Shortages of polysilicon have plagued the
solar market since 2005 but that's about to change, given that
more than 130 projects are in the planning or construction
stages. Most analysts feel that with so many projects in the
pipeline, shortages will ease this year and next and the market
will swing to oversupply in 2010 or so.
Ingo Queiser, a solar analyst with European
investment bank Landsbanki Kepler, has a different view.
There's no question that more polysilicon supply will soon hit
the market, Queiser said, but he's doubtful that many of the
projects will make it online without significant delays and
start-up glitches, given that so many are being built by
companies not experienced in silicon technologies.
"Historically, we had five or six established
silicon producers," Queiser said in a telephone interview from
Frankfurt, Germany. "Meanwhile, fat margins have attracted new
entrants that probably number 100, and the count goes up as you
add the non-credible projects. I do not believe in the capacity
announcements these guys are giving out because they want to
ramp production up within two or three years, and that would be
as fast as the established players."
The production process for polysilicon is
complicated and procuring the necessary equipment is difficult,
Queiser said. "Most of the new players want to use a chemical
purification process, and that is very tricky."
Queiser estimates that as much as 400,000
tonnes of new polysilicon capacity has been announced-a highly
ambitious figure considering that only 50,000 tonnes was
produced last year.
Citi Investment Research analyst Timothy
Arcuri, based in San Francisco, agrees that some projects will
fail to come online as planned. But "even if you take what some
of these guys say at a significantly discounted face value, you
still have a significant oversupply problem in 2010. The sheer
volume of what's being announced is so big, I think you will
have double the amount of product by 2010 vs. what demand will
be," he said.
The increase in polysilicon output will have
an immediate impact on the supply of solar cells and modules,
as cell producers are running at only 50 percent of capacity
due to a silicon shortage, Arcuri said. "A near-certainty for
me is pricing is going to come down a lot faster than people
think over the next two years for solar modules."
For example, in a research report Arcuri
estimates that prices should start to decline 10 to 20 percent
in 2009 and accelerate in 2010. He attributes this partially to
a dislocation due to lower European subsidies. "This is apt to
result in lower prices or lower demand. This should be
exacerbated by surging cell supply as we see a slightly tighter
cell supply/demand balance in 2008 giving way to significant
increases in cell supply in 2009 and 2010 such that it looks
set to exceed demand by more than 60 percent in 2009 and about
100 percent in 2010," he said in the report.
For Arcuri, the bigger question is on the
demand side. "There's a certain price-demand elasticity in
solar that we really do not know yet," he said, in part because
a lot of the demand for solar cells is artificially driven by
government subsidies. Supply will eventually balance out with
demand as prices for modules drops, Arcuri said, but
consumption levels are at risk from countries that might scale
back their subsidy programs further.
Queiser, meanwhile, suggests that too many
market followers are underestimating the impact of a shortage
in silicon metal feedstock, which is produced in a furnace
process similar to steelmaking. "I am of the strong opinion
that this is the next bottleneck," he said. "The silicon metal
industry has gone through many years of crisis, margins are
very thin and they have no interest to add capacity. And even
if they did start to do so, it would take two years anyway. In
the meantime, we would have run into a massive shortage because
the solar silicon refiners are preparing for a massive capacity
expansion and they will need a lot more silicon metal."
According to a recent Lux Research report,
the shortage of solar modules will end in 2009, when demand for
solar installations will reach 8.96 gigawatts but supply
reaches 9.57 gigawatts. It predicts that oversupply will
persist through 2012, when installation demand will reach 20.3
gigawatts vs. supply of 21.2 gigawatts.
Analysts also note that rival technologies,
such as thin-film panels, are coming to market that won't
require silicon. That could contribute to oversupply.
Photovoltaic panels that use refined
crystalline silicon make up about 90 percent of sales in the
industry today, but Arcuri said thin-film panels will soon grab
considerable market share. "Silicon will still be used in
markets that will require characteristics that thin film cannot
meet," he said, "but the broad utility-scale stuff that's
sitting in fields, will virtually all become thin film."