Latest Solar ETF Monthly Report | HANetf

Solar Energy ETF Key Takeaways | December

Transition year for solar stocks  As the Dubai COP28 UN Climate Summit looms against a backdrop marked by catastrophic climate-related events, solar power remains one of the most viable and cheapest forms of clean energy.  But as consumers and businesses grappled with the headwinds of inflation and higher interest rates, it has been a tough year for solar stocks as demand for residential solar has been curbed amid a tougher lending and risk environment. The long-term outlook for solar power remains robust however, with the global solar power market projected to grow at an impressive CAGR of 14.9% between 2023 and 2032, with a market expected to reach roughly $679 billion over the next decade.

Net metering 3.0 – Another headwind in the U.S. solar market has been the net metering system being implemented in California, the largest solar market in the U.S.  NEM 3.0 was passed by the California Public Utilities Commission in December 2022. The net metering legislation purported to incentivize battery storage systems to bolster grid security and manage loads in peak summer months. To that end, the proposal offers time-flexible export rates that “have significant differences between peak and off-peak prices to promote battery storage and load shifting from evening hours to overnight or midday hours. To account for the theoretical uptick in storage systems, the legislation cut export rates for power sold back to the grid by around 75%. NEM 3.0 has been devastating in the short-term to the U.S. solar industry and is likely to be reformed in the future.

Old investing in clean energy – Energy major BP has agreed to take full ownership of solar developer Lightsource bp. Under the agreement, bp will acquire the remaining stake of 50.03% in Lightsource bp from the company’s founders, management and staff at a base equity value of £254 million (US$320.96 million). But BP is not the only energy major investing in cleaner forms of energy like solar. Brazil’s Petrobras unveiled a $5.2 billion renewables plan with big spends on solar PV and wind between 2024 and 2028.

European solar weighs tariff restrictions – More than 400 companies involved in Europe's solar power sector urged policymakers not to launch a trade investigation that could lead to EU tariffs on imported solar products. The signatories - comprising 425 companies, plus 28 national associations and research institutes - said they support efforts to reshore some solar manufacturing to reach an EU goal of 30 gigawatts of production capacity by 2025.   Meanwhile, the European PV manufacturing industry lobby has been pressing the EU to protect the bloc's domestic photovoltaic industry from what it called Chinese "unfair competition". The European Union has a target to reach 600 gigawatts of EU solar installations by 2030, about triple the level of 2022, requiring a significant acceleration of deployment. Tariffs, the group said, would only slow this down. The European Union set limits on imports of Chinese solar panels, cells and wafers from 2013 to 2018. Now, more than 90% of PV wafers and other components come from China. Brussels has launched an anti-subsidy investigation into Chinese electric vehicles and will scrutinise foreign subsidies in the wind sector to ensure clean tech manufacturing takes place in Europe and dependence on China declines.

 

Sources available upon request. When you invest in ETFs your capital is at risk.

Macro Outlook

According to Bloomberg NEF, new global solar installations are expected to hit 413 GW this year as low module prices are driving a record number of solar installations. Once these estimates are achieved, we will have witnessed a growth of over 58% from the 260 GW installed in 2022, which itself marked an almost 42% increase from the 183 GW installed in 2021. During this two-year period, the world will have experienced 125% growth, indicating that a doubling of deployed annual capacity occurred in around one and a half years. 

China is leading the global renewables market and is on track to reach a record-breaking 230 gigawatts (GW) of wind and solar installations by the end of this year, according to consultancy Wood Mackenzie. China's estimated installation is more than double the number of U.S. and Europe installations combined. China has also massively scaled manufacturing capacity which has driven the price of solar modules toward $.10/W.  

While solar capacity installation is surging worldwide, the financial side of solar panel manufacturing is still a tough business. According to BNEF’s Jenny Chase, even as manufacturing capacity expands significantly, profit margins for manufacturers are under severe pressure, with module assembly lines operating at only a 60% capacity factor.  

But globally, the end result is that lower pricing will drive more capacity installations. Chase mentioned that in the U.S., high trade barriers and interconnection capacity have slowed installation volumes by increasing module pricing and delaying connections. However, the Inflation Reduction Act has provided support and is expected to have a broad market impact.

 

New global solar installations, broken down by region

 image

Source: Bloomberg NEF, PV Magazine. For illustrative purposes only. Graph displays expected data. 

Solar ETF Performance
 
As of 30.11.2023

 

1M

3M

6M

YTD

12M

2Y

SI

Solar Energy UCITS ETF

7.66%

-17.16%

-26.24%

-28.52%

-36.12%

-45.47%

-38.29%

EQM Global Solar Energy Index

7.70%

-17.09%

-26.09%

-28.19%

-35.80%

-44.75%

-36.92%

 

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/11/2023

Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. When you invest in ETFs and ETCs, your capital is at risk.

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