The Solar Silver ThrustJeff Clark Photovoltaic technology is relatively young, but each year its use is growing rapidly. Just since 2000, the amount of silver consumed by solar-panel makers has risen an average of 50% per year. Demand grew from one million ounces in 2002 to 60 million ounces in 2011. Last year demand from the PV industry represented almost 11% of total industrial demand for the metal (excluding jewelry). Japan Gives New Life to PV Industry After the Fukushima disaster, Japanese authorities wanted to cut the nations dependence on nuclear energy. Approximately 30% of Japans power was generated by nuclear before the catastrophe; now the focus has shifted to other green energy alternatives, including solar. The new tariffs might work. The suggested rate of 42 JPY ($0.53) per kilowatt hour (expected to be maintained for 20 years) is more than twice the rate in Germany (0.17 or $0.246).Bloomberg estimates that this generous increase will create $9.6 billion investments in Japan alone. Heres what that amount of money would do to the sector: There were approximately1.3 gigawatts of solar capacity installed in 2011, but experts anticipate that number to nearly double to 2.3-2.5GW for 2012, and hit 3.0GW in 2013. According to SolarBuzz, Japan could see 28GW of solar capacity installed by 2020 and 50GW by 2030. Thats a lot of solar panels, and even assuming improved efficiency itll take a lot of silver. Price Factors During recent years, solar panels have become significantly less expensive and more end-user friendly. However, the fact that each panel contains a lot of silver can make it susceptible to large price fluctuations. If the silver price gets too high, manufacturers might seek alternatives, of course, but they cant easily eliminate use of the metal. And if the product gets too expensive, demand could fall. Companies are already looking for ways to reduce the amount of silver used in PV panels or to replace it with another element. At the moment there are two main solar panel technologies on the market. The traditional one is thick film, where silver is the main component. The other one is a less-expensive thin-film method which replaces silver with another material, cadmium telluride. The development of thin-film solar panels has picked up due to its lower price, but the technology is less effective. Thick film is more efficient in gathering energy from the sun, and this type of panel still prevails on the market. CPM reports that it accounted for roughly 91% of total installations last year, and analysts expect thick-film panels to maintain their dominance for at least the next several years. Further, both panel types use silver outside of the cell for reflectivity and other functions, so the odds of silver being eliminated from solar panels entirely are very low at this time. For investors, this means that at least in the near term, the solar industry will continue to use silver-intensive technology, thus supporting growing industrial demand for the metal. But thats not all, folks New Era for Silver Usage For a long time, silver industrial demand was dependent almost entirely on one industry: photography. Silver-based camera film dramatically changed the structure of silver demand at the beginning of the 20th century. By that time, silver had primarily been used in silverware, jewelry, and as money. At its peak, photographic demand accounted for about 50% of the market. But this is the 21st century, and in spite of substantial declines in film use, the modern world has developed many other important uses from silvers unique properties. Probably the most important shift is that industrial demand for silver no longer comes from a single field, but from numerous applications almost too many to count virtually none of which show any signs of slowing. This fact makes the forecast for silver demand more positive and stable; when one industry drops, others may offset the decline. Heres a smattering of uses, many of which are still in their infancy: Though the total contribution from these new silver uses is relatively modest, the Silver Institute rather dryly forecasts that there is a potential for a number of these segments to boost their silver consumption. As you can see in the chart below, its forecast for silver demand for new industrial uses projects that the biggest increases will be in batteries, SSL, and RFID. Based on their research, the Silver Institute forecasts that industrial usage will rise to 665.9 million troy ounces by 2015 and account for more than 60% of total fabrication demand. Since half of silver demand is for industrial purposes, it can act like an industrial metal in addition to its precious metal component. This means its susceptible to more forces than gold, making it more volatile as well as more difficult to predict its future price. Conclusions: For investors, the thing to keep in mind is that while long-term prospects for silver prices are extremely bullish, to the degree prices are driven by this increased industrial demand, they are vulnerable to economic correction/contraction in the short term. Invest accordingly. With all it has going for it, silver offers investors some of todays best profit opportunities. But buying bullion isnt the best way to play silvers resurgence. Heres a far better strategy 