A construction crew arrived at our farm at the crack of dawn last Thursday. By 3 p.m., the crew was gone.

In its dust, it left a brand-new 10-kilowatt (kW) solar array…

Behind it is our 8-year-old existing 10-kW array. The old array has 48 solar panels while the new one has only 28.

Both arrays generate the same amount of solar power. So why does one have more panels than the other?

The new panels are slightly bigger, but the real difference is panel efficiency.

The old panels are 17% efficient while the new ones are 22.2% efficient. That’s 31% more power per panel.

But here’s the best part: The new system cost roughly half what the old one did. Manufacturing costs continue to drop for solar panels.

I think we could easily see another 30% to 50% drop in system prices five years from now. The higher the manufacturing volume, the less the cost to make it.

But why the big jump in solar? It’s part of a much larger, secular trend in the energy sector…

The change from fossil fuels to renewable energy.

The Jump to Renewables

The Energy Information Administration (EIA) projects that renewable energy “will be the fastest-growing source of electricity generation in 2020.”

And I’m not surprised. This year, the EIA expects renewable energy operators to add 12.6 gigawatts (GW) of utility-scale solar and 23.2 GW of new wind farms.

Projections show that renewable energy will provide 21% of America’s electricity in 2020. That’s a rise from 17% in 2019.

Coal-fired generation, on the other hand, is rapidly losing ground. Last year, it was generating 24% of the electricity in the U.S.

But in 2020, the EIA expects that to drop to just 17%. It’s clear that coal-fired generation is rapidly on its way toward obsolescence.

That’s good news. It’s a dirty, polluting and finite fuel.

Renewable energy, on the other hand, is nonpolluting. And the supply is infinite.

My Favorite Plays

Today, with hundreds of companies in the solar and wind business, I think the best way to play this exploding sector is through exchange-traded funds (ETFs).

Here are my favorites, in no particular order.

The First Trust Global Wind Energy ETF (NYSE: FAN) is focused on the wind sector. It tracks the performance of the ISE Clean Edge Global Wind Energy Index.

Over the last year, the fund has gone up about 7.7% and has a dividend yield of 2.01%.

The Invesco WilderHill Clean Energy ETF (NYSE: PBW) follows the performance of the WilderHill Clean Energy Index. Over the last year, its shareholders were rewarded with a 39.9% return. It also has a dividend yield of 1.19%.

Finally, I like the Invesco Solar ETF (NYSE: TAN). It hands investors returns equal to the investment results of the MAC Global Solar Energy Index.

Last year, its shares handed investors a 28.4% return. And it has a small 0.24% dividend yield.

All three funds have at least 90% of their total assets in their underlying indexes. So I think we’ll see excellent performances from these funds over the next decade.

Good investing,

Dave