The solar energy market is strong and bringing good returns to the investors. With the world shifting towards renewable energy sources, solar energy has emerged as a significant solution to global carbon emissions and climate change.
With development in technologies, supportive governments, and ever-increasing demand from the world, stocks in the solar sector are on an upward trend and booming significantly.
But, as with every investment, there are risks as well as rewards in this industry too.
In this post, we will discuss basic 7 things that investors need to know before investing in solar stocks.
7 Essential Insights for Investors in Solar Sector Stocks
India’s solar energy sector is experiencing rapid growth, presenting numerous investment opportunities. Here are seven key insights for investors considering this booming market:
1. Government Support and Incentives
The Indian government is proactive in promoting the solar energy sector by implementing schemes such as Production Linked Incentive (PLI), which allocates ₹24,000 crore to boost domestic manufacturing of high-efficiency solar photovoltaic modules.
Furthermore, programs such as the Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (PM-KUSUM) provide subsidies for farmers to install solar pumps.
These measures create a favorable environment for solar stocks, encouraging investment and growth in the renewable energy market.
2. Rapid Capacity Expansion
India’s solar energy sector has expanded rapidly, with a record 16.4 gigawatts (GW) of solar capacity added in the first nine months of 2024—a 167% increase compared to the same period in 2023.
This growth is driven by government policies, technological advancements, and increased investment, positioning India as a global leader in renewable energy.
The country is targeting the goal of having over 500 GW of renewables capacity by the year 2030 and solar energy will contribute significantly to this target.
3. Technological Advancements
Advancements in solar technology have significantly reduced costs and improved efficiency, making solar energy more competitive with traditional power sources.
In India, solar tariffs have stabilized between ₹2.50 and ₹2.87 per kilowatt-hour, approximately 20-30% lower than existing thermal power costs.
Innovations like perovskite solar cells, achieving efficiencies up to 28%, offer cost-effective alternatives to silicon-based cells, further enhancing solar energy’s accessibility and affordability.
4. Major Players in the Market
The solar energy market in India is led by large companies most notably Tata Power, Adani Green Energy, and ReNew Energy Global. They have the upper hand when it comes to implementing large-scale solar projects.
Reliance Industries is also expanding into this sector, aiming to become a significant contributor.
Investors should monitor the share prices of these companies, including Reliance, to assess their market performance and investment potential. For instance, as of December 5, 2024, Reliance share price was ₹1,320+.
5. Financial Performance and Investments
NTPC Green Energy, a subsidiary of NTPC, recently launched a significant initial public offering (IPO) valued at approximately $1.2 billion.
The IPO was oversubscribed by 2.41 times, indicating strong investor interest. Shares were priced between 102 and 108 rupees, valuing the company at around $10.8 billion.
This substantial investment reflects growing confidence in India’s renewable energy sector, aligning with the country’s ambitious clean energy goals.
6. Risks and Challenges
In November 2024, U.S. authorities indicted Gautam Adani, chairman of Adani Group, and seven associates for allegedly orchestrating a $265 million bribery scheme to secure solar energy contracts in India.
The charges include securities fraud and conspiracy, accusing them of misleading U.S. investors by concealing these illicit activities. Adani Group has denied the allegations, labeling them as baseless.
This legal challenge has raised concerns about corporate governance within India’s renewable energy sector and could impact investor confidence.
Conclusion
Investing in the solar energy sector presents promising opportunities due to rapid market growth, technological advancements, and supportive government policies.
However, investors should be aware of challenges such as supply chain issues, geopolitical factors, and inherent industry risks.
A thorough understanding of these elements is essential for making informed investment decisions in this dynamic sector.
