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Made in the shade if supply lines and subsidies hold

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As the world scrambles for clean energy technologies, it appears that solar's day in the sun has finally arrived. But converting sunlight into electricity through photovoltaic cells is still an industry in its infancy, and the growing pains are acute.

One major problem had been getting enough polysilicon into the hands of solar cell and module manufacturers. Silicon producers quickly whipped out plans for output expansions and many other new projects were announced. Those same producers are now concerned that too many of them have signed up to fill the void. The degree of any oversupply will depend on demand, of course, but that side of the equation is notoriously hard to predict, in part because solar installations—still an expensive proposition compared with other energy sources—are highly dependent on government subsidies.

Particularly key will be how the two countries at the forefront of employing solar installations—Germany and Spain—will adjust future subsidies. German legislators in late May reached a tentative agreement to cut the so-called feed-in tariff—basically, a fixed-income security in which the government buys electricity from solar installations at a fixed rate that is far above the grid cost—by about 10 percent next year. It wasn't a welcome development for the solar industry, but the tariff cut was a lot less severe than originally feared.

Robert J. Dietrich, executive vice president of finance and chief financial officer of Timminco Ltd., Toronto, one of North America's major silicon producers, thinks the market could be in oversupply by 2011 or 2012. That's later than some have speculated, but Dietrich points out that many of the projects being planned are by unestablished companies lacking experience with silicon technologies. As such, start-up delays are likely.

"I would say that if there is an oversupply it will be pushed out further than what people anticipate today," Dietrich said, adding that it's even possible there won't be much oversupply at all, given that demand by that time could be strong enough to absorb all the extra capacity.

Dietrich sees a bright future for the solar power market, more so now than ever before because of rising costs for "dirtier" energy sources, such as oil and coal. "If the price of fossil fuels continues to rise or stays at today's level, then grid parity with solar likely is going to appear at a faster pace than what some people expected a few years ago," he said. Grid parity, speculated to arrive within the next decade, is the tipping point at which solar power is cost-competitive with other sources of energy on electricity grids.

Dietrich sees solar power being increasingly used for off-grid applications as the cost of producing solar cells and modules drops. "I think people will come up with packaging solutions for solar systems that likely will be very attractive and maybe make it much easier to use for remote locations and places in developing nations that are starved for electricity today," he said.

Timminco, through its wholly owned Becancour Silicon Inc. subsidiary, commissioned its first 3,600-tonne-a-year solar-grade silicon plant at the start of this year in Becancour, Quebec, and expects new facilities there to boost capacity to 14,400 tonnes by the second quarter of 2009.

Dietrich warned of one potential bottleneck for the silicon industry a shortage of the silicon metal usually used as feedstock in the production of solar-grade polysilicon.

One such supplier of raw silicon metal is Ferroatlantica SL, Madrid, Spain. Edward Hopkins, general manager at the company's Medina, Ohio, office, agreed that a shortage of silicon metal could materialize, putting price pressure on the whole supply chain. He puts some of the blame on U.S. and European anti-dumping action against raw silicon metal from China and Russia.

"There is very little investment going on in Western World silicon metal production at this time," Hopkins said. One of the few exceptions is New York-based Globe Specialty Metals Inc., which plans to reopen its Niagara Falls, N.Y., production facility by late next year to produce about 25,000 tonnes of metallurgical-grade silicon annually.

"That expansion will help feed U.S. and Canadian demand increases, while new smelters and modernizations of some older ones in China will help to push up overall worldwide supply," Hopkins said. However, he warned that some inefficient and highly polluting smaller production facilities in China could be closed as the government cracks down on energy waste and pollution. "There are literally thousands of small producers in China, and the new gain from new smelters vs. the closure of older ones will be the big question mark," he said.

In the United States alone, demand for raw silicon for solar applications will increase by more than 20,000 tonnes in the next three years, Hopkins predicted.

A spokeswoman for Wacker Chemie AG, Munich, Germany, a manufacturer of polysilicon, said the best remedy for any supply shortfall in silicon is for the industry to concentrate on increasing the efficiency of solar cells.


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