By Jeff Clark, Senior Precious Metals Analyst, CaseyNEW 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.
All this extra capacity could have a significant impact on the silver market. According to the Silver Institute, approximately 80 tons of silver are required to generate one GW of electricity. With 5.3 GW of new capacity in Japan in 2013 and 30 GW from China, a staggering 2,824 tons, or roughly 91 million ounces of silver, will be required over the next three years for just this industry. This amount is nearly two times current worldwide demand from the PV industry. Demand from China and Japan alone could consume up to 11% of global mine supply. And that's if the world continues to produce as much silver as it did last year, a questionable assumption, given currently lower silver prices and increasing difficulties getting mines permitted. The action to take is rather obvious: buy silver now.
Jeff would like to acknowledge the contributions of research assistant Laurynas Vegas to this report.