China's Thirst for Solar Power: Massive Renewable Energy Investments and What It Means for Silver

 

Energy is critical to our modern world and quality of life, and is a key component that underpins the economic development of a country. Currently, about 80% of global energy consumption is derived from fossil fuels.

The problem? Conventional fuels like oil, coal and gas are finite resources – and burning them for energy causes adverse effects to our environment.

In China, almost 90% of energy demand is met with fossil fuels, considered the primary cause of rampant air pollution that has seen major cities like Beijing and Shanghai suffocated by smog in recent years.

In light of this, the government has decided to put a major focus on clean, alternative energy from wind, hydro, nuclear and solar.

Last year, China's National Energy Administration set its first mandatory target to reduce coal energy consumption, and aims to have clean energy supply 20% of the country's total energy needs by 2030. (NEA)

To that end, they announced an investment plan of 2.5 trillion yuan ($367 billion) in renewable power generation by the end of 2020. This investment is estimated to add 13 million new jobs to their domestic economy.

 
Renewable capacity growth – 2017 IEA.png
 

In less than a decade, China has become the world’s largest producer of renewable energy -- and solar is a big reason why.

In 2015, China passed Germany in total installed solar capacity. Some of their largest solar facilities include:

  • Longyangxia Dam Solar Park
    The world's biggest solar farm is installed in Qinghai province. It has the capacity to generate 850MW of solar energy – enough to power about 200,000 households.

  • Ningxia Solar Power Station
    Currently under construction, a 2GW project with six million panels in Ningxia is expected to be brought online in the next few years.

  • Anhui Solar Farm
    A giant solar energy farm in the eastern province of Anhui, the installation (floating on a lake created by the flooding of a former coal mine) covers an area of 100 square miles and can provide power to 15,000 homes.

  • Datong Solar Power Station
    A 100MW solar power plant that grabbed international headlines for being installed in the shape of a panda bear.

The world’s largest solar panel manufacturers are also in China, adding to the country’s domestic competitive advantage. China is also a major exporter of solar panels, supplying about two-thirds of the world's demand in total.

Other countries including Germany, Italy, the UK and India are also investing heavily in solar energy, and in 2016 the biggest additions came from China, the US and Japan.

 
Solar PV Capacity and Additions 2016.png
 

After adding another 76 GW in solar capacity in 2016, global installed power increased to 303 GW – and the IEA estimates we reached 400 GW in total capacity in 2017 (enough to power over 65 million homes). Again, China is a big part of this growth as the country’s National Development and Reform Commission (NDRC) has been overseeing an increase in solar capacity from 43.18 GW to 110 GW by 2020.

As the world continues to install more solar panels, the demand for a key ingredient – silver – should continue to rise.

Silver has the best electrical conductivity of any metal, and is used in paste form to act as a conductor on the front and back of solar cells.

Even though the amount of silver used in a typical photovoltaic cell has decreased over the years (especially when the price of silver spiked to US$35/ounce), solar panel manufacturers continue to use silver – and demand for silver from the solar industry is estimated to have increased by 20% in 2017.

With few primary silver mines under development after a down cycle and years of underinvestment, silver may be headed for a supply crunch.