Why is Warren Buffett Investing In Solar And You Are Not?
There are several investment options for an average adult American. Many are investing in stocks, followed by cryptocurrency. Other time-tested choices include mutual funds, real estate, bonds, retirement accounts, and commodities like gold, oil, or agricultural products.
However, one major player is entering the investment ring to beat the steep competition. While retail investors are yet to know about it, financial advisers have fully recognized its potential return on investment!
But before coming to that, let us first see what current research data shows about the retail investor’s landscape in America.
Where Are American Retail Investors Heading?
Per a Forbes news article of November 2022, which cited a study by Bloomberg Intelligence, “during the first six months of 2020, retail investors accounted for 19.5% of all stock market shares traded. That’s an increase of about 4.5% over 2019 and almost double the amount of retail investor trades from 2010”.
Another study by Pew Research (March 2020) stated that “more than half of the US households have some investment in the stock market”. They are called the retail investors. The study mentioned that 88% in the annual income bracket of more than $100,000 have assets in stocks, either directly or indirectly. Surprisingly, one in five, with an annual income of less than $35,000, has also invested in stocks.
A GOBankingRates report of March 2023 cited a survey of eMoney Advisor, stating that 65% of Americans are actively investing, of which 48% are into stocks, 43% are interested in cryptocurrency, 41% have invested in Mutual Funds and 36% of investors are involved in real estate and bonds.
But while these options never grow old, today, famous billionaires are investing in solar energy. Yes, you heard it right.
Let’s delve deep into this topic to understand the facts.
Which Billionaires Are Investing in Solar?
According to a February 2023 report by the Environment + Energy Leader, Warren Buffett mentioned that Berkshire Hathaway has invested more than 30 billion in renewable energy — mostly solar and wind — to deliver value to their shareholders and customers.
This is a business decision undertaken by the most valued investor in the world, apart from fulfilling the decarbonization goals. Large investors like him always do extensive research and, undoubtedly, investing in solar and other renewables, or even solar stocks gives a better ROI than others.
Per another report by the RenewablEconomy from July 2022, Warren Buffett has bought two Australian solar projects — the 150MW Suntop solar farm and the 105MW Gunnedah solar farm from Canadian Solar. Although there is no mention of the amount, their value is estimated to be between $255 million and $270 million in the current market. Solar projects typically cost 1 million/MW for a utility-scale project.
There are other famous personalities equally interested in renewable energy investments.
Comparison of Traditional Investment Options Versus Solar
Once again, let us go through the recent credible research data.
ROI or return on investment is a helpful indicator to understand how profitable an investment is. Simply put, more ROI means more profit.
ROI = (Net Profit / Cost of Investment) x 100
As Per Profit = Present value of investment - Cost of Investment
Therefore, ROI= (Present Value - Cost of Investment) x 100
Suppose you invest $10,000 in a scheme whose present value stands at $11,000. Then its ROI will be (11,000 – 10,000)/10,000 x 100 = 10%.
Different research gives different numbers on the ROI for a particular investment. The highest long-term returns come from investing in stocks or solar energy stocks. Next comes mutual funds, real estate, bonds, and retirement accounts. Cryptocurrency is highly volatile, but profitable too.
The ROI also depends on factors like economic growth, inflation, investment time horizon (short-term/long-term), and external factors like technological or geo-political changes. Therefore, it does not always tell the full story.
A good place to start is by checking the data from the last decade. According to an August 2022 Fidelity insights report, these were the following returns from the traditional investment options.
Why Does Investing In Solar Panels Provide The Best ROI?
People generally consider solar as the green energy option that can enhance savings by reducing the electricity bill. And very few look at it as an investment option, just like solar stocks.
You can calculate the ROI from solar investment as you calculate for any other investment.
First, check the estimated cost of solar panel installation on rooftops and the total electricity it can generate for the next 25-30 years. Next, calculate the energy generation from these panels for the entire lifetime of the system along with its maintenance costs. Experienced installers like Solarblocks are always here to help you.
Here are a few economic advantages of solar investment versus traditional investments.
Solar investment or solar stocks are inflation-proof
The price of electricity in America is at an all-time high due to inflation. The rising demand for gadgets and equipment pushes the demand for grid electricity which simultaneously raises the electricity costs.
The below chart explains the average electricity price per kWh in various regions of America.
The residential tariff of grid electricity increased significantly from January 2021 to January 2023. According to EnergySage, the average electricity price per kWh to run a 5kW solar plant is $0.09. This price of electricity will remain constant till the total investment is returned (which takes 8 years) and, thereafter, the electricity price will be near zero for the next 25-30 years.
Solar investment has no market risk
Investments like stocks, mutual funds, real estate, and commodities are always subject to market risks. This implies that your investment value might vary due to geo-political reasons (war), natural calamities (coronavirus, climate change), and or technological disruptions.
But solar energy stocks give you the chance to relax without worrying about a loss. It assures regular earnings every month and every year. The return on investment is huge and we will discuss it further in this article.
Solar investment gives rental income
In a stock investment, financial advisors suggest waiting for 10 years to get a 9%-10% ROI. You cannot expect this estimated ROI by reducing the timeline. The same is the case with mutual funds or real estate.
On the other hand, a solar investment guarantees you regular assured income. If you finance the system with a mortgage, the total energy savings will help you cover the EMI without costing any out-of-pocket burden.
What is the ROI of Solar Investment?
This is a million-dollar question.
The ROI of investing in solar depends on the system capacity (how big the system is), the location (solar radiation — California, Arizona, and New Mexico are the best), and the orientation of the panels (south facing is the best).
A general advice is to start with a 5kW residential solar system for maximum return on investment. Now, let us take another example.
Suppose you consume 920 kWh of electricity per month and spend $170 on the electricity bill. Per calculation, you need an 8 kW solar system to generate 920 kWh of electricity per month. The following table shows an estimated annual ROI for the system.
Here, you can see the ROI is 12.4%, comparable to the ROI of stocks.
Please keep in mind that to avoid complex calculations, we have not taken into consideration the escalation of electricity cost per year (2.2%), local sales tax and county incentives, and the degradation of solar panels. Otherwise, the estimated annual ROI for the solar investment will go up by 14%-15% .
There has been a significant evolution of solar energy in the past decades. Although retail investors are yet to know about its potential, solar energy stocks are proven to serve as a good investment choice for many. Top billionaires and investors know that solar stock investment is one of the safest revenue streams to ever consider.
The experience of a good installer counts a lot here. A sound solar system design, engineering, and installation can maximize energy production from a solar system. The innovative financing options help reduce the initial investment in the system. Therefore, by controlling these two factors, you can gain from a more than-average return on investment than stocks.
Note: Information given in this article is for informational purposes only and not for investment decisions.
Begin Your Journey From Today
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Begin Your Journey From Today
Let your sustainable way of life begin here..