Is silver the next energy play? It seems like a strange idea, but then again a decade ago the thought that corn would be considered an energy commodity would also have seemed off. Much like with corn, the race to develop alternative sources of energy is making strange bedfellows of seemingly unrelated commodities and the energy sector. In the case of silver, it is the construction of photovoltaic solar panels that is the culprit. While silver is often viewed as a precious metal, unlike gold a significant portion of demand comes from the industrial and fabrication sector. Until recently, when digital technology displaced old fashioned film, video and photography was a major user of silver. As the demand from Kodak and Fujifilm has waned, solar panel makers have soaked up the excess supply. Last year as much as 11 percent of the total global supply of silver went into solar panels.
It takes roughly 0.1 gram of silver for each watt of generating capacity. The metal is used in a paste as the front-side contact material. With estimated total supply of silver reaching 1.06 billion ounces last year, that means more that 100 million ounces of the metal went into solar power capacity generation. There is plenty more room to grow as well. The Solar Energy Industries Association in the U.S. (SEIA) says that solar represents less than 1 percent of domestic power supplies, but is growing fast. Last year about 1 gigawatt of capacity was added, but their goal is to see 10 gigawatts added annually by 2015. That is just the United States; other countries like Germany are heavy users of solar energy.
The demand for silver may not last however, since the high price is squeezing margins and pushing producers to look for alternative technologies that do not use silver, or significantly reduce the amount of silver required. Thin-film solar technology could displace the traditional photovoltaic cells in some functions; they use cadmium-telluride rather than polysilicon, and no silver at all. Other companies like DuPont are developing new silver pastes with reduced silver content.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.