With a growing global awareness regarding climate change, renewable energy is getting more and more attention. Around the world, large solar and wind energy projects are being built and the share of electricity generated using clean methods is increasing. In the US, renewable energy went up by 67% between 2000 and 2016 and currently represents 15% of the US electricity generation, with the bulk coming from hydro power and wind power. At the same time, the share of solar power in the US, which is one of the top countries that produce the most solar power in the world, is expected to climb to 36% by 2050, which makes it the fastest-growing electricity source. Around the world, the installed PV capacity reached 303 Gigawatts last year and represented 1.8% of the global demand. While this might not seem like a lot, in 2000, the total global PV capacity stood at just 170 Megawatts.
So, on the surface, it looks like solar industry is thriving and companies that are operating in it are also doing well. However, a closer look shows that solar companies have lost a lot of their appeal in the last couple of years. Over 100 solar companies around the world went bankrupt since 2010, including such one-time giants like Sun Edison and Suntech. Among the reasons for the fall of solar companies is the supply glut that flooded the market with solar panels, driving their prices lower. Since manufacturing facilities require substantial investments, many companies could not deal with low returns.
However, there is an upside. Because of the bankruptcies, the solar industry went through a consolidation phase, with a few survivors being able to grow the economics of scale. In addition, a handful of US solar companies stand to benefit from the recent tariffs on imported solar equipment. While the tariffs will leave worse off a lot of companies, such as rooftop installers and renewable energy developers and utilities, companies that manufacture panels in the US will see an increase in demand.
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In this way, there are several companies that represent good investment opportunities. Before going through all of them, we should narrow down the search by looking at what are the favorite solar companies among hedge funds.
At Insider Monkey, we track over 600 hedge funds and other institutional investors and every quarter we look through their 13F filings to see how many funds are invested in thousands of individual stocks. We use the data to identify the best small-cap stocks to invest in under our small-cap strategy (which has outperformed the market by over 20 percentage points since 2014), which we share in our quarterly newsletters. In addition, we have a monthly activist newsletter that analyzes one of over 140 activist funds and identifies the best ways to imitate that fund eight out of 12 months of the year.
When we look at the numbers from the last round of 13F filings, we can see that hedge funds are not overly fond of solar stocks. Back in 2015, Sun Edison dominated the industry and was one of the 25 most popular stocks among the hedge funds in our database, with 93 funds holding shares of the company. However, the subsequent bankruptcy of Sun Edison cooled down the hedge fund sentiment even further. Nevertheless, we have selected four solar stocks that not only currently rank as the most popular among the funds in our database, but which also have registered a more or less steady sentiment over the last couple of years.
