The global appetite for solar panels is exacerbating the silver shortage

Technological changes in the production of solar panels are increasing demand for silver, a phenomenon that is deepening a shortage in the supply of the precious metal, while there is limited opportunity on the horizon to secure additional mining, reports "Bloomberg".

Silver, in paste form, is used for the conductive layer on the front and back of silicon solar cells. But the sector is already starting to produce more efficient variants of cells that use much more metal, and this will contribute to increasing the already growing consumption.

 Solar power still represents a relatively small portion of total silver demand, but it is growing. According to a report by The Silver Institute, it will account for 14% of consumption this year, up from about 5% in 2014. Much of that growth is coming from China, which is expected to install more solar panels this year than the United States.

Demand for silver from the solar industry is growing. Chart: Bloomberg

Solar energy is “a great example of how inelastic the demand for silver is. The solar industry has evolved to become much more efficient at using smaller amounts of silver, but that is already changing," says Gregor Gregersen, founder of Singapore-based dealer Silver Bullion.

 According to BloombergNEF, the standard passivated emitter and back contact cell will likely be surpassed in the next two to three years by passivated tunnel oxide contacts and heterojunction structures. While in the first case cells need about 10 milligrams of silver per watt, tunnel oxide cells need 13 milligrams and heterojunction cells 22 milligrams.

 At the same time, supply is starting to look limited. It was flat last year, although demand rose by almost a fifth, data from the Institute of Silver showed. This year, production is expected to grow by 2%, while industrial consumption is expected to grow by 4%.

 The problem for silver buyers is that it is not easy to increase supply at all, given how few mines there are to produce silver in the first place. About 80% of the metal's supply comes from lead, zinc, copper and gold mining projects, where silver is a byproduct.

And in an environment where mining companies are no longer willing to commit to major new projects, silver's tighter margins compared to other precious and industrial metals mean positive price signals are not enough to boost production. Even with newly approved projects, production may not begin for a decade at the earliest.

The demand for silver is growing faster than the supply. Chart: Bloomberg

As a result, the solar sector could deplete 85-98% of the world's silver reserves by 2050, according to a study by the University of New South Wales. The amount of silver used to produce a single cell will increase and may take about five to 10 years to return to current levels, estimates Brett Hallam, one of the study's authors.

However, Chinese solar companies are actively exploring the possibility of using cheaper alternatives, such as galvanized copper, although so far the results have been mixed. Technologies using cheaper metals are already advanced enough to be put into mass production soon after silver prices rise, said Zhong Baosheng, chairman of the world's largest solar panel maker Longi Green Energy Technology Co.

Silver is currently trading at around $22.70 per ounce. The price has fallen about 5% this year but remains well above the level it was at before the spike in 2020 as the pandemic boosted demand.

"Silver replacement will generate more interest when it's around $30 an ounce, not $22-23," said Philip Klapwijk, managing director of Hong Kong-based consultancy Precious Metals Insights Ltd and one of the report's authors. of the Silver Institute.

"There won't be a 'doomsday scenario' where we run out of silver, but 'the market will rebalance at a higher price,'" he believes.