Solar Energy Powers Silver Demand To Record High - Hedge Fund Alpha (formerly ValueWalk Premium)

Solar Energy Powers Silver Demand To Record High

Solar Energy Powers Record Silver Demand by Frank Holmes

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

Back in the olden days, before the advent of digital cameras, photographers used a curious thing called film. Surely you remember having to feed a roll of the stuff into your analog camera. Then you’d take the roll to your local drug store and wait a week for it to be developed, only to discover that you had the lens cap on during the entirety of Cousin Ted’s birthday party.

What some people don’t know about film is that it’s coated with a thin layer of silver chloride, silver bromide or silver iodide. Not only is silver essential for the production of film but it was also once necessary for the viewing of motion pictures. Movie screens were covered in paint embedded with the reflective white metal, which is how the term “silver screen” came to be.

Since 1999, photography has increasingly gone digital, and as a result, silver demand in the film industry has contracted about 70 percent. But there to pick up the slack in volume is a technology that also requires silver: photovoltaic (PV) installation, otherwise known as solar energy.

For the first time, in fact, silver demand in the fabrication of solar panels is set to outpace photography, if it hasn’t already done so.

Solar Energy Silver
click to enlarge

Every solar panel contains between 15 and 20 grams of silver. At today’s prices, that’s about $20 per panel. When silver was hanging out in the mid-$30s range a couple of years ago, it was double that.

Other industrial uses of silver can be found in cell phones, computers, automobiles and water-purification systems. Because the metal also has remarkable antibacterial properties, it’s used in the manufacturing of surgical instruments, stethoscopes and other health care tools. Explore and discover more about the metal’s many industrial uses in our “Brief History of Silver Production and Application” slideshow.

Going Mainstream

Solar energy was once generally considered an overambitious pie-in-the-sky idea, incapable of competing with and prohibitively more expensive than conventional forms of energy. Today, that attitude is changing. Year-over-year, the price of residential PV installation declined 9 percent to settle at $2.73 per watt in the second quarter of this year. In some parts of the world, solar is near parity, watt-for-watt, to the cost of conventional electricity.

According to a new report from Environment America Research & Policy Center:

The United States has the potential to produce more than 100 times as much electricity from solar PV and concentrating solar power (CSP) installations as the nation consumes each year.

Additionally, president and CEO of solar panel-maker SunPower Tom Werner says solar could be a $5 trillion industry sometime within the next 20 years, calling it “one of the greatest ever opportunities in the history of markets.”

This investment opportunity will likely expand in light of the climate agreement that was recently reached between the U.S. and China. Back in April I discussed how China, in an effort to combat its worsening air pollution, is already a global leader in solar energy, accounting for 30 percent of the market.

Commenting on how government policy can strengthen investment in renewable energies, Ken Johnson, vice president of communications for the Solar Energy Industries Association (SEIA), notes: “If governments are smart and forward-looking and send ‘clear, credible and consistent’ signals as called for by the International Energy Agency (IEA)… solar could be the world’s largest source of electricity by 2050.”

These comments might seem hyperbolic, but as you can see in the chart below, installed capacity has been increasing rapidly every year. According to the SEIA, a new PV system was installed every 3.2 minutes during the first half of 2014.

Solar Energy Silver
click to enlarge

With PV installation on the rise, silver demand is ready for a major surge. About 80 metric tons of the metal are needed to generate one gigawatt, or 1 million kilowatts, of electricity—enough to power a little over 90 typical American homes annually. In 2016, close to a million and a half metric tons of silver are expected to be needed to meet solar demand in the United States alone.

Another clear indication of solar’s success and longevity is the rate at which employment in the industry is growing. Currently there are approximately 145,000 American men and women drawing a paycheck from solar energy, in positions ranging from physicists to electrical engineers to installers, repairers and technicians. Between 2012 and 2013, there was a growth rate of 20 percent in the number of solar workers, and between 2013 and 2014, the rate is around 16 percent. Nearly half of all solar companies that participated in a recent survey said they expected to add workers. Only 2 percent expected to lay workers off.
What this all means is that solar isn’t just for granola homeowners and small businesses. On the contrary, it has emerged as a viable source of energy that will increasingly play a crucial role in powering residences, businesses and factories. Already many Fortune 500 companies make significant use of the energy—including Walmart, Apple, Ford and IKEA—with many more planning to join them. This helps businesses save money over the long run and improve their valuation.

It’s also good news for silver demand.

Bullish on Bullion

Solar Energy Silver

Solar is only part of what’s driving demand right now. Since July, the metal has fallen close to 25 percent, attracting bargain-seeking investors.

“Commodities are depressed right now, but we’re seeing far fewer redemptions in silver ETFs than in gold ETFs,” says Ralph Aldis, portfolio manager of our Gold and Precious Metals Fund (USERX) and World Precious Minerals Fund (UNWPX).

Below you can see how silver ETF holdings continued to remain steady as gold ETFs lost assets earlier this year.

Solar Energy Silver
click to enlarge

Ralph attributes much of this action to solar energy: “Investors recognize silver’s importance in manufacturing solar cells, and it doesn’t hurt that silver is currently pretty inexpensive relative to gold.”

It’s also oversold, as the chart below shows.

