(Continued)Established Players
Location
Ticker
Web Site
Norsun (SCATECGroup), Econcern, &Photon PowerTechnologies (PPT)Photowatt/TotalSichuan XinguangSiliconSolarWorld
France
Private (NorskHydro,et al.)
www.econcern.nl
FranceChina
PrivatePrivate
www.photowatt.com/na
Germany
SWV GR
SwitzerlandChina
PrivatePrivate
www.solarworld.de/sw-eng/www.swisswafers.ch/na
Swiss WaferYunnan Qujing AixinSilicon Tech Project
New Entrants with MG-Si or other novel technologiesCity SolarGermanyPrivatewww.city-solar-ag.com/index.php?id=51www.dowcorning.com/Dow CorningBrazilPrivatecontent/solar/(CorningIntl, DowChemical)Elkem SolarNorwayELK NOwww.elkem.com/solarFerroatlantica/FrancePrivatewww.ferroatlantica.es/Apollonenglish.htmlJFE SteelJapan5403 JPwww.jfe-steel.co.jp/en/Photowatt/ATSFrancePrivatewww.photowatt.com/SolarValue AGSloveniaSV7 GRwww.solarvalue.com/Source: Renewable Energy Corp. presentation and Photon International.
Some of these companies sell the majority of their polysilicon to the semiconductor/electronics industry but Renewable Energy Corp. and some ofthe newer players are selling the majority of their output to the solarindustry.Moving onto the next stage of solar cell production, a polysiliconwafer manufacturer either produces polysilicon in-house or buys polysilicon from one of the polysilicon producers just mentioned. The wafer manufacturer then melts down the polysilicon, allows it to solidify into a block,and then slices the block into wafers. Figure 5.18 shows the world’s largestpolysilicon wafer manufacturers, with Renewable Energy Corp. havingone-quarter—the largest—market share.The shortage in polysilicon caused by strong demand from the solarindustry has caused polysilicon prices to rise sharply over the past several
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REC
Deusche Solar
PV Crystallox
Kyocera
LDK Solar
Sumco0%
5%
10%
15%
20%
25%
FIGURE 5.18 Global Market Shares Multicrystalline PV WafersSource: Renewable Energy Corp presentation, Photon International.
years to recent levels near $60 per kilogram (long-term contract) and $120to $150 per kilogram (spot). Very little polysilicon trades in the spot market,which means that the contract market rather than the spot market bestrepresents polysilicon prices.Polysilicon prices rose from $24 per kilogram in 2003 to $32 per kilogram in 2004 to $45 per kilogram in 2005, and $55 per kilogram in 2006, according to PV News.44 Polysilicon prices prior to about 2004 were heavilydependent on cycles in the semiconductor industry and were very volatile.Polysilicon prices were as high as $60 per kilogram in 1980 but then fellbelow $40 per kilogram by 1989. Polysilicon prices saw renewed strengthin the latter half of the 1990s and rallied as high as $55 per kilogram in 1999but then fell sharply after the post-2000 IT bust and fell as low as $24 perkilogram in 2004, as mentioned earlier.The polysilicon industry’s production for 2008 is already sold out atprices averaging about $60 per kilogram, except for small portions thatsome polysilicon producers are holding back to sell in the spot market. Polysilicon prices for delivery in 2009–2010 time frame are averagingaround $50 per kilogram, which is moderately lower than the average contract price for 2008 of $60 per kilogram.An important caveat on polysilicon pricing is that polysilicon pricesare considered to be highly proprietary by buyers and sellers and are notpublicly reported in any organized manner. In addition, there is not muchpolysilicon trading at present because many long-term contracts have already been locked in, meaning there is not much fresh pricing information.
