How to Invest in Solar Energy: Strategies for Financial Growth

Solar energy is becoming a major player in the shift toward renewable power, driven by technological advancements and government incentives. As demand for clean energy grows, investors are looking at solar to diversify their portfolios and capitalize on long-term trends.

There are multiple ways to invest in solar, each with different levels of risk and return. Understanding these options helps in making informed decisions about where to allocate capital.

Publicly Traded Solar Stocks

Investing in publicly traded solar companies offers direct exposure to the industry’s growth, with opportunities in manufacturing, installation, and energy production. Companies like First Solar (NASDAQ: FSLR) and Enphase Energy (NASDAQ: ENPH) are leading players. First Solar specializes in thin-film solar technology, which performs well in high temperatures, while Enphase develops microinverters that optimize energy production at the panel level.

Beyond manufacturers, solar project developers such as Sunrun (NASDAQ: RUN) and Sunnova Energy (NYSE: NOVA) focus on residential installations and financing. These companies benefit from long-term customer contracts and government incentives, including the U.S. federal solar investment tax credit (ITC), which remains at 30% through 2032.

Utility-scale providers like NextEra Energy (NYSE: NEE) and Brookfield Renewable Partners (NYSE: BEP) operate large solar farms, generating revenue through power purchase agreements (PPAs) with utilities and corporations. These agreements provide stable cash flow, though investors must assess financial metrics such as return on invested capital (ROIC) and debt-to-equity ratios, as these companies require significant capital expenditures.

Solar-Focused ETFs and Mutual Funds

For those seeking solar exposure without the volatility of individual stocks, exchange-traded funds (ETFs) and mutual funds offer diversification. These funds invest in multiple solar-related companies, spreading risk across the industry.

The Invesco Solar ETF (NYSEARCA: TAN) is one of the most well-known, tracking the MAC Global Solar Energy Index, which includes solar panel manufacturers, energy storage firms, and project developers. The Global X Solar ETF (NASDAQ: RAYS) has a more concentrated portfolio, focusing on companies that generate a majority of their revenue from solar.

Mutual funds with renewable energy themes also allocate capital to solar while incorporating other clean energy sectors. The Fidelity Select Environment and Alternative Energy Portfolio (FSLEX) and the Calvert Global Energy Solutions Fund (CGAEX) invest in solar, wind, and energy efficiency companies. Unlike ETFs, these funds are actively managed, meaning portfolio managers adjust holdings based on market conditions. While this approach may offer higher returns in certain periods, it comes with higher fees—mutual funds often have expense ratios exceeding 1%, compared to TAN’s 0.69%.

Liquidity is another factor. ETFs trade like stocks throughout the day, allowing investors to buy and sell at market prices, while mutual funds are priced only at the end of the trading session.

Crowdfunding Opportunities

Crowdfunding platforms allow individuals to invest in solar projects with smaller capital commitments, often starting as low as $100. These platforms connect investors with solar developers seeking funding for residential, commercial, and community installations.

Debt-based crowdfunding involves lending money to solar projects in exchange for fixed interest payments. Platforms like SunFunder and Mosaic offer returns typically ranging from 5% to 7% annually. Investors should evaluate loan duration, borrower creditworthiness, and default risk before committing funds.

Equity-based crowdfunding allows investors to purchase shares in solar ventures, with returns tied to the project’s financial performance. This model carries higher risk but offers potential for greater long-term gains. Some platforms focus on community solar initiatives, where individuals invest in shared solar farms and earn a portion of the generated revenue.

Tax incentives can enhance returns. Some investments may qualify for federal and state renewable energy tax credits, reducing taxable income. Additionally, projects structured as real estate investments may offer depreciation benefits, further improving after-tax returns. Investors should review tax implications carefully, as eligibility depends on project structures and individual circumstances.

Project Partnerships

Direct investment in solar projects through partnerships allows investors to generate returns while maintaining some control over the venture. These arrangements typically involve landowners, developers, and financial backers collaborating to fund, construct, and operate solar installations.

A common structure is a joint venture, where investors co-own a solar project alongside a developer or utility company. These agreements outline capital contributions, profit distribution, and decision-making authority. Returns often come through power purchase agreements (PPAs), where electricity is sold to municipalities, corporations, or energy providers at predetermined rates. Since PPAs can last 15 to 25 years, they provide stable cash flow while reducing exposure to short-term market fluctuations.

Tax benefits further enhance project partnerships. The Modified Accelerated Cost Recovery System (MACRS) allows investors to depreciate project costs over five years, lowering taxable income. Additionally, the Investment Tax Credit (ITC) enables investors to offset 30% of capital expenditures against federal tax liabilities. These incentives can significantly impact overall returns, particularly for high-net-worth individuals or businesses with substantial tax exposure.

Private Equity Ventures

For investors with substantial capital and a higher risk tolerance, private equity offers opportunities to finance solar projects and companies before they reach public markets. These investments can take the form of direct ownership stakes in solar firms, funding for infrastructure development, or backing emerging technologies that improve efficiency and scalability.

Venture capital firms often target early-stage solar startups working on next-generation photovoltaic materials, energy storage solutions, or grid integration technologies. Companies developing perovskite solar cells, which have the potential to surpass traditional silicon-based panels in efficiency and cost-effectiveness, have attracted significant funding. Investors in this space must assess intellectual property portfolios, regulatory approvals, and market adoption rates.

Infrastructure-focused private equity funds finance large-scale solar farms, microgrid projects, and battery storage facilities. These funds often partner with utilities or corporate buyers to secure long-term electricity contracts, ensuring predictable revenue. Investors typically evaluate internal rates of return (IRR), project payback periods, and capital expenditure requirements to determine profitability. While private equity requires significant capital and has longer investment horizons—often five to ten years—it can yield substantial returns for those willing to commit funds over extended periods.