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Market Wrap-up for May 27 - Solar Power Challenges Big Energy

Big oil (and other fossil fuel-based companies) have a stranglehold on the energy market, especially in the U.S. This has led to a number of these firms becoming some of the largest companies in the world, and some of the most reliable dividend payers. However, solar energy’s presence in the U.S. continues to jump as it is now the fastest-growing energy source in the nation.

Solar's Growth

Since 2008, solar capacity in the U.S. has increased by a magnitude of 20, 1,900% for those who like percentages. The jump has largely been attributed to companies and individuals wishing to reduce their carbon footprint, with big names like Warren Buffett and Apple Inc. (AAPL ) joining in on the solar trend. In 2014 alone, capacity increased 30%, and overall capacity for the nation is expected to double by the end of 2016.

Solar’s rise (combined with a burgeoning supply of natural gas and shale) has been one of the factors weighing on the price of crude oil. As the prominence of solar energy increases, big oil companies may be in for some stiff competition.

For now, the biggest hindrance to solar’s growth is the fact that it is relatively expensive for the average consumer; it is still much cheaper for most people to rely on natural gas and oil-powered sources. As technology has advanced over the years, the price of solar modules has decreased, but it will need to drop even more if it wants to break in to the mainstream as far as consumption is concerned.

Solar vs. Big Energy

For now, and likely the foreseeable future, solar does not pose any major threat to big energy companies such as oil giant Exxon Mobil (XOM ) or Consolidated Edison (ED ), but that may be a different story 10 years down the line. As capacity in the U.S. continues to surge and technology develops more cost-efficient solar panels (which can be used in everything from homes to automobiles), these bellwether companies will be in for a heated battle.

If and when solar ever becomes a major threat to these firms, it is not unlikely that they would simply acquire solar companies and shift their energy focus. Though many solar companies do not offer dividend payouts, solar could be a good growth investment on your radar, as the potential for the future is quite bright. For those looking to get into the world of solar investing, you may want to check out the Guggenheim Solar ETF (TAN), which invests in a handful of solar companies and maintains a modest dividend yield of 1.4%.

The Bottom Line

While solar power may not be a major energy source as it currently stands, its growth potential (as well as environmental benefits) make it an industry worth keeping an eye on in the coming years.

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