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Due to the tight supply of polysilicon, polysilicon companies and silicon wafer producers such as Renewable Energy Corp. and MEMC Electronic Materials (NYSE: WFR) have been able to extract very favorablelong-term contracts from solar cell companies. Recent contracts have featured rising polysilicon prices over the course of the multiyear agreement as well as unusual benefits for the polysilicon companies of up-front,interest-free loan deposits and even warrants on the stock of the solarcell/module company. Polysilicon companies also have the luxury of dealing with only the larger and more financially secure solar cell/module manufacturing companies, meaning the odds are low for any defaults on thelong-term contracts. Mid- and lower-level solar cell companies are left toscramble for silicon supplies on the spot market and from short-term contracts.Renewable Energy Corp.’s recent multiyear contracts show the strongpricing situation for wafers. REC’s customers have been willing to signmultiyear contracts with rising wafer prices due to their expectation for acontinuation of the polysilicon shortage. From summer 2006 through early2007, REC signed a $330 million five-year contract with Motech, a $515 million six-year contract with Sharp, a $450 million six-year agreement withBP Solar, and a $200 million five-year contract with Suntech.The polysilicon shortage has led to a flurry of announcements from established players, as well as new entrants, about their intentions to buildnew polysilicon production capacity. This new capacity is good for thesolar industry as a whole since the polysilicon is needed to support theindustry’s growth rate of 30 percent to 40 percent. There were concernsin 2006 that growth in the solar cell industry would be restricted by thepolysilicon shortage, but the solar cell industry managed to find enoughpolysilicon to support a growth rate near 40 percent, partially through adrawdown of small existing inventories and through reclamation of scrap.Increased polysilicon capacity is also necessary so that polysilicon and solar cell/module prices can fall in coming years, thus getting solar powercloser to the fulcrum where it becomes cost-competitive with fossil fuelswithout subsidies.Industry forecasts for polysilicon production growth over the next fewyears vary widely, although two leading solar research groups happen tohave a similar forecast (see Figure 5.19). Prometheus Institute is forecasting 2010 polysilicon production of 110,535 metric tons.45 Meanwhile, Photon International in October 2006 raised its forecast for polysilicon production in the 2007 to 2010 period. For 2010, Photon International raisedits forecast for 2010 production to 110,000 metric tons from 85,000 metrictons, which was very close to Prometheus Institute’s 2010 forecast.46 BothPrometheus Institute and Photon International support their forecasts with
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120
100
Thousands of Metric Tons
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80
60
40
20
0Productionyoy%
20053214%
20064025%
20075025%
20086530%
20098531%
201011029%
FIGURE 5.19 Polysilicon Production Forecast, 2005–2010Source: Photon International, “Silicon Sprint,” October 2006, p. 110, www.photonmagazine.com.
project-by-project company analyses combined with interviews of companies and industry leaders.The consensus in the solar module industry in 2006 was that thepolysilicon shortage would ease by 2007–2008. However, solar modulegrowth and polysilicon demand has been stronger than the earlier market consensus and new polysilicon production capacity has been slow tocome onto the market, thus causing the industry to delay its expectationsabout when the shortage may ease. The current industry consensus is thatthe shortage will last until late 2008 or 2009. The reality is that the shortagemay last longer than the market consensus because of very strong demandcombined with the likelihood that many producers will have trouble following through with their announced polysilicon production plans due tothe global shortage of chemical plant building assets, delays in orderingcritical plant equipment items, and problems in implementing technologythat is not off-the-shelf.The polysilicon industry in the past has been a boom-bust industry because its only customer was the semiconductor industry, which is notoriously cyclical. In fact, the current shortage of polysilicon arose becausethe incumbent players in the polysilicon industry, which were burned in thepast by overproduction, were reluctant to build new polysilicon plants despite forecasts for strong new demand from the solar industry. The polysilicon industry is now building those new plants, but they are still being
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cautious by securing up-front deposits and multiyear contracts that ensurethey will be able to at least pay off their plant investment costs. The newand inexperienced entrants to the polysilicon industry are the ones whoare introducing a wildcard element into the polysilicon supply picture. Themarketplace is well aware of the possibility that these new entrants couldupset the supply/demand balance and cause a glut of polysilicon down theroad. However, Photon Consulting, in its Solar Annual 2006, addressed theissue of a possible polysilicon glut by saying, “After months of research, wehave come to the conclusion that there is much, much more demand thancapacity, and that demand is growing faster than supply.”47On the topic of solar industry supply/demand structure, it is important to note that