Electrification Meets Elasticity: Solar Substitution is Redefining Silver’s Pricing Power

• Solar photovoltaic (PV) cost inflation has increased silver from less than 5% of solar cell costs historically to approximately 30%, accelerating substitution toward copper metallisation and cadmium telluride thin-film technologies.
• Industrial demand risk is rising despite structural supply deficits of 100 to 250 million ounces (Moz) since 2021, and inelastic by-product mine supply representing approximately 70% of total output.
• Silver’s 2025 price action was driven by macrofinancial, policy, and retail flows rather than ETF accumulation, increasing volatility, and weakening traditional institutional signals.
• Supply constraints and emerging demand from electric vehicles (EVs) and artificial intelligence (AI) infrastructure provide a potential price floor, but elasticity in solar introduces new cyclical sensitivity.
• Developers and producers with low operating costs, by-product credits, and critical-minerals exposure demonstrate relative resilience under shifting demand dynamics. 

Industrial Cost Pressures & Policy Liquidity Are Redefining Silver Price Signals

Solar photovoltaic (PV) manufacturing has been a primary driver of silver demand, with consumption rising from approximately 80 million ounces (Moz) in 2016 to an estimated 196 to 200 Moz today, or about 17% of global demand. Industrial uses now represent roughly 60% of total consumption, making input cost dynamics central to price formation. Silver paste costs per 450-watt module increased from $5.22 in early 2025 to $17.65, forcing Chinese manufacturers facing overcapacity and margin compression to accelerate cost optimization. With copper accounting for approximately 0.5% of silver's price, substitution is economically compelling, introducing price elasticity into solar demand and weakening the historical correlation between installation growth and silver consumption.

Silver’s 2025 rally of approximately 147%, from $29 per ounce to above $70 per ounce with a peak of $121.64 per ounce in January 2026, was driven by macrofinancial factors rather than industrial demand, as exchange-traded fund (ETF) holdings declined while retail flows from India and China increased. Tariff uncertainty shifted physical metal from London to New York, tightening liquidity; when tariffs were avoided, the structural bid faded, and prices corrected about 27% to around $77 per ounce following Kevin Warsh’s Federal Reserve nomination and United States dollar strength. J.P. Morgan projects an average price of about $81 per ounce in 2026, but weak ETF participation indicates fragile institutional support, increasing volatility and placing greater emphasis on all-in sustaining costs (AISC), by-product credits, and operational visibility for equity investors.

Demand Elasticity in Solar: The Copper Pivot & Technology Pathways

The shift away from silver-intensive solar cell metallisation is moving to manufacturing scale. Hybrid silver-copper pastes and cadmium telluride thin-film could deliver about $15 billion in annual savings at 500 gigawatt (GW) installation rates, but silver’s superior conductivity, copper oxidation risk, and processing complexity make full substitution unlikely, pointing instead to partial displacement. As a result, silver demand from solar is expected to plateau or decline even as installations grow, breaking the previously linear relationship between capacity additions and silver offtake. For investors, this introduces new demand uncertainty, as alternative growth segments such as electric vehicles (EVs), artificial intelligence (AI) infrastructure, and industrial electronics remain insufficient in scale to fully replace solar’s prior trajectory, making the demand profile more complex and less directionally certain.

Supply-Side Rigidity: Structural Deficits & By-Product Constraints

Global silver mine supply is approximately 800-850 Moz annually, but only about 30% comes from primary silver mines, with the remaining 70% produced as a by-product of copper, lead, zinc, and gold operations. This structure makes supply inelastic, as output is driven primarily by base metal economics rather than silver prices, limiting the market's ability to respond quickly to price signals. Since 2021, persistent deficits of 100 to 250 Moz per year have reduced above-ground inventories, while scrap supply from recycled jewelry and silverware provides only a limited and modestly price-elastic balancing mechanism.

As a result, demand shocks such as accelerated solar substitution are unlikely to produce proportional price declines, even as the demand outlook becomes more uncertain, because the supply floor is structural. For equity investors, this dynamic underscores the importance of cost resilience and revenue diversification, as operations with base metal by-product credits or co-product exposure are better positioned to maintain margins through volatility than single-metal producers.

Cost Curves, AISC Sensitivity, & Margin Compression Risk

Higher silver price volatility complicates AISC forecasting and margin stability, making AISC the key benchmark against spot pricing for producers. Operations without meaningful by-product credits face greater downside sensitivity during demand-driven corrections, while mining method changes can materially reposition assets on the cost curve. At the Galena Complex in Idaho, the shift from underhand cut-and-fill stoping to long-hole stoping lowers costs per tonne by about 60%, expanding margin resilience at lower prices, while shared infrastructure with the Crescent Mine reduces duplicated fixed costs and improves capital efficiency across the operation.

Americas Gold & Silver’s antimony joint venture (JV) with United States Antimony establishes an integrated domestic processing chain from mining through finished metal, with a new leaching facility adjacent to the Galena mill, enabling antimony recovery from concentrate and converting a previously discounted payable into a revenue credit that lowers AISC. This cost lever enhances margins without relying on higher silver prices and addresses a US defense supply gap.

As President and Chief Executive Officer of Americas Gold & Silver, Paul Andre Huet, outlines the operational and revenue growth priorities that underpin the company's silver-focused cost discipline:

"We've got a great silver district. We just bought Crescent Mine. We're going to have a bunch of drills turning. We're going to be very focused at generating a lot of free cash flow from our operations in both the US and Mexico."

