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A (Photovoltaic) Silver Bull in China

By Jeff Clark, Senior Precious Metals Analyst, Casey

NEW YORK ( TheStreet) -- Early this month, big news came out of China. It may have gone unnoticed by some investors -- and there's really no reason why it would have been covered extensively by mainstream media -- but it's important, if you're a silver investor. China raised its target for solar-generating capacity to more than 35 gigawatts (GW) by 2015, a stunning increase of 67% above the previous target.

China's State Council announced, on July 4, that installed capacity for solar electricity would grow about 10 GW per year, until it reaches the newly set target. The country's previous target was 21 GW; installed capacity in 2012 was about 7 GW, so this would translate into a 400% increase. Moreover, if one looks at the rate at which it keeps raising the target, we may well see even more solar capacity by 2015 -- and quite possibly two times that by 2020.

What does this mean to us as precious metal investors? A simple answer would be that growing demand could crimp supply and push on prices. But let's take a deeper look to see if that's the case.

Inner Workings of the Solar Industry

The backbone of the solar industry is photovoltaic (PV) technology, which is used to generate electrical power by converting solar radiation into direct-current electricity through the use of semiconductors. As you probably know, a typical photovoltaic solar panel uses a fair amount of silver -- roughly two-thirds of an ounce (20 grams), or about the same amount as 80 cellphones or 20 laptops. So a substantial amount of metal goes toward producing these technological wonders.

The photovoltaic industry didn't even start to show up on silver-demand charts until the year 2000, when it consumed roughly 1 million ounces of the metal. This was a miniscule slice of the demand pie, and it's fair to say that few investors saw this tiny use for silver becoming an important driver anytime soon.

But that had changed by 2008, when the solar industry consumed nearly 19 million ounces of silver. Since 2000, the amount of silver used by solar-panel makers has risen by an average of nearly 50% per year, with demand exceeding 47 million ounces in 2012. PV consumption now represents 5.6% of all industrial use of silver.
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