Among the many factors that contribute to a bullish outlook for silver is the growth in solar energy technology. Solar solutions are being adopted more and more readily around the world—and one of the primary ingredients in photovoltaic (PV) cells is silver.
Unfortunately, there are still enormous hurdles for solar energy firms to overcome if their current business models are going to survive. These challenges loom especially large in Chile but have manifested in various ways in the United States, as well.
Lease or Loan Solar Energy?
In the U.S., various solar projects got off to an auspicious start. Thanks to generous tax credits, companies like SolarCity (SCTY) and the now-bankrupt SunEdison (SUNEQ) were glad to install rooftop solar panels in residential areas at very little cost to consumers. Essentially, they would lease the solar cells to customers and recoup incremental payments over the course of about 20 years.
This system seemed to work perfectly, especially out in the sunny western states. Citizens significantly cut their electric bills by supplementing their consumption of energy with the solar power being captured from their roofs. In fact, in most cases, these solar customers were even storing surplus electricity from their solar panels that they were then able to sell back to the energy grid!
However, these plans suffered a huge setback over the past nine months or so when major utility companies began lobbying county commissions to make two major changes that directly hampered the profitability of the solar companies. First, they tried to undercut the subsidies solar power providers were receiving, making installation a far more capital-intensive endeavor. Secondly (and arguably more damaging), they lobbied these local authorities to drastically lower the rate they paid back to solar customers for selling their excess electricity back to the grid.
Some have suggested that these firms should instead offer loan products, where customers borrow money to purchase their solar panels outright. SolarCity and its rivals (like Vivint Solar and Sunrun) have indeed begun to sell such solar loans. The logic is that this arrangement is less complicated for consumers while providing upfront cash flows for the companies.
Unfortunately, there is no simple fix when it comes to finding a more effective business model for these firms. The loan model (as opposed to leases) sacrifices future returns and a steady income stream for immediate revenues. Considering that solar energy is an idea geared toward the future, these companies are unlikely to abandon future growth and getting full value for their products and services. Consequently, a difficult and uncertain road lies ahead for the industry.
Giving Away Electricity
One trend that is in favor of solar energy's growth as a viable technology is the huge orders being placed by India and China for PV cells over the next four years or so. As these emerging economic powers turn toward renewable energy sources, the demand for solar power (and therefore silver) is expected to rise dramatically.
These aren't the only international sources of solar demand. Chile has aggressively expanded its solar energy capacity so much that there's literally too much of it: spot prices for electricity have repeatedly fallen to zero in Chile due in part to the prevalence of solar power. Bloomberg notes that this is similarly challenging the business models of these energy companies: "While that may be good for consumers, it’s bad news for companies that own power plants struggling to generate revenue and developers seeking financing for new facilities."
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.