Hycroft Mining's Nevada project demonstrates how high-grade discovery within a large low-grade system can restructure the cost and cash flow profile of a development-stage asset. The Brimstone and Vortex high-grade silver systems create a sequencing option that the broader 50,000 to 60,000 tonne-per-day bulk operation alone could not offer: the ability to initiate underground mining of high-grade material first, generate stronger upfront cash flows, and deploy that capital toward the full-scale ramp-up. This approach reduces early-stage capital intensity and improves the margin profile before the larger operation reaches production. Backed by approximately $200 million in cash and no legacy debt, Hycroft enters this phase without the financing pressure that typically compresses returns for assets of this scale.

As President and Chief Executive Officer of Hycroft Mining, Diane Garrett frames the strategic logic of targeting high-grade material early in what remains one of the highest commodity price environments on record:

"What the high-grade does is it gives us optionality. We could go underground first, and by doing that, we’re getting better cash flows up front, and then we can build in the scalability to mine the rest of the ore body. It's a unique opportunity for us in terms of targeting that high-grade early on in one of the highest commodity price environments that we've seen."

Critical Minerals Overlay: Gallium & Strategic Supply Chains

US supply chain policy has increased the strategic value of by-products such as gallium and indium, creating a premium for silver operations with exposure to defense and advanced manufacturing inputs. Cerro de Pasco Resources provides complementary exposure through gallium contained in the Quiulacocha tailings in Peru, a strategically significant potential alternative to China, which supplies approximately 98% of global gallium. Recovery from tailings offers a rapid pathway because the material is already mined and characterized, while multi-metal output, including silver, zinc, lead, copper, gold, gallium, and indium, diversifies commodity risk. 

As Chief Executive Officer of Cerro de Pasco Resources, Guy Goulet references the US Department of Defense's own assessment of gallium supply urgency, noting its direct application to Cerro de Pasco's tailings model:

"Recovery of gallium from existing waste is the fastest way to make the material more available. If we can get it from tailings like us, it's ideal. So we have started discussions with the government of the United States."

Jurisdiction & Permitting Drive Value in Volatile Silver Markets

In a volatile price environment with uncertain demand growth, jurisdiction, permitting status, and infrastructure availability become primary valuation drivers, as projects that combine development risk with commodity uncertainty face higher institutional discount rates. In the United States, Americas Gold & Silver benefits from sovereign risk mitigation and operational visibility, with the fully permitted Crescent Mine restart at the Galena Complex expected to add 1.4 to 1.6 Moz of annual silver production, materially shortening the timeline from capital deployment to cash flow. Hycroft Mining's Nevada project similarly benefits from US jurisdictional certainty, backed by approximately $200 million in cash and no legacy debt. In Peru, Cerro de Pasco Resources secured a supreme resolution and land easement in May 2024 for the Quiulacocha tailings, establishing legal access and reducing regulatory risk while supporting an ESG remediation narrative that strengthens community acceptance.

From a valuation perspective, institutional investors use enterprise value per ounce of silver equivalent (EV per ounce AgEq) to compare assets, with resources above 100 Moz attracting strategic interest and large-scale deposits such as the 423 Moz AgEq Quiulacocha entering a scarcity category that can command premiums beyond base net present value (NPV). Ultra-high-grade intercepts exceeding 24,000 grams per tonne (g/t) silver, with copper credits, add optionality, while above-ground material lowers capital expenditure (capex), shortens payback, and improves the internal rate of return (IRR), reinforcing the premium placed on operational certainty and resource scale.

The Investment Thesis for Silver

• Solar substitution introduces demand elasticity, weakening the correlation between installation growth and silver consumption and favoring low-cost producers with resilient margins.
• Structural supply deficits of 100 to 250 Moz annually and by-product constraints provide a medium-term floor, limiting downside from demand shocks.
• Multi-commodity revenue streams, including antimony, gallium, base metals, and indium, diversify revenue and reduce single-metal exposure, increasingly valued by institutional allocators.
• Permitted, infrastructure-ready projects in stable jurisdictions accelerate production response and lower discount rates, while development-stage assets with high-grade sequencing optionality and strong balance sheets reduce early capital intensity and financing risk.
• Operational efficiency improvements, such as long-hole stoping and low-opex reprocessing, enhance AISC resilience and widen the margin of safety under volatile silver prices.
• Retail-driven price volatility not supported by ETF accumulation highlights the premium of cost discipline, operational visibility, and by-product leverage over pure silver price exposure.

Silver’s investment profile is increasingly defined by operational strength, jurisdictional certainty, and revenue diversification. Producers and developers that combine low-cost structures, permitted infrastructure, and critical-metal exposure are best positioned to navigate structural demand shifts, price elasticity, and macro-driven volatility.

TL;DR

Silver’s pricing power is shifting as solar photovoltaic substitution introduces demand elasticity just as macrofinancial and policy-driven flows increase volatility. While structural supply deficits of 100 to 250 million ounces annually and inelastic by-product supply provide a medium-term floor, weakening exchange-traded fund participation and copper substitution in solar reduce demand certainty. In this environment, equity performance will increasingly favor low all-in sustaining cost producers, diversified revenue streams including critical minerals, and permitted, infrastructure-ready assets in stable jurisdictions, and development-stage assets with high-grade sequencing optionality and strong balance sheets that reduce early capital intensity.

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