Here’s How Solar Energy Could Impact Silver Prices

by Trefis Team
+26.72%
Upside
21.49
Market
27.23
Trefis
WPM
Wheaton Precious Metals
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Silver did not display a phenomenal performance in 2017 in comparison to most of the other commodities such as gold, copper,  and aluminum. The precious metal gained only about 4% in value throughout 2017. However, with the growing importance of renewable sources of energy globally, we expect solar energy to play a significant role in increasing the demand for silver in the upcoming years.

Silver is used in a form of a paste in the front and back of crystalline solar cells to use it as a conductor of electricity when sunlight beams on the silicon cell. Traditionally, a solar cell would use a thick layer of silver which contributed to a significant proportion of the cost of solar energy as silver prices spiked towards $50/oz between 2008-2011. This led solar energy producers to considerably reduce the use of silver in solar cells. These producers are limiting the use of silver in the production of solar cells by 5%-6% each year mainly by thinning the layer of silver coated on the cells. For instance, a typical solar cell used up to 0.30 grams of silver until 2010 to generate 4 watts of electricity and the same cell in 2014 uses merely .17 grams of silver to produce the same amount of electricity. Solar power producers have also used copper to replace silver in the production of solar cells which significantly led to a fall in demand for silver and hence affected silver prices.

However, going forward, we expect the increase in demand for solar energy to play a pivotal role in shaping the price of silver. Silver demand from solar energy constituted close to 8% of the global silver supply in 2016 and has shown a gradually increasing trend over the years. Even though the quantity used in each cell is being reduced, the growth in the demand for solar energy itself has created a huge potential market for silver in the upcoming years. The International Energy Agency (IEA) expects renewable energy to constitute 40% of total power generation by 2040 and solar will become the largest source of this low-carbon capacity. Most of the replacement would be driven by the structural change initiated in China which is currently in a fight against its alarming levels of pollution.

Additionally, the substitution of silver with copper would remain insignificant, currently, as the low silver prices would remain attractive to producers. Thus the rollout of renewable energy would continue to remain beneficial for silver in the upcoming years. We do not expect silver to display an immediate rally in its prices, however, the precious metal is expected to display a gradual rise in its value as the gap between its demand and supply tightens. This would remain favorable for silver miners around the globe.

We have a $19 price estimate for the company which is currently below the market price.

Have more questions about Wheaton Precious Metals? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking and encourages readers to comment and ask questions in the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Wheaton Precious Metals

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