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TheStreet Open House

Solar Energy ETFs Are Shining

Stocks in this article: TANQCLNCSIQGAAEXCGAEX

NEW YORK ( TheStreet) -- The solar energy industry is booming. With governments subsidizing new installations, companies are racing to build huge solar parks and rooftop installations.

According to the Solar Energy Industries Association, U.S. residential developers installed 164 megawatts of solar capacity in the first quarter of this year, up 53% from the year before.

The U.S. now has 8,500 megawatts, enough to power 1.3 million homes. According to the Solar Foundation, U.S. companies that manufacture and install solar equipment account for 119,000 jobs. In comparison, there are 83,000 coal miners.

In the past, solar development languished because the alternative energy always cost much more than conventional power sources. Projects were only feasible when they were supported by government subsidies. But thanks to economies of scale, prices of solar panels are falling. Navigant Research says that solar power will cost about the same as conventional sources by 2020.

With demand growing, the stocks -- and the exchange-traded funds that track them -- have skyrocketed. This year Guggenheim Solar ETF (TAN) jumped 82% and First Trust NASDAQ Clean Edge Green Energy (QCLN), which holds a big stake in solar stocks, gained 68.8%.

Although the long-term outlook for solar power is bright, only investors with strong stomachs should buy after the big run-up. In recent years, solar stocks have proved volatile. Just this week, solar ETFs dipped after First Solar (FSLR), a panel manufacturer, reported declining sales and earnings.

The solar stocks suffered an enormous downturn that began in 2010 and continued through 2012.

The problem was a glut of panels produced by Chinese manufacturers. Supported by government loans, the Chinese factories flooded world markets.

Prices of solar panels dropped from more than $3.00 per watt of power in 2005 to less than $1.00 last year. The price cuts hurt profits of manufacturers around the world -- including those in China. Several companies went out of business. With share prices collapsing, the Guggenheim ETF lost 63.4% in 2011 and 30.7% in 2012.

This year investors became convinced that the picture was finally improving.

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