Silicon rally

Aug 28th 2008

From The Economist print edition


One shortage in the solar-panel business gives way to another


FOR 40 years or so, the price of solar panels fell steadily, as volumes grew and technology
improved. But in 2004 Germany enormously increased subsidies for solar power, prompting a surge in
demand. The supply of pure silicon, the main component of most solar cells, did not keep pace. Its
price rose from $25 a kilogram in 2003 to as much as $250 this year, abruptly halting the downward
march in the price of panels. If making energy from sunlight is ever to become as cheap as burning
fossil fuels, the price of silicon will have to fall.


Happily, it seems likely to do so soon. Silicon producers, whose biggest customers were always
chipmakers, have been slow to cater to the solar industry. They were scarred by the memory of the
technology bust of 2001, which had weighed them down with excess capacity, and so delayed
expansion—despite the boom in solar. Moreover, it takes three years or so to get a new plant going,
so new silicon supplies are only just beginning to materialise.


One source of uncertainty is demand. This may be softer than expected because of cuts in subsidies
for solar power in Germany and Spain, and because of the looming expiry of a big tax-break in
America. The chief source of uncertainty, though, is on the supply side—in particular, the troubled
outlook for a host of planned new plants in Asia. Most observers expect that some of these will
never materialise, others will take longer than scheduled to build and many will be less efficient
than their backers claim. Earlier this year Trina Solar, a Chinese firm, abandoned plans for a big
new silicon plant. Although more setbacks of this kind would slow the price’s fall in the short
run, says Jenny Chase of New Energy Finance, the construction of a few less efficient, higher-cost
plants will eventually create a tier of marginal producers, and so temper future price swings.