How to invest in the solar energy revolution
Betashares Senior Investment Strategist. Supporting all Betashares distribution channels, assisting clients with portfolio construction across all asset classes, and working alongside the portfolio management team. Prior to joining Betashares, Cameron was a portfolio manager at Macquarie Asset Management, Head of Product at Bell Potter Capital, working on JP Morgan’s Equity Derivatives desk and at Deloitte Consulting.
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The demand for solar powered energy solutions is set to grow strongly in coming decades, reflecting both the urgent need to deal with climate change and solar’s rapidly improving cost competitiveness.
Investors can now consider the BetaShares Solar ETF (ASX Code: TANN), which provides exposure to a portfolio of leading companies that are making solar energy more accessible, reliable and a part of the globe’s power grid.
Solar as a solution to climate change
One of the key benefits of solar powered energy is that it produces very low carbon emissions. Accordingly, the shift to solar powered energy over coming decades is seen as critically important to global efforts to limit carbon emissions and hence global warming.
According to the United Nations Intergovernmental Panel on Climate Change (IPCC), the world needs to almost halve net CO2 emissions from 2010 levels by 2030, and to eliminate them by 2050 if we’re to have any chance of limiting global warming to 1.5°C by 2100.
Solar will be key in this quest. Due to the need to build, deliver and install solar panels, it’s not strictly correct that solar energy produces no CO2 emissions – but solar’s carbon footprint is vastly smaller than traditional fossil fuel-based sources of energy. Solar energy is estimated to produce the life-time equivalent of 40 grams of CO2 emissions per kilowatt hour (kWh) of energy produced.
Lifetime CO2 Emissions per kWh of Energy Produced
Source: Solar Bay, US national Renewable Energy Laboratory.
By comparison, a coal-fired power station produces 1,000 grams of CO2 emissions over its lifetime per kWh of energy produced – or 25 times more carbon pushed into the atmosphere. Even with associated carbon capture of storage (CCS) technologies, coal-produced energy is estimated at 2.5 times more carbon intensive than solar. Solar also produces a significantly smaller carbon footprint than natural gas, even if the latter benefited from CSS technologies.
Solar’s rapidly improving cost competitiveness
Even without its environmental benefits, the adoption of solar powered energy would likely also increase over time due to significant technological advances that are making it a much more cost competitive source of energy.
By some estimates, the cost to produce solar power from newly installed systems has already declined by around 90% over the past decade (from $US 359 per megawatt hour in 2009 to around $US 40 more recently). These days, newly installed systems for most other energy sources would cost even more to produce similar levels of energy.
$US cost per MWh of Energy Produced by Energy Source
Source: Lazard’s Levelised Cost of Energy Analysis, 2019
Not only are solar panels getting cheaper, so are the batteries used to store this energy if it can’t immediately be used. In time, many experts anticipate solar energy systems and associated battery storage will enable solar energy to provide a critical source of base load power i.e. a storable source of energy, that to date has typically only been available through fossil fuel sources such as coal and gas.
According to some studies, the cost of battery storage could decline by around a further 40% by 2030, and by 60% by 20501.
Strong growth in solar power expected
Reflecting both environmental need and improved cost competitiveness, solar power is expected to grow strongly as a source of global energy in coming decades.
According to the International Energy Agency (IEA), solar power is expected to account for more than half of the increase in global power capacity between 2020 and 20262. The IEA also estimates the number of households worldwide with rooftop solar panels will increase from 25 million in 2020 to 240 million by 2025, a near tenfold increase3. The share of electricity produced by renewable sources is expected to grow from 30% in 2020 to almost 90% by 2050, the vast bulk of which will be equally shared between wind and solar power.
Solar’s contribution to global electricity production is estimated to grow from around 3% of total production in 2020, to just over 30% by 2050.
Global Electricity Production by Source: 2010 to 2050.
How can Australian investors gain exposure?
To tap into the growth potential of solar energy, the BetaShares Solar ETF (ASX Code: TANN) is designed to provide exposure to some of the world’s leading companies in the solar energy space.
These companies include
- Manufacturers of photovoltaic, solar cells, and systems
- Producers of solar power generation, equipment, and components
- Providers of solar power system installation, development, and financing, and
- Manufacturers of solar-powered charging and energy storage systems.
There are risks associated with an investment in the Fund, including market risk, sector concentration risk, international investment risk and regulatory risk. The Fund should only be considered as a component of a diversified portfolio. For more information on risks and other features of the Fund, please see the Product Disclosure Statement.
1. Cost Projections for Utility-Scale Battery Storage: 2021 Update. US national Renewable Energy Laboratory.
2. IEA Report, Renewables 2021.
3. IEA, Net-Zero by 2050, May 2021.
Supporting all Betashares distribution channels, assisting clients with portfolio construction across all asset classes, and working alongside the portfolio management team. Prior to joining Betashares, Cameron was a portfolio manager at Macquarie Asset Management, Head of Product at Bell Potter Capital, working on JP Morgan’s Equity Derivatives desk and at Deloitte Consulting.Read more from Cameron.