Is the worst of the silicon shortage over?
At Greentech Media's Solar Market Outlook earlier this week, Prometheus Institute President Travis Bradford said the answer is yes.
At least for companies with long-term silicon contracts, that is.
"The de-bottlenecking is better than we thought," he said. "If you do have long-term contracts or don't need silicon until 2009 or 2010, yes, the worst of the shortage is over. But if you don't have silicon locked up, no, the worst of the shortage is not over."
The worldwide shortage of silicon has limited supply beneath demand, solar industry insiders say. It also has squeezed margins for new entrants that have found themselves paying $300 per kilogram instead of the $40 per kilogram silicon cost just a few years ago (see Could China Steal the Solar Throne?, Silicon Steals the Spotlight, Again, Silicon Shortage Has Big Impact, Silicon Starvation).
China Sunergy (NSDQ:CSUN) faces a class-action investor lawsuit related to its own silicon shortage and LDK Solar (NYSE:LDK) faces allegations that it doesn't have as much usable silicon as its inventory says it does (see China Sunergy Troubles Continue, China Sunergy Snags Silicon, LDK Says SEC Is Inquiring Into Inventory Discrepancy Allegations, New Details Surface as LDK's Stock Continues to Plunge).
"It's become, not just a financial issue, but a survival issue," Bradford said.
The Prometheus Institute forecasts that current silicon makers will expand production capacity from a projected 2,849 metric tons in 2007 -- enough to supply an estimated 2.85 gigawatts of solar cells -- to 85,477 metric tons, or 10.685 gigawatts worth of cells, in 2010.
That growth rate is higher than the one he expects for demand (see Solar Margins About to Shrink?).
Much of the capacity coming online in the next few years has been pre-sold as silicon manufacturers are waiting for long-term contracts with customers before building new plants, Bradford said.
But most of those contracts decrease over time, which should make more silicon available for new contracts or the spot market after a few years pass, he said.
Also, companies are stocking up on silicon and are double ordering just to be safe, he said. And they might back out of their long-term contracts if spot prices drop enough.
Some industry insiders have speculated the shortage might be easing (See Is Solar Shortage Easing?).
"Last year, we were hearing 'We can't get modules at any price,'" Bradford said. "Now we're hearing, "We can get modules at some price.'"
Still, that price is high.
In 2005, Michael Rogol, managing director of Photon Consulting, estimated that prices --both those negotiated in contracts and those on the spot market -- averaged $32 per kilogram in 2004.
While contract prices usually aren't disclosed, Bradford estimates spot prices reached a peak of $300 per kilogram last year.
"The chatter has become ridiculous," Bradford said. "I've heard $350 to $400 per kilogram, and people have been lax about quality."
While contract prices are high, Bradford said they have begun to level out.
But Jeff Osborne, a managing director and analyst at Thomas Weisel Partners, expects silicon prices to remain high, averaging $75 to $85 per kilogram compared to what he calls an "equilibrium" price of $40 to $45 per kilogram.
"Polysilicon's hard to do," he said.
Osborne also said he doesn't think technologies to refine metallurgical silicon into the higher grade used for solar power will work out.
The process of purifying metallurgical silicon is too costly to make it worthwhile and "a bunch" of the silicon must be thrown away, he said.
And other analysts, such as Paula Mints, principal solar analyst at Navigant Consulting, have aired concerns about the quality of some of the new silicon coming online.
If some of the silicon doesn't arrive or is a lower quality than expected, the shortage might continue longer than expected, she said.
CORRECTION: The Prometheus Institute projects that current polysilicon producers had the capacity to make 27,069 metric tons of polysilicon in 2007.