Solar Energy ETF -40% in 2023: Is it a Buying Opportunity in the Second Semester?

The Solar Energy Market: An Investment Opportunity or Crisis?

The solar energy market has experienced unprecedented growth in recent years, driven by the increasing demand for sustainable energy solutions and concerns related to climate change.
However, despite the rising demand and production of solar energy, ETF funds dedicated to this sector have recorded a significant negative performance in 2023, with losses reaching up to 40%.
This paradox raises a crucial question: are we facing an investment opportunity or a crisis in the solar sector?

Boost in Renewable Energy Investments

The war in Ukraine has triggered an energy crisis that has prompted many countries to review their energy strategies, accelerating investments in renewable sources.
In Europe, in particular, there has been a significant push towards solar energy.
According to an analysis by SolarPower Europe, the European Union is on track to meet ambitious solar capacity expansion targets, with several countries potentially exceeding their goals.
In total, EU member states have planned to install 90 GW of new solar capacity by 2030.

Despite encouraging data on the growth of solar energy production, investments in the sector are not yielding as expected.
Those who invested in a thematic ETF dedicated to solar energy a year ago would now be facing losses ranging from 37% to 46%.
This scenario seems paradoxical at a time of maximum expansion of solar production capacity.

The Paradox: High Production, Low Profits

The causes of this contradiction are manifold.
First and foremost, there is overcapacity in production: the supply of solar modules far exceeds demand, leading to historically low prices of 16 cents per watt.
While this makes the adoption of solar technologies more accessible, it has also reduced profit margins for producers.

Analysts also point out the role of high polycrystalline silicon prices, a key component for solar panels, which have resulted in higher costs throughout the production chain.
These combined factors have made 2023 a particularly challenging year for solar energy-related ETFs, despite the growth in installed capacity and political support.

Market Perspectives for Solar Energy

Despite current difficulties, the long-term prospects for the solar market remain promising.
The “Global Market Outlook for Solar Power 2023-2027” provides an optimistic view of the future, highlighting a continued and robust growth.

Forecasts indicate that 26 countries increased their renewable energy production in 2022, compared to 17 in 2021, and over 50 countries are expected to reach an installed capacity of over 1 GW by 2025.
By 2027, the total operational capacity is projected to exceed 2 TW at the beginning of the year and 3.5 TW by the end.
These numbers reflect sustained growth that, despite current turbulence, suggests a bright future for solar energy.

Focus on a Solar ETF

An example in the solar ETF landscape is the Invesco Solar Energy UCITS ETF Acc, which tracks the MAC Global Solar Energy index.
Despite recent disappointing performance, this ETF invests in a wide range of companies operating in the global solar energy sector, offering investors direct exposure to renewable energy.

Although the Invesco Solar Energy UCITS ETF Acc is relatively small in size, with managed assets of around 59 million Euros, it includes holdings in industry-leading companies like First Solar, Enphase Energy, and SolarEdge Technologies.

Conclusion

Solar ETFs, with their diversified and accessible exposure, remain an interesting vehicle linked to a green future.
Investors, however, must be prepared to navigate through periods of volatility, keeping a close eye on long-term prospects.
With careful analysis and a well-thought-out strategy, the solar energy sector could be a sector worth considering.

Disclaimer: The information and considerations contained in this article should not be used as the sole basis for making investment decisions.
The reader maintains full freedom in their investment choices and full responsibility for making them, as only they know their risk tolerance and time horizon.
The information in the article is provided for informational purposes only and its disclosure does not constitute, and should not be considered, an offer or solicitation to the public for savings.