What's Raining On Solar's Parade  

Almost all solar panels are made with silicon -- and makers 
can't buy enough of it 

by John Carey
Febrauray 6, 2006
http://www.businessweek.com
 
Sometimes it's possible to be a little too successful. The solar 
power industry has been on a tear, growing at more than 30% 
per year for the last six years. It's poised to reach a surprising 
milestone within two years, when it will gobble up more silicon 
for its electricity-generating panels than semiconductor makers 
use in all their chips and devices. The onetime "'tree-hugger' 
industry is not a niche business anymore," says Lisa Frantzis, 
director of renewable energy at Navigant Consulting Inc. (NCI ).

So what's the problem? "Global demand is stronger than the 
existing supply," says Lee Edwards, president and CEO of 
BP Solar. His company and others can't buy enough of the 
ultrapure polysilicon now used in 91% of solar panels. 
The raw material shortage has slashed growth for the industry 
from more than 50% in 2004 to a projected 5% in 2006.

The shortage has caused prices for polysilicon to more than 
double over the last two years. As Economics 101 teaches, 
that should prompt producers to expand capacity. But for 
suppliers such as Michigan-based Hemlock Semiconductor 
Corp., the world's largest producer, the decision hasn't been 
easy. For one thing, the company was badly burned in 1998. 
It had just built a new facility in response to pleas from 
semiconductor makers when Asia went into a slowdown. 
Demand for silicon plunged, and the factory had to be shuttered. 
Now the U.S., Germany, and other nations are offering 
subsidies for solar power -- but governments can take away 
incentives as easily as they put them in place. "We did a lot 
of soul-searching," says Hemlock President and CEO Donald 
E. Pfuehler. "Would the incentives go away? Is the solar 
industry real or just a flash in the pan?"

Hemlock finally decided that the industry is real, but only after 
solar companies agreed to share the risk by signing contracts 
to buy the future output. So in December the company began 
an expansion worth more than $400 million that will increase 
silicon production by 50%. Competitors are following suit. 
On Jan. 12, Munich-based Wacker started construction on 
a silicon manufacturing plant. The new supply, however, 
won't be onstream until 2008.

A JOLT FROM SUBSIDIES 

In the meantime, companies are scrambling to cope with the 
shortage. Sharp Corp., the world's top producer of solar panels, 
and BP Solar are making panels thinner to use less silicon. 
First Solar LLC in Phoenix and others are ramping up 
nonsilicon technologies. "This is a perfect sector for innovation 
and new players," says BP's Edwards.

One factor driving demand is Germany's scheme of paying 
big bucks (more than 55 cents per kilowatt hour) for power 
from anyone with solar panels. That "lucrative program caught 
us all by surprise and gave a lot of push," says Pfuehler. 
Spain and Italy have jumped in with similar plans. In the U.S., 
last year's energy bill included solar subsidies, and "governors 
are going nuts on renewables," says Scott Sklar, president of 
the Stella Group Ltd., a green power consultancy. "The funny 
thing," he adds, "is that Republican governors, like California's 
Arnold Schwarzenegger and New York's George Pataki, 
sound crazier than Al Gore on this." The most ambitious plan: 
On Jan. 12, the California Public Utilities Commission 
earmarked $2.9 billion over 10 years for solar power.

For many nations, solar offers a hedge against spikes in 
prices of fossil fuel. In Japan, even without incentives, 
higher fuel prices and other costs have made solar electricity 
almost cost-competitive. And huge potential markets, such as 
China, are just beginning to be tapped.

That's why analysts predict the growth will surge when the 
new polysilicon production lines get going. And the boom 
should continue for at least 10 years. By then, technological 
improvements, economies of scale, and competition from 
new entrants such as China may make sun power cost-effective 
without government help. "Prices are going down every year, 
and the cost of standard electricity is going up," explains 
Ron Kenedi, Sharp's vice-president for solar energy solutions. 
"There will be a meeting point." When that happens, the industry 
may finally see growth without growing pains.