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Posted: September 4, 2007 - 9:00 am EST 
As thousands of solar insiders gather in Milan, Italy, for this year's European Photovoltaic Solar Energy Conference and Exhibition, the main topic of conversation continues to be the shortage of solar-grade silicon.
LDK Solar, Hoku Materials, Wacker Chemie and SolarWorld recently announced they will make more solar-grade silicon (also called polysilicon) to help meet the demand. Schott Solar entered two joint ventures with Wacker to make solar wafers using less silicon and Suntech Power signed a $678-million, 10-year agreement with Hoku to secure a steady supply of the precious stuff.
"[Polysilicon] is still the No. 1 issue," said Jesse Pichel, vice president and senior research analyst of technology at investment bank Piper Jaffray. "Supply is tight and prices are high, and - assuming [solar prices reach] grid competitiveness - poly is going to be an issue for a long time."
But, while last year's discussions were focused on easing the shortage, this year's chatter is more about dealing with an increased supply of silicon on the way and, more to the point, the accompanying era of competition it's likely to usher in.
Despite high profits and sold-out demand, the sector that - according to Michael Rogol, managing director at Photon Consulting - has grown at more than 40 percent annually for the last three years is beginning to show signs of tension. And companies are jockeying to find their place in a sector where supply, demand and pricing are on the brink of change.
The result so far has mainly been partnerships and acquisitions. Aside from the joint ventures between Schott and Wacker, concentrating-solar startup Solaria of California signed a deal in August to buy 1.35 gigawatts worth of solar cells from German giant Q-Cells. And SunPower, a solar-panel manufacturer in California, signed a contract to buy two gigawatts worth of solar ingots and wafers from German startup NorSun. SunPower also expanded its place in the market by buying Powerlight, a large solar integrator, in November.
"Everyone sees a lot of poly coming online in 2010 - cheap poly - so they've got to get their costs lower and pre-sell what they make," Pichel said.
Calling Out The Competition
The fact is that competition today is all but nonexistent. With government incentives that can make solar power as cheap as conventional retail electricity, and a polysilicon shortage keeping supply well short of demand, solar companies are selling as much as they can make.
That's good for margins and profits, but it's also limiting the speed at which the solar sector can grow.
If the shortage eases and more solar panels become available, all that will change, and the solar sector will see winners and losers. "A lot of companies not doing anything particularly sophisticated are doing well today, and I don't think that will stay," said Solaria CEO Suvi Sharma. "I think there will be a tightening in the industry."