The Sandbox

According to market researchers at iSuppli Corp, the explosive global demand for solar energy has driven such a significant shortage of polysilicon used in the manufacture of photovoltaic (PV) cells that PV suppliers are being forced to realign their business structures and strategies and to seek alternative raw materials.

With global revenue for PV cells projected to reach as much as $22.1 billion in 2012, up from $9.6 billion in 2007 (according to a preliminary forecast from iSuppli), by 2020, about 50,000 Megawatts worth of PV systems (MWp) will be installed annually, up by a factor of nearly 20 times from 2,538MWp in 2007. (MWp is a metric that measures the power output of solar cells.)

Indeed, no market can expand so quickly without some growing pains, iSuppli reminds, particularly shortages that can impact supply. While the global PV industry has the capacity to produce cells and modules that could generate far more electricity than can be supported by current supply levels for polysilicon, production capacity limitations now are constraining polysilicon supply

“Polysilicon shortages are driving prices up. For companies attempting to expand their PV fabs to meet rising demand, it’s becoming very difficult to secure low-priced silicon,” noted Dr. Henning Wicht, senior director and principal analyst, MEMS and PV for iSuppli, in a statement.

Wicht also said that PV companies must pay polysilicon suppliers between 10 and 20% of their total contract costs up front to secure availability of the key raw material, which has made cost reduction mandatory for the PV industry.

As a result of the shortages and the resulting rise in costs, the PV industry is being forced to adopt more vertically-integrated structures to bring production of polysilicon under more direct control. iSuppli pointed to examples of the trend as a joint venture between chemical company Degussa AG and PV product maker SolarWorld AG—both located in Germany—to produce solar-use silicon. Also, solar-cell-maker Q-Cells AG has entered into several joint ventures to secure raw materials, including polysilicon.

Further, the silicon shortage is driving the advancement of thin-film technologies that can act as the raw material for PV cells since deposition of functional thin film layers for PV cells can be conducted on glass, steel or polymer foils, with no silicon wafers needed. Therefore, silicon cell manufacturers are investing in thin-film technologies in parallel with their expenditures on polysilicon, iSuppli said.

These advancements are expected to boost the revenue market share of thin-film technologies by 20% of the total PV market in 2010, up from 5% in 2007, with thin-film PV predicted to grow by a compound annual growth rate of 70% from 2007 to 2010.

Finally, due to rising prices for polysilicon, solar companies are being compelled to reduce PV system costs, with Q-Cells, for example, indicated it intends to reduce PV system costs by as much as 50% between 2007 and 2010, and that cost reductions must be implemented across the entire PV system supply chain, including polysilicon, wafers, cells, modules and finished systems.

This data just confirms how well positioned companies like Applied Materials are to take advantage of this huge market opportunity. I can’t help but think that other capital equipment makers might be kicking themselves right now for not seeing this opportunity as well. Of course, Applied has been able to leverage its experience in the thin film arena for displays, which is a unique capability.

Even with the challenges, what is exciting to watch is how fast the PV industry will be able to bring solar energy to cost parity with electricity.

-Ann Steffora Mutschler, Senior Editor