Silver Surge Makes ‘Headwind’ for Solar in Fossil Fuel Rivalry

Soaring silver prices are hampering the solar industry’s ability to compete with fossil fuels.

Panel makers consume about 11 percent of the world’s supply of silver, the metal in solar cells that conducts electricity. The metal has appreciated 74 percent to $35.30 a troy ounce on average so far this year from $20.24 for last year.

Prices for solar cells have dropped about 27 percent this year and would be even lower if each panel didn’t require about 20 grams of silver, according to Bloomberg New Energy Finance. That’s pushing back the date when companies such as Solarworld AG (SWV) and LDK Solar Co. can deliver solar power at prices that are competitive with traditional energy.

“Global silver prices have gone up a lot, and solar cells use silver paste as the front-side contact material,” Shawn Qu, chief executive of Canadian Solar Inc. (CSIQ), which is based in China, said in an interview. “The increase of the silver costs will give us a challenge in efforts to reduce solar cell costs.”

Prices for photovoltaic solar panels were $1.49 a watt in June, compared with about $1.80 in January, New Energy Finance estimates, as manufacturers especially in China raised production and incentives were trimmed in Europe.
‘Headwind’

“Some companies are implementing measures to reduce silver consumption, but we believe rising silver prices could still act as a headwind,” Barclays Capital wrote in a note to clients.

The price of the silver paste that Canadian Solar uses to print circuits on the front of its solar cells more than tripled in the past year, Qu said. That adds about 3 cents to 4 cents a watt, or 2 percent, to the cost of the panels.

The company’s gross margins narrowed to about 15 percent in the first quarter from 17 percent in the prior quarter as the price of cells fell faster than the cost of production, the company based in Suzhou New District, China, reported in May.

A typical solar cell uses 0.10 grams of silver for each watt of generating capacity. That amounts to about 20 grams in a 200-watt panel, adding $23.52 to the cost of each panel, according to New Energy Finance. The cost for metal in each panel totals about 11 cents a watt, up from 5 cents a year ago, the London-based industry researcher estimates.
Slim Margins

Solar companies “have already seen their margins being reduced to next to nothing,” Jenny Chase, manager of New Energy Finance’s solar analysis, said in a report. “At these prices, silver accounts for around half of cell makers’ processing costs,” the roughly 18 cents it takes to turn a blank silicon wafer into a completed cell.

The surge in silver prices is squeezing margins for most solar companies, according to research by Barclays Capital. Silver prices reached a record high at $48.44 an ounce on April 28, and if it returns to that level it will account for 13 percent to 15 percent of the cost of producing each panel, the report said.

The global silver supply reached 1.06 billion ounces in 2010, up almost 15 percent from 922.2 million ounces in 2009, according to the Washington-based trade group Silver Institute.

Including advance purchases of the metal, solar companies consumed almost 11 percent of total silver production, according to Prismark Partners, a New York-based technology research company.

Solar companies and their suppliers are looking for ways to reduce the amount of silver used in cells. Canadian Solar’s Qu said his company is tweaking its manufacturing process to use thinner wiring on the front of solar cells.
Thin-Film Advantage

High silver prices may provide a competitive advantage to companies that make thin-film solar products such as First Solar Inc. (FSLR) A spokesman for Tempe, Arizona-based First Solar said the company’s cells are made with cadmium-telluride rather than the polysilicon used in typical photovoltaic cells, and do not use any silver.

The standard, 156-millimeter photovoltaic cell has about 280 milligrams of silver on the front, and a slight amount on the backside as well, said Walt Cheng, global business director for DuPont Microcircuit Materials, the unit of DuPont Co. that produces the silver metalization paste used to make the wiring.

The price of silver makes up 70 percent to 90 percent of the cost of DuPont’s paste, and the company passes on to customers fluctuations in the metal’s value. DuPont expects to introduce this year a version of its Solamet paste that reduces silver content by about 10 percent, and may eventually reach 20 percent.

“We are accelerating R&D to reduce silver content and investigate how we can effectively transfer technology internally from DuPont’s products in the automotive and display industries into photovoltaics,” Cheng said.

Smaller panel makers may have the most to lose from high silver costs.

“Solar manufacturers that are large-scale and have high- end tech can manage rising prices pretty well,” Cheng said. “Customers that are second and third tier have a harder time with higher silver prices. The strong module makers will get stronger.”