Solar energy stocks may become a long-term renewable resource worth investing in.

Solar energy has been used to warm buildings for thousands of years by combining building materials that absorb and slowly release the sun’s heat. Design features, like large, sun-facing windows, have also been used. But, what is solar energy, and how does solar energy work in the modern era? New solar technologies use the sun to heat water, provide daytime lighting and generate electricity. Many people already own a solar-powered device—a solar-powered calculator, for example.
                                                                       
Modern solar cells with practical uses were invented in the early 1950s, and have been used to power satellites since 1958. Solar panels began to be used for general applications in the mid-1970s, mostly for remote telecommunications, navigational aids and other rugged, remote industrial uses. Since the mid-1980s, they have powered devices that work in more urban settings, such as roadside emergency telephones and traffic sign boards.

Investing in solar energy stocks comes with risks and rewards. If you’re asking, “what is solar energy worth to my portfolio,” right now the main growth area is using solar energy to generate supplementary electricity for utility customers who already have access to the power grid.

Photovoltaic solar power

Photovoltaic cells, also called solar cells, are typically made from silicon and absorb the energy in sunlight. This energy excites the electrons in the solar cells, which then break loose. These free-flowing electrons then become electricity. Solar cells are gathered together into solar panels. Then, large arrays of solar panels are connected together.

Current technology allows a solar cell to harvest about 15% of the energy in the sunlight that contacts it. However, when the sunlight is reduced or stopped (when a cloud passes in front of the sun, or when the sun goes down in the evening, for example), the conversion process slows or completely stops.

Finally, inverters transform about 96% of the electricity that solar cells collect into usable AC (alternating current) power from DC (direct current) power.

Concentrated solar power (CSP) and solar thermal power

Does solar energy work well enough to compete with fossil fuels? In recent years, solar-power concentrators have emerged as a way to intensify the amount of sunlight hitting solar cells, which are the most expensive part of solar panels. To make solar power more affordable, engineers have sought to use less solar-cell material by concentrating sunlight onto much smaller spaces.

Concentrated solar power technologies use mirrors, lenses, parabolic dishes or other optics to direct and concentrate the sunlight.

In solar thermal applications, large mirrors or reflective troughs amplify sunlight to create heat, which then heats a liquid or gas that turns turbines and makes electricity. Solar thermal is most often used for large-scale power plants operated by utilities, usually in the desert.

The reason why people invest in solar energy stocks is obvious—a pure source of clean, endlessly renewable energy that can replace fossil fuels like oil, coal and natural gas sounds like a great investment. However, like many alternative energy sources, solar power has vast potential, but also risk to match.

Solar energy stocks face three main risks:

1. Reliance on government subsidies: Solar power relies heavily on government subsidies and political support. That support is based on environmental “clean” energy concerns and perceptions of climate-change urgency, as well as a push toward energy independence.
2. Competition from alternative power sources: When oil and natural gas prices fall, consumers are less likely to invest in solar power companies. Solar power also faces competition from nuclear power. Right now, nuclear is largely out of favour in the U.S., but China and India are steadily moving ahead with their plans to build a large number of nuclear power plants.
3. Rapidly changing technology: Technology advances add considerably to the risk of solar-power companies that are focused on developing or making a single technology. That’s because they constantly risk being overtaken by competitors with a superior product. As well, customers may hold off purchasing solar equipment if they believe a new technology is about to emerge.

Does solar energy work as a renewable resource? It does, but the technology isn’t up to efficiency standards to replace energy sources like oil or natural gas. We feel it’s important for investors to be educated on the latest energy technologies. There are plenty of growth opportunities for investors in the energy sector.

Does solar energy work for your portfolio? What solar technology companies do you have your eye on? Share your experience with us.