While many industries struggle to generate robust growth in a still-slow global economy, the solar power industry has become a juggernaut. Utilities, businesses and consumers deployed a combined 48.5 gigawatts of solar panel in 2014, up 20 percent from a year ago.

The quickening adoption for solar can be explained by one simple statistic: The total system cost of a solar installation is dropping at a 10 percent annual pace, according to JP Morgan analyst Paul Coster. In a recent report to clients, he noted falling costs have placed “rooftop solar firmly in-the-money versus retail electricity rates in many locations today, and puts utility-scale solar on track for grid parity well before 2020, and that is without the benefit of subsidy.”

But now that oil prices have fallen sharply, can solar still remain competitive? Judging by industry stock prices, the answer is no. Almost every solar stock has plunged 25 percent or more in recent months, as investors assume cheap oil undercuts the logic for clean energy. In that vein, both pure play solar ETFs on the market––the Guggenheim Solar ETF (TAN) and the Market Vectors Solar Energy ETF (KWT)––are down roughly one-third from their respective 52-week highs.

Yet the sell-off seems unwarranted. In a note to clients earlier this month, Deutsche Bank’s Vishal Shah noted that solar fundamentals are driven mostly by government policies and added he sees “almost no impact on near term demand environment as a result of recent oil price volatility.” 

Bill Belden, managing director for Guggenheim Investments, says solar stocks often sell-off whenever oil prices pull back. “It’s a knee-jerk reaction that gets sorted out over time.”

Equating oil prices and solar demand is actually based on a faulty premise. As Lyndon Rive, CEO of SolarCity told CNBC in early December, “Oil has almost no effect on the cost of electricity in the U.S. In the U.S., almost no oil is used to create electricity.”

Still Falling

Comparing the contemporary cost of fossil fuel-based power to solar power ignores the fact that solar power system prices will keep on falling. Analysts at Canaccord Genuity believe the average selling price for a residential photovoltaic system will drop from $4.00 per watt in 2015 to $2.23 per watt by 2020. By then, commercial/industrial systems are forecasted to fall in price to just $1.67 per watt (from a current $3 per watt).

Utility-scale solar systems will cost just $1.11 per watt by 2020, according to these analysts (from a current $2.00 a watt). The gains are coming from improving manufacturing processes and higher sunlight-to-electricity conversion ratios for each solar panel.

Those price drops are crucial to sustain demand, as current investment tax credits––currently fixed at 30 percent of a system cost––will drop to 10 percent in 2017. The recent Congressional elections virtually ensure that the current 30 percent rate won’t be extended, as some had hoped. That factor is another source of recent selling pressure for solar stocks. Still, even without any tax subsidies, solar power is expected to be less expensive than fossil-fuel powered electricity in 34 states by 2020, according to Canaccord’s analysts.

“Longer-term, a lesser reliance on tax credits is a good thing,” says Angelo Zino, senior equity analyst at S&P Capital IQ. “It will help investors see that the industry has solid economics on a standalone basis.”

Guggenheim’s Belden concurs. “There’s an increasing understanding that solar can stand on its own legs, and is no longer dependent on government subsidies.”

Strong Demand

Demand for solar is likely to keep strengthening as a result of factors both here and abroad. In the U.S., 36 states have some sort of renewable portfolio standards (RPS) which create mandates for alternative energy adoption. In California, for example, RPS mandates call for 33 percent of all power to be produced without fossil fuels by 2020. Many other states will require 15 to 25 percent of their power to be green.

In China, the industry’s largest market, epidemic pollution levels are leading government policy planners to steadily close coal-powered plants and replace them with solar––and wind––power.

Outside of the U.S., China and Japan (currently the three largest markets for new solar installations), demand has flattened, especially in Europe, which is in the process of eliminating industry subsidies. Still, in countries such as Italy and The Netherlands, solar installations continue apace despite the drawdown of subsidies.

The pullback for solar stocks in 2014 comes at an odd time, according to S&P Capital IQ’s Zino. He says many fast-growing solar equipment providers finally transitioned to profitability in 2014—a sure sign of industry maturity—and solar installers made great strides in utilizing very low interest rates to improve the economic returns of major projects.

Belden cites another sign of industry maturation. “The Chinese market place is getting cleaner, weaker players have shaken out,” he says. Just a few years ago, the industry was dogged by too much funding which created excess production capacity that impeded profit margins at all of the major firms.

For investors wanting to invest in solar through ETFs, the two pure play options offer slightly different options. The Market Vectors Solar Energy ETF tracks the Market Vectors Global Solar Energy Index and as of last month comprised 32 holdings. The largest country weights were China (38.7 percent), the U.S. (33.4 percent) and Taiwan (14.6 percent). 

The fund began trading in April 2008, and has attracted just $20 million in assets and is lightly traded (its average daily volume during the past 10 days was only 1,200 shares, according to Scottrade). The fund’s net expense ratio is 66 basis points.

The significantly larger The Guggenheim Solar ETF also began trading in April 2008, but has amassed $296 million in assets and is much more liquid with average daily volume of more than 179,000 shares during the past 10 days.

The fund tracks the MAC Global Solar Energy Index, and as of the end of the third quarter it had 29 securities and its top geographic weightings were the U.S. (47.3 percent), China (21.4 percent) and Hong Kong (19.4 percent). Its net expense ratio is 71 basis points.

The pullback in solar stocks—and the solar ETFs—comes at a time when industry conditions are booming. That disconnect, due in large part due to a misperception about the impact of falling oil prices, creates a great entry point for investors focused on this industry’s long-term trajectory.