The dramatic surge in silver prices is exerting additional pressure on solar panel manufacturers, who are already trying to end over two years of losses amid brutal industry competition.

Spot silver prices soared to a record high above $93 per ounce this week, continuing a steep rally. According to BloombergNEF, this means the trace amount of silver used in solar cells now accounts for 29% of a panel's total cost, a significant jump from 3.4% in 2023 and 14% last year.

Panel manufacturers are responding by increasing selling prices and accelerating plans to replace silver with cheaper materials like copper. This cost increase comes against a backdrop of expanding industry-wide losses, as the sector suffers from severe overcapacity following a frenzy of factory construction in previous years.

"Spiking commodity prices are creating irresistible cost pressures for solar manufacturers," said BloombergNEF analyst Yali Jiang. "This is likely to push up solar module prices, as manufacturers have little room left to absorb additional costs after enduring two years of depressed market prices."

In China, the world's largest market, module manufacturers have raised prices to over 0.8 yuan per watt this week, an increase of 1.4% to 3.8% from last week, to reflect the higher silver costs, according to data from InfoLink Consulting. This pushes the price of a typical 500-watt panel to around 400 yuan ($57).

Several major solar companies warned this week that they expect net losses to persist into 2025. This guidance suggests the industry's downturn has not yet bottomed out, despite a year of self-discipline measures and government-led efforts to curb overcapacity and halt price wars.

Silver, in paste form, is a key material for solar panels, used to create conductive electrodes that transfer the electricity generated by the cells. Manufacturers have long worked to reduce the amount used to lower costs. The average usage is projected to be 8.96 milligrams per watt in 2025, down from 11.2 mg in 2024, according to BloombergNEF data.

These efforts are now accelerating. Longi Green Energy Technology Co., Ltd. announced last week that it will soon begin replacing silver with base metals in its cells, joining companies like Jinko Solar and Shanghai Aiko Solar Energy Co. in making such transitions.

Engineers have several methods to replace some or all of the silver in cells with cheaper copper, but moving too fast or too far with substitution carries risks for manufacturers. Customers typically demand warranties of 20 years or more, and increasing the substitution ratio risks shortening product lifespan due to the shorter testing time for new materials.

"If a panel fails after ten years but has a twenty-year warranty, the manufacturer could face massive liabilities, even bankruptcy," said Gregor Gregersen, founder of precious metals trader Silver Bullion Group.

Nevertheless, even limited substitution efforts, combined with an expected slowdown in global panel installations, mean the industry's silver usage could decline by about 17% this year, according to a research report this week from Shanghai Metals Market. Annual demand in 2025 is estimated at around 6,000 tonnes.

The solar industry accounted for approximately 17% of total silver demand last year, more than double its share a decade ago and on par with the share used for jewelry manufacturing, according to the Silver Institute. A significant slowdown in consumption could threaten the long-term sustainability of silver's current hot rally, which is largely driven by increased speculative interest and a broader rotation of funds into commodities.

"At today's silver price levels, more substitution can happen," said Nikos Kavalis, Managing Director at consultancy Metals Focus. "Given that investment demand remains strong, I don't think this will impact prices in the short term, but it does mean that industrial consumption of silver will be lower in the future."