

Sustainable investment may be feeling the heat, but the energy transition is being spearheaded by the stunning growth of solar power. Ever-improving economics, high modularity and an indispensable role in the net-zero transition put this technology firmly on the horizon for long-term investment.
It’s true that markets have humbled climate-transition funds. In the first half of this year, eight of the ten worst-performing funds available in Europe focussed on the theme. As high interest rates hurt capital-intensive renewables projects, investor enthusiasm also diminished: from a zenith of USD 37.8 billion in assets under management in 2022, inflows from European investors sunk to USD 2.4 billion in H1 this year.
During this time, several high-profile asset managers exited key climate initiatives like the collective engagement network Climate Action 100+ (CA100+). Political pressure may have been an influence for US firms, with the Republican-led House Judiciary Committee demanding documents related to the initiative and information on actions they planned to undertake through CA100+. Silvercrest Investment Managers remains a signatory.
More broadly, there is doubt among scientists about whether aiming to limit the global temperature rise to 1.5 degrees Celsius, the most ambitious target under the Paris Agreement, is still realistic. Indeed, the trajectory towards a more sustainable world was never going to be smooth. But in a long-term context, the evidence points to renewable energy – and solar power in particular – having an extremely bright future.
In 2022, 19% of global energy was sourced from electricity, of which 17% came from renewable sources. By 2050, our projections see electricity meeting half of global energy demand – and 62% of that will come from solar and wind1. Within this shift, we foresee solar power being the biggest beneficiary of the transition away from fossil fuels.
Solar is already embedded in the energy mix, generating around 6% of electricity worldwide, but its share of total capacity will grow exponentially as renewables become the world’s main source of primary energy, in our view.
Expectations for future solar installations have risen sharply since the turn of the decade. We expect global solar capacity additions to grow at a compound annual growth rate of 16% until 2030, driving a four-times increase in total capacity (see Figure 1). In financial terms, between 2022 and 2030 the total addressable market for small-scale solar is forecast to surge from USD 51 billion to USD 312 billion, while the utility-scale market will grow from USD 65 billion to USD 217 billion.
FIG 1. Global solar capacity will grow by nearly 4x between 2023 and 20302
What will power this immense growth? In addition to providing an abundant source of clean electricity, five key factors shape our conviction that solar is advantageously positioned to meet future energy needs:
Cost. Massive Chinese production of components means utility-scale solar projects now offer the lowest levelised cost of electricity (LCOE) of any power source. Moreover, our analysis of capacity factors and construction, operations and maintenance, and financing costs indicate solar will get even cheaper going forward (see Figure 2).
Policy ambition. Supportive legislation and planning reform in key markets should significantly scale-up deployment within four to five years. For example: China’s pipeline implies that solar capacity will reach up to 1 000 gigawatts by 2027, almost one-third of its total consumption in 2023; annual installation rates in the European Union should increase four-times by 2030; and tax credits issued under the US Inflation Reduction Act are underpinning utility-scale projects1.
Supply-chain resilience. Planned growth in polysilicon capacity (the key material for making solar panels) far exceeds our forecast for installations, and while heavy supply-chain concentration in China is a concern, our judgement is that export restrictions are unlikely.
Deployability. Solar has a very small geographical footprint compared to onshore wind, and can be deployed on land used for other purposes, such as residential and commercial buildings, reservoirs or outdoor car parks.
Modularity and scalability. All solar cells are standardised, constructed in a similar way and can be combined and deployed on almost any scale, from small cells powering remote lighting to vast utility-scale arrays.
FIG 2. The cost of utility scale solar will fall progressively to 20303
Economies of scale: Swanson’s lawAs solar technology’s growth phase continues, increased production of photovoltaic (PV) modules should deliver economies of scale that continue to drive down costs. This is captured by ‘Swanson’s law’, which holds that the price of PV cells falls by 20% for every doubling of installed capacity (see Figure 3). It is named after Richard Swanson, the founder of US solar-cell manufacturer SunPower. |
As an abundant source of clean, cheap, scalable and deployable power, solar will be a key driver of the fundamental redesign of the energy system from one that is linear and centralised structure to a multi-directional and decentralised structure. This shift will drive profits away from fossil-fuel energy providers to suppliers of renewable power and equipment.
FIG 4. The future energy system will be fundamentally different5
How can investors best gain portfolio exposure to the growth of solar? Despite the sector’s expansion, it is important to focus on the quality of potential returns available and the overall investability of the numerous sub-sectors within solar electricity generation.
In our view, attractive opportunities exist in the technologies, components and infrastructure bringing solar energy to market. They include providers of software and sensors for smart grids that better match the supply and demand of electricity in real time while minimising costs and maintaining a stable energy supply.
The long-term forecast for solar is undoubtedly sunny, in our view. However, there are some potential clouds on the horizon in the short term:
Overcapacity. Heavy PV module output is creating heavy competition between Chinese manufacturers, resulting in compressed margins. European manufacturers are finding it challenging to compete effectively given current market prices and their own costs.
Supply-chain concentration. In 2023, Chinese firms made 93% of all the world’s polysilicon, as well as the vast majority of wafers, cells and modules – that creates a potential risk to supply if trade tensions escalate.
Climate policy. A second Trump presidency would undoubtedly impact the pace of the energy transition – particularly in the event of a Republican trifecta controlling the White House, Senate and Congress. However, solar is already entrenched in the US energy mix and is creating jobs. Its economic and practical contributions would ultimately see it prevail.
Read also: What if the Inflation Reduction Act were repealed?
Modular, scalable, sustainable and declining in cost, solar is a catalyst for the rewiring of the energy system.
In earlier energy transitions – from wood to coal, and then oil and gas – production has always been constrained by the availability and cost of resources. However, the main inputs needed to build-out solar generation are silicon-rich sand, sunlight, human ingenuity and energy. The first three are already abundant, while the fourth will become increasingly available with more solar capacity, creating a virtuous cycle.
Some consumers will become producers, selling energy generated ‘behind the meter’ to utilities as part of a ‘prosumers’ market model
An energy system harnessing solar power has the potential not only to be cleaner and cheaper but also more inclusive. Small-scale solar-plus-battery installations can deliver cheap, reliable access to electricity to people in developing countries, powering everything from transportation to water purification and desalination. Given that 600 million people in Africa still cannot light their homes, that potential is genuinely transformational.
Solar power also has the potential to liberalise energy production in developed markets such as the US. Some consumers will become producers, selling energy generated ‘behind the metre’ to utilities as part of a ‘prosumers’ market model. At the same time, community solar projects will be key to democratising access for the majority of residents unable to install their own solar-generating capacity.
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