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Case study of a growth driver silver use

in solar
Since the beginning of the commodity downturn in 2011-2012, I have been vocal on the need to
analyse each metal or mineral individually as they arent all created equal. You run the risk of
throwing out the baby with the bath water and missing investment opportunities.
The same argument holds true when you look at individual demand components for a given metal or
mineral. With that in mind, recent research Ive done on the solar photovoltaic manufacturing
industry has shed light on some astounding growth rates for one metal in particular: silver.

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Silver is key material in crystalline silicon PV cells. Image: Wikimedia Commons.

Solar backgrounder
Globally installed PV capacity currently rests at 139GW as of the end of 2013 with another
44.5GW to be added in 2014. This is almost a 21% increase year on year and equals the output of
10 nuclear reactors, according to Bloomberg. The chart in Figure 1 from the European Photovoltaic
Industry Association shows the dramatic rise in PV capacity.

Figure 1: PV capacity has seen a huge surge in recent years. Source: EPIA.

Not surprisingly, Asia leads the charge to install PV capacity. Large populations demanding a higher
quality of life against the backdrop of demands for a cleaner environment is a powerful force for
growth. Many readers of this blog will be well acquainted with the growth rates in solar adoption, so
I wont detail them here. China and Japan are the clear leaders with India far behind, but showing a
great deal of promise.
As with almost anything else in life, economics matters and herein is the real reason for the
increasing adoption of solar as a source of electricity for industries, commercial enterprises, and
consumers.
Our main investing thesis centers on the need for cheap energy to serve as the backbone to a
growing middle class. Though solar power is not the cheapest form of electricity available and
renewables have their challenges, this form of electricity generation is continuing to become cost
competitive with fossil fuels (see Figure 2).

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Figure 2: PV's cost per watt has fallen dramatically. Source: BNEF, pv.energytrend.com

As more consumers realise this and industry realises there is tremendous corporate goodwill and
social capital to be gained from diversifying energy sources, the argument for increased solar
power in the global energy mix only gets stronger.
Financial market participants would appear to agree with the positive outlook for solar power given
the performance of the Guggenheim Solar ETF (TAN: NYSE), up over 52% over the past year
(Figure 3).

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Figure 3: Solar is proving a popular investment choice. Source Guggenheim Solar ETF.

Silver and solar: directly correlated

The growth rates mentioned above are contingent on a number of factors, but access to affordable
raw materials is one of them. Silver is a crucial component of solar panels and is used as a paste
in the manufacturing process. Each crystalline silicon solar panel produced (about 85% of the
market) uses the equivalent of 20 grams of silver per panel.
According to the Silver Institute, roughly 80 tonnes of silver (2,821,920 ounces) are needed to
generate one gigawatt of electricity from solar.
This may or may not seem like much, but in 2000, only 1 million ounces of silver were used in PV
fabrication and by 2008 this had increased to 19 million and then increased again to 64.5 million
ounces in 2013. By 2015, the market for silver use in PV fabrication is forecast to be 100 million
ounces roughly 10% of total silver demand. This growth rate will be sustained as long as the
overall cost of solar generated electricity becomes increasingly competitive with fossil fuel-based
sources.
To be fair, there are threats to this thesis of supernormal growth in solar including consolidation of
panel producers, removal of subsidies and dramatically higher silver prices which encourage
recycling or substitution.
This last point, higher silver prices, could perhaps be the real impediment to the continued explosive
growth of PV adoption. With silver as a crucial component of solar panel production, the metals
price at US$20 per ounce is much more rational economically than silver at US$50 per ounce.
Silvers role as a monetary metal, in addition to an industrial metal, can be both a blessing and a
curse depending upon your specific view.
Those worried about inflationary pressures in the global economy and looking to hedge against
inflation would be more amenable to higher silver prices as precious metals theoretically retain their
value and serve as a means to retain purchasing power. Dramatically higher sustained silver prices
could kill the goose that has laid the golden egg, which has made solar such an increasingly popular
source of electricity.
Extensive R&D into increasing solar cell efficiency is being undertaken by a host of participants
along the PV value chain and any sort of breakthrough which can lower the overall cost of panels
would offer some breathing room should raw materials prices such as silver rise dramatically,
although it is important to remember that it takes time for breakthroughs in laboratories to become
commercial realities.
The silver market was in a supply deficit of 113 million ounces last year according to The Silver
Institute, its widest deficit since 2008. Countries like China, which used to export roughly 100
million ounces of silver per year, have quickly reversed course and now are net importers of silver
to the tune of approximately 100 million ounces per year. While I cant explain the fall in the price of
silver in the wake of consistent supply deficits, it is clear after reviewing the figures above that both
the PV industry and silver offer compelling opportunities all along their respective value chains at
both current and higher prices.
If you believe in a future where renewable sources of energy such as solar become more
ubiquitous, silver stands to benefit disproportionately set against the backdrop of a slowly improving
global economy looking for a diversified mix of energy sources.

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