Solar Energy Silver
click to enlarge

Last month about $1 billion was pulled out of New York’s SPDR Gold Shares, the world’s largest gold bullion-backed ETF, while holdings in silver-backed ETFs set a new record in September. Demand in India is booming, and sales of American Eagle silver coins rose last month to a two-year high of 5.8 million ounces, nearly doubling the sales volume from last October.

Solar Energy Silver
click to enlarge

A Note on Emerging Europe

As many of you might know, our Emerging Europe Fund (EUROX) began divesting out of Russia as early as December of last year, even before President Vladimir Putin started stirring up trouble in Ukraine, and was completely out by the end of July.

Our fund is all the better because of the decision to pull out. Between international sanctions and low oil prices, Russia’s economy has been wounded. Its central bank announced earlier this month that economic growth will likely stagnate in 2015, and the World Bank cited the ruble’s depreciation as a growing risk of stability.

Meanwhile, Greece, the third-largest weighting in the fund, has officially recovered after six years of recession. Its economy is finally in the black this year, expanding at an annual rate of 1.7 percent in the third quarter, its best performance since 2008. Next year the economy is expected to grow 2.9 percent. Greek auto sales are up 21.5 percent year-to-date.

Finally, be sure to read my story about two guys, one who invested in an S&P 500 Index fund, the other who chose a less dramatic path. Happy investing!

Index Summary

  • Major market indices finished higher this week.  The Dow Jones Industrial Average rose 0.99 percent. The S&P 500 Stock Index gained 1.16 percent, while the Nasdaq Composite advanced 0.52 percent. The Russell 2000 small capitalization index fell 0.12 percent this week.
  • The Hang Seng Composite fell 2.58 percent; Taiwan was up 1.21 percent and the KOSPI rose 1.01 percent.
  • The 10-year Treasury bond yield fell 52 basis points to 2.31 percent.

Domestic Equity Market

The S&P 500 Index was positive again this week, rising 1.16 percent, closing at an all-time high. The market has maintained its steady growth and recovery pace, spurred by global central bank actions and relatively positive sentiment.

Solar Energy Silver
click to enlarge


  • The materials sector performed the strongest this week, up 2.76 percent, with Mosaic and CF Industries both among the top performers in their sector, up 4.56 percent and 4.61 percent, respectively. Fertilizers were both up with the news of the Uralkali mine in Russia developing a 65-foot by 95-foot sinkhole, due to flooding from inflow water. This impediment will tighten global supply.
  • The energy sector was another top sector, up over 2.4 percent. Phillips 66 led the group, up 10.62 percent, followed by Baker Hughes, up 9.95 percent. Also included in the top performers were some of our local neighbors, Tesoro, up 7.82 percent, and Valero, up 1.64 percent. The top refiners are showing a continuation of strength in their sector as refiners come out of utilization.
  • The Macerich Company was the best performing stock in the S&P 500 this week, rising 13.50 percent. The company announced it had a new major shareholder, Simon Property Group, with 3.6 percent of the shares outstanding. Simon Property Group wanted to increase its position to above 5 percent as it believes that Macerich’s shopping centers could be an important addition to the company’s own market-leading portfolio of shopping malls.


  • The telecommunications sector was the worst performer this week, down 1.79 percent. Pulled down by large cap names

Comments (3)

  • Gabor Pap

    There is an inaccuracy: “About 80 metric tons of the metal are needed to generate one gigawatt, or 1 million kilowatts, of electricity—enough to power a little over 90 typical American homes annually.” A solar plant with the nameplate capacity of 1GW depending on its location produces 1300 Hours X 1 GW worth of energy annually which is enough to power 1300 X 90 homes (that is 117000). You see Watt is a unit for power and WattHour is a unit for energy.

    November 23, 2014 at 12:46 pm
  • Philip K. Glass

    The photovoltaic industry is shaving silver consumption faster than it is expanding total manufacturing. It is also facing fierce price competition. It won’t support robust silver demand under conditions of higher silver prices. In 2013 Thomson Reuters GFMS estimated that the PV industry consumed 1260 tonnes of silver. PV module production in 2013 was 39.8 gigawatts. Dividing the two numbers, silver consumption per gigawatt was only 32 tonnes, not 80. The higher figure is just a few years old but badly out of date.

    Silver demand by the PV industry last peaked in 2011. The Silver Institute is only predicting that silver demand for PV fabrication may reach a new peak “as soon as” 2016-2017. Every quarter there are small changes in silver alloy pastes and deposition methods to reduce silver consumption in PV manufacturing. Some of the most technologically advanced solar companies such as SunPower are substituting base metals for silver. Meyer-Burger recently introduced a fine grid cell contact system that keeps using silver but nonetheless decreases metal consumption by about 80% per cell. If silver prices recover to 2011 levels it is going to accelerate the thrifting of silver consumption.

    November 23, 2014 at 4:44 pm
  • Curtis

    Another inaccuracy. “Every solar panel contains between 15 and 20 grams of silver.” “In 2016, close to a million and a half metric tons of silver are expected to be needed to meet solar demand in the United States alone.” 1.5 million metric tons is 1,500,000,000,000 grams. 1,500,000,000,000 divided by 17.5 is 85,714,285,714 solar panels. Will the US install 85.7 billion solar panels in 2016, not even close. The numbers in this article are ridiculous!

    November 24, 2014 at 3:01 am


Saved Articles