One of my friends prides himself on being an early adopter, especially when it comes to new tech.
So when solar panels started becoming available to consumers over a decade ago, he was one of the first to cover his roof with the tacky black rectangles.
We used to tease him about being a tree-hugger… But he hasn’t paid a cent for electricity in years, while our power costs from the local utility keep increasing. Now he’s having the last laugh.
Solar panel technology has come a long way since then. And today, it’s not just about saving the environment. It also makes financial sense for those trying to save money.
And this trend shows no signs of stopping. In fact, the recently passed Inflation Reduction Act increases and extends tax credits for installing renewable energy like solar panels. That makes adopting solar an even better deal and should increase demand for many years to come.
At Intelligent Income Daily, we’re always looking for ways to help you make income from the most promising trends in the financial markets. And as I’ll show you below, solar technology fits that bill perfectly.
Now, you might think investing in solar panel manufacturers would be a great bet. After all, their earnings are likely to grow rapidly as more people adopt solar technology.
There’s just one problem… Millions of other investors think the same and have bid those companies up to sky-high valuations.
Today, I want to tell you about another way to potentially profit from solar: by investing not in the companies that make and sell solar panels, but in the companies that are buying and installing them.
This Long-Term Trend Is Here to Stay
Before I tell you about this opportunity, let me share why I believe solar technology is here to stay.
Every year, solar energy’s efficiency goes up… and the cost goes down.
For most people installing a solar panel system today and keeping it for the next 25 years is possible. Panels are expected to last and they’ll cost less than paying for electricity from a utility company.
Residential solar energy costs an average of 8 to 10 cents per kilowatt-hour (kWh), compared to the national average of 16 cents per kWh for electricity purchased from utilities.
It’s no wonder solar panel installation has been rapidly increasing. In 2021, the U.S. added 23.5 gigawatts (GW) of solar power. For context, 1 GW equals 1 million kW. That’s enough to power roughly 4.7 million homes year-round.
And as I mentioned above, the Inflation Reduction Act will offer incentives for people to continue opting for solar energy.
But solar panels don’t come cheap. It can cost tens of thousands of dollars to install a system to power a home. And it takes years for solar panels to pay for themselves. Not everyone has the patience to wait 25 years to break even.
In the long run, it’s worth every penny. But many people can’t handle the upfront costs.
That’s why there’s an opportunity for real estate investment trusts (REITs) to step in.
You see, REITs already have large portfolios of real estate. According to a recent estimate, REITs have over 3.4 billion square feet of rooftop area that could be used for solar. Plus, they have plenty of access to low-cost capital to finance projects like solar installation. And their large scale means they can negotiate lower costs.
REIT business models are already geared toward upfront investments that are recouped over many years. So venturing into the solar energy space makes sense for REITs to profit off the demand for solar energy.
REITs Are Perfectly Positioned to Capitalize off Solar Technology
Some REITs have already started taking advantage.
According to a report from the Solar Energy Industries Association, industrial REIT Prologis (PLD) is ranked second in the nation for on-site solar energy generation with 378 megawatts (MW) of capacity – that’s 378,000 kW. And it plans to keep expanding, with a goal of 1,000 MW by 2025.
According to Prologis, the break-even point for a solar installation in the U.S. is eight years. And since solar panels often come with 25-year warranties, there’s considerable profit to be made.
The company makes it easy for its tenants to adopt solar tech. It handles all the upfront costs and maintenance. And it just charges customers for the energy they use, at a rate below the local utility cost.
It’s a win-win-win all around: the tenant saves money, Prologis gets more rent and upgraded real estate, and the environment benefits from cleaner energy.
Other REITs have also started similar investments, particularly those with energy-hungry customers like data centers. And with the increased tax incentives just signed into law, more REITs could soon be reaping the rewards of installing solar technology.
With attractive valuations and steady dividend income, REITs could be a better way to play the solar adoption trend.
One easy way to invest in a basket of REITs is through the Vanguard Real Estate ETF (VNQ). But we think some companies are better positioned to profit than others. To find out which names we like, check out the Intelligent Income Investor by clicking here.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily
Buy this small group of unique stocks... never sell them... and make all the money you need... No matter what happens in the market. Revealed here: the name and ticker of the #1 stock.
Source: Wide Moat Research