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Last week, Australia, France, India, the US and the UK announced the launch of the “One Sun, One World, On-Grid” initiative. The plan is to connect solar energy grids across borders. This could provide a big boost to silver demand.
India first floated the idea of connecting solar energy grids during the International Solar Alliance in 2018. The plan would help ease reliability problems in solar energy production. Solar plants do not produce power at night, and cloudy days limit electricity generation. According to the Indian Express, a transnational grid would allow countries to source solar power from regions where it is daytime to meet their energy needs even when their own solar capacity is not generating power.
The plan would also help address the issue of the high cost of energy storage.
Analysts at Heraeus said the push to increase solar energy capacity is bullish for silver.
“With solar PV energy identified as a critical technology in meeting long-term goals to curb global warming, there is considerable upside for the silver market over the next decade,” the analysts said.
Solar energy currently generates about 11% of silver’s industrial demand. Last year, the industry consumed 101 million ounces of silver. Heraeus analysts said solar power generation is expected to set new records through this year and next, and silver demand will increase to about 140 million ounces in 2022.
Solar power generation is expected to nearly double by 2025 according to a report released in 2020 by the Silver Institute.
Silver is the second-most expensive component of solar panels. As a result, manufacturers try to limit the amount of silver they use, a process known as thrifting. But Heraeus analysts say there is a limit to thrifting.
“While thrifting is expected to continue reducing the silver content of solar cells while prices are high, there is a limit to how much can be removed before efficiency losses outweigh cost benefits.”
Silver possesses the lowest electrical resistance among all metals at standard temperatures. According to a Saxo Bank report last year, “Potential substitute metals cannot match silver in terms of energy output per solar panel.”
Further, due to technical hurdles, non-silver PVs tend to be less reliable and have shorter lifespans, presenting serious issues for their widespread commercial development.”
With billions of government money pouring into renewable energy, the solar industry is somewhat shielded from economic downturns. Even if the economy goes south, governments will likely continue to fund solar projects.
On the supply side, silver mine output was hit hard by the pandemic, falling 5.9% to 784.4 million ounces. While the big drop was primarily due to mine shutdowns during the pandemic, it was the fourth straight year of declining silver production.
Looking at the bigger picture, at its core, silver is a monetary metal and it tends to track with gold over time. The silver-gold ratio of over 75-to-1 tells us the white metal is still significantly undervalued compared to gold. History tells us silver will eventually close the gap, meaning either gold will drop or silver will rise. Given current economic dynamics, continued loose monetary policy and inflationary pressures, it seems likely both metals will rise in the long term with silver getting a boost from increased industrial demand.
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