Solar Power Industry Still a Key Source of Demand for Silver

It’s been awhile since silver’s role in the solar power industry was last discussed on Silver Investing News — a year, to be exact. However, that doesn’t mean the sector is no longer a source of demand for the white metal. Quite the contrary, in fact. 

As the Silver Institute recently reported, investor and industrial silver demand have “advanced at a healthy pace in 2014.” From an industrial standpoint, that’s partially because with renewable energy becoming more common, solar module production is on the rise. Indeed, the organization notes that precious metals consultancy Metals Focus sees silver demand in photovoltaics rising by nearly 10 percent this year.

Looking further into the future, the solar sector will require even more silver. A Platts article published last month quotes UBS (NYSE:UBS) analyst Edel Tully as saying that her firm “estimates demand of 45 GW of new installed solar capacity this year, which reflects a 22% increase on year, growing to 84 GW in 2018.”

A rocky past

That’s pretty impressive, especially given that silver demand from the solar industry has not always been so strong. As Tully explains, while expectations of strong demand for silver from the solar industry “created much excitement among silver market participants” a few years ago, silver’s move to $50 per ounce put a damper on demand from that arena.

Tully states, “the sharp rise in silver prices encouraged industrial users to start thrifting silver content — this was particularly evident in solar cells, as they struggled to keep costs down. [Also] silver’s extremely violent price action, particularly in H1 2011, hurt many investors and discouraged participation in the market.”

The turnaround

As mentioned, the opposite is now proving true. But how did that happen?

According to Tully, the credit goes to silver’s low price  — the white metal has hovered around the $20 mark for much of this year, and as a result solar industry participants are turning away from recycled silver.

In terms of which countries are snapping up the most silver for solar power, Tully pointed to the United States, China, India and South America, but didn’t explain why they’re at the forefront. Luckily, that topic is addressed in a recent article by Chris Berry, president of House Mountain Partners and co-editor of the Disruptive Discoveries Journal.

Berry explains that Asia is “lead[ing] the charge to install [solar photovoltaic] capacity,” largely because people there are “demanding a higher quality of life against the backdrop of a cleaner environment.” Continuing, he states, “China has over 18 GW installed and plans to increase this to 30 GW by 2015. Japan has announced plans to install over 5 GW. India, arguably the single market with the greatest upside for solar power, only has 2.2 MW of PV capacity installed with plans to increase this to 20,000 MW by 2022.”

Not so fast?

As Tully’s comments reveal, there’s a limit to how much the solar power industry is willing to pay for mined silver. That, of course, means that if prices for the white metal creep up again, the sector may return to sourcing recycled silver. Similarly, Berry points out that “consolidation of panel producers [and] removal of subsidies” are other “threats to this thesis of super normal growth in solar.”

Nevertheless, both seem fairly optimistic about silver’s prospects from the solar sector moving forward. Investors who feel the same might do well to consider stocking up on the white metal.

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 

Related reading: 

New Solar Power Initiatives May Boost Silver Prices

Solar Photovoltaics Market Growth Tied to Future Silver Prices