid-May pullback is related to the collapsing price of China-based Hanergy Thin Film. 


ETF.com: The year 2014—according to the MAC Solar report—was a record one for PV installations. It looks like 2015 will break that record. Help me put this into context: When will solar really be a big piece of the pie, if ever?

Richard Asplund: Last year, the solar industry grew at about a 14 percent rate, and that's actually the average rate over the last three years. 2015 will be a much better year, with a growth rate of about 20-25 percent. The biggest-growth countries are China, Japan and the U.S. It might also be surprising to hear that in the U.S., solar accounted for about one-third of all new electricity generation assets.


ETF.com: Does that mean there's a boatload of solar getting installed? Or does that mean there's very little new electricity generation getting installed?

Asplund: That means there's a boatload of solar getting installed. Solar installations are only about 10 percentage points behind natural gas installations, which is about 42 percent. And solar was about 10 percentage points ahead of wind, which was 23 percent. So solar is already a very important component of new electricity generation in the United States.


ETF.com: Is it realistic to expect these kinds of solar growth rates going forward?

Asplund: I think there's room for double-digit growth for at least the next couple of decades. Solar now only accounts for about 1 percent of U.S. electricity generation, so, there's a huge amount of room on the upside for long-term growth.


ETF.com: So if this double-digit growth continued for a few decades, what then would solar be as a percentage of the whole? If it's about 1 percent of the total now, what might it be at these growth rates projected for 20 or so years?

Asplund: Well, it should be able to get up to 15 to 20 percent of all electricity.


ETF.com: And what about the intermittency issue? Is that something that's likely to be minimized through the use of technology, like batteries?

Asplund: Battery storage should be a very big benefit to solar. And you pair them together, that's a big benefit. So that definitely helps with the intermittency problem. We're still in the early stages of batteries. So it's too early to say that it's a big, great solution right this minute. But going forward, it should be an increasingly important story.


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