San Jose, Calif. -- The polysilicon shortage that has plagued the solar-cell industry for two years is worse than once thought, may persist through the end of the decade and could affect the silicon wafer industry starting next year, analysts warn.
"The tight polysilicon market could last two years longer than previously expected," possibly continuing to 2010 or 2011, said Bruce Diesen, an analyst with Terra Securities ASA. The material is the key ingredient of both solar cells and silicon wafers and could affect costs in both markets in 2007.
Polysilicon manufacturers produce different grades of the material for the wafer and solar industries. Whereas supplies of wafer-grade polysilicon have remained sufficient thus far, solar-grade polysilicon has been in short supply for roughly two years as the solar industry has seen skyrocketing demand.
The wisdom had been that the shortage of supplies would last until 2009, when additional capacity brought online by such polysilicon vendors as Hemlock, MEMC, Mitsubishi Materials, REC and Wacker would bring sufficient material volumes into the supply chain. But solar's runaway growth has forced a reassessment of that timetable.
Worldwide solar photovoltaic installations reached a record high of 1,460 megawatts in 2005, up 34 percent from the previous year, according to solar-energy consultancy Solarbuzz LLC. That growth was achieved even after polysilicon suppliers raised their prices in the spring of 2005.
But the solar industry may be squeezed by its own success as it struggles to obtain the supplies it needs for further growth. The polysilicon shortage is believed to have kept growth in the photovoltaics market this year to a more modest 10 percent, according to Solarbuzz. Growth is expected to rise to between 15 and 20 percent in 2007, provided polysilicon supplies keep better pace with demand.
Germany, the world's largest solar market, is seeing a glut of solar-module capacity but is likely an isolated case. "There may be some inventory buildup of solar-cell modules in Germany, but any softness in German demand can be met by demand in other countries," Diesen said.
The United States, one of the fastest-growing solar markets, is not slowing down; indeed, solar-cell and -module makers are having trouble keeping up with U.S. demand, said Marc Cortez, director of marketing for the Solar Energy Solutions Group at Japan's Sharp Electronics Corp., the world's largest supplier of solar cells.
"We haven't seen a slowdown in the States," Cortez said. "We're pretty tight."
Leading solar-cell suppliers include BP Solar, Energy Conversion, Evergreen Solar, Kyocera, Mitsubishi, Motech, Q-Cells, Sanyo, Sharp, SunPower, Suntech and Shell Solar. While demand for solar energy is exploding, the technology remains dependent on government subsidies and is still twice as expensive as the current electricity grid. Experts believe that solar will reach cost parity with the electricity grid without subsidies by 2011.
Solar-cell OEMs are scrambling to boost the power efficiencies of their products while reducing panel costs. Many companies are shipping or developing thin-film solar cells. While the thin films use far less polysilicon than conventional cells, they have a power efficiency rating of 8 to 14 percent, compared with 14 to 20 percent for conventional polysilicon solar cells, said Charles Gay, vice president and general manager for the Clean Energy Group at chip equipment giant Applied Materials Inc., which recently entered the solar-equipment arena.
But improvements are expected over time. "We're still in the early days of the industry," Sharp's Cortez said.