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A (Photovoltaic) Silver Bull in China

Stocks in this article: GLD SLV

The largest end user of solar panels in 2012 was Germany, but that's changing. In fact, a number of major European governments have reduced subsidies for solar panel installations, pushing photovoltaic silver demand down 12%. This was the first time that demand from the sector has declined since 2000.

But the future of PV demand doesn't rely on Europe; more important are the emerging giants in the East. In addition to China, India plans to increase its solar output to 20 GW by 2020, starting essentially from scratch. On a worldwide basis, solar-power generating capacity is projected to be 20 to 40 times the amount of current capacity, by 2020.

Catching Sun Rays in China

China is a principal solar-panel manufacturer and exporter, supplying 53.6% of global silver PV demand in 2012. While this demand declined 14.2% last year due to fewer solar panel installations in Europe and oversupply from excess production, the future for Chinese photovoltaic demand looks anything but bleak.

Again, according to the rules released by the State Council, China should add an average 10 GW of capacity from 2013 through 2015 -- that's a pretty solid basis for expecting growth in the sector.

A potential glitch is the European Union recently slapping an 11.8% duty on Chinese exporters of solar panels, after accusing them of selling products below cost. This issue appears to have just been resolved, but Chinese authorities have also said they will offer tax breaks to solar companies that expand and reorganize their operations, as well as urge banks to lend to the producers. Many in China hope that this will re-energize its solar industry and effectively reduce its dependence on the need for exports.

What It Means for Investors

It's estimated that more than 50 million ounces of silver will be devoted to just the solar industry this year. China's proposed boost from 7 GW to 35 GW in capacity would translate into a global increase of 27%, from 102.2 GW last year to 130.2 GW in 2015. Meanwhile, Japan is expected to overtake Germany as the world's largest solar energy user. An estimated 5.3 GW of generation capacity -- the equivalent of five nuclear reactors -- will be added this year, according to a report from HIS, a U.S.-based research firm.

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