Sweet Answer from Solar Mango: (updated Jul 2015)
Is Solar Power the Best Sector for Me to Invest My Money in?
Hundreds of entrepreneurs and businesses ask this question to Solar Mango every month. And we have to admit that is one of the more difficult questions we have encountered
The reason why this is a difficult question has to do with the fact that the answer depends on who the prospect is what his/her investment goals are.
While a number of different investor prospects ask this question, they can be broadly classified into the following categories:
- Medium or large corporates exploring the solar energy sector as an attractive diversification avenue. This category usually looks at medium-good returns in the long term and are willing to invest for the first few years before they need positive cash flows.
- Small entrepreneurs or businesses who are either starting off their entrepreneur career in solar or are making diversification into solar. Unlike for corporates, this segment can neither make large investments, nor can they afford to wait too long for returns.
- Individuals or very small entrepreneurs – profiles and aspirations of this segment varies widely, from individuals who wish to build business empires to those who wish to make a quick buck and get rich overnight.
The solar energy sector today presents a wide canvas of opportunities; hence, there is something in it for most of the above investor profiles, except for the profile that wants to get rich overnight – solar energy is NOT the sector such get-rich-quick guys should be looking at.
Therefore, as to the question of solar panels being a good investment, it can be said that the solar power sector has decent returns potential over the medium and long term, but these might not give you excellent returns in the short run.
If you are looking for investments that have the potential for quick profits or payoffs, solar is most likely not be the right sector for you. But remember, most opportunities that promise quick returns also carry significant uncertainties and risks.
On the other hand, if you are looking for a sector that has very good future promise and in which investments provide you with reasonable returns over an extended period of time (sometime as long as 25 years), solar might be the right sector for you to invest in.
A classic example for this is the 25-year PPAs (power purchase agreements) that utilities in many countries sign with solar power developers. Thus, if you are a solar power developer who had signed a PPA that gives a reasonable return, you are assured of these returns for 25 long years. Now, that is something you can write home about if you are looking for stable, almost passive, income!
Other than power plant development, like most sectors belonging to infrastructure or power categories, solar energy also presents investors with opportunities in manufacturing, services and to a relatively smaller extent, trading.
Trading, as can be easily guessed, is a fairly low-capital, low-risk sector, which if played smartly can provide investors with good returns in the medium term (3-5 years). Select sectors within services (such as EPC for rooftop or MW scale power plants) can also provide returns in the 3-5 year period, though these will likely be smaller than trading in most cases.
A number of support service opportunities are available in the solar energy sector. Prominent among these are EPC and system installer services, operations and maintenance services for operating power plants, power plant performance software solutions, and more.
Manufacturing for solar energy, especially solar PV or CSP manufacturing, has been, and still remains a relatively high risk game. However, with demand for solar panels increasing in many countries worldwide, manufacturing opportunities, especially for solar PV, could become attractive. Beware however that solar manufacturing in most cases requires high capital investments.
Investors should not expect short term returns if they are getting into power plant development, or into the manufacturing sector for solar energy, As mentioned earlier, solar power plant development is an attractive investment for those looking for healthy returns over a 25 year period without much of a risk if the power purchase agreement is signed with financially sound offtakers.
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