demand for modules appears to be fairly elastic, basedon recent experience in Germany where there was a temporary backup ofmodule inventories in early 2006 due to higher prices. The price elasticity of solar modules means that as module prices rise, demand tends toslack off, and by the same token demand increases when module pricesfall. This means that if a glut of polysilicon does emerge in coming years,the resulting decline in prices should be effective in reviving demand fairlyquickly, thus bringing the market back into balance much more easily thanif demand was inelastic (in which case market balance could be achievedonly through a sharp drop in supply). It can be argued that the healthiestlong-run condition for the solar market is actually a small supply surplussituation, which would allow solar module prices to trend downward andthus reach the point more quickly where solar power becomes competitivewith grid power without subsidies, at which point demand would rapidlyincrease.Renewable Energy Corp. held a two-day meeting for institutional equity analysts in March 2007 with plant visits to REC’s Moses Lake polysilicon plant in Washington state and its polysilicon plant in Butte, Montana.REC management at that meeting specifically addressed the issue of a possible polysilicon glut by making the following points.1. Future polysilicon prices are strong. REC management noted that
multiyear contract polysilicon prices remain strong at present, whichindicates that buyers are concerned about a lasting silicon shortageand want to lock in prices on multiyear contracts. REC expects its average silicon selling price in 2007 to be up about +15 percent from2006, reflecting the tight market for silicon. REC notes that the strengthin future silicon prices was demonstrated by the fact that two-thirds ofits seven-year agreement with Sumco/Komatsu (which was announcedMarch 21, 2007), worth about $780 million, involved take-or-pay termswith predefined and increasing prices (take-or-pay means the buyermust pay for the product regardless of whether they take delivery).
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2. Long industry lead times on building new silicon plants. REC noted
that building and operating a silicon plant is more difficult than somenew players may suspect and that REC believes future supply will notbe as high as recent announcements indicate. REC noted that the new$600 million plant that it is building next to its existing plant in MosesLake, Washington will take three years and 3 million man-hours tobuild and that most of the key equipment is not off-the-shelf equipmentthat is easily acquired. REC also noted that companies that intend tobuild a silicon plant are in competition with companies in other industries (such as petroleum or chemical producers) that are also trying tobuild new chemical refineries. A silicon plant is similar to a chemicalplant or petroleum refinery in terms of equipment, processes, and construction assets. REC noted that global demand for chemical refineryconstruction is strong and that there are currently delays in obtainingengineering and construction talent and critical equipment.3. Companies with lower production costs will better survive any glut.New industry capacity announcements involve mostly the old and expensive Siemens technology, whereas REC’s new production is thenew fluidized bed reactor (FBR) technology, which REC says has a30 percent lower cost relative to the existing Siemens process. RECis confident that its substantially lower FBR costs will support itsfinancial results even if a supply glut eventually pressures higher-costsuppliers that rely on older technologies. Siemens-based suppliers willprobably be the first players that are driven out of the market in anylong-term glut, not firms like REC.4. Scale is critical. REC management stressed that scale is critical indriving down a company’s polysilicon production costs. REC, as the industry’s largest solar polysilicon producer, believes that its large scale(along with its fluidized bed reactor technology) will contribute to itsability to be the lowest-cost producer, again supporting its financialviability in the event of an industry shake-out. Falling polysilicon production costs are critical for preserving profit margins in an industrywhere module prices typically fall by about 5 percent per year.The bottom line is that the polysilicon producers, which have recentlyenjoyed extremely favorable profit margins, will see a more challengingenvironment in the next few years. During 2009, the polysilicon supply situation will loosen up considerably, with the extent of that loosing depending on the strength of demand and the extent to which new entrants canactually get their production plans executed. Polysilicon pricing is likelyto soften as the situation loosens up in 2008–2009. That will likely putsome downward pressure on margins for 2009 and beyond. However, it is
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important to remember that the large polysilicon players are signing multiyear contracts that extend out as far as 2012. These players have thereforealready protected their margins to some extent even out as far as 2012. Inaddition, the large polysilicon players with low-cost polysilicon productiontechnology will be in a much better position than the high-cost producersin the 2010–2012 period.Due to the uncertain polysilicon supply/demand situation in comingyears, the following investment guidelines are offered regarding an investment decision in polysilicon suppliers:1. Avoid investing in the polysilicon players that are building new capac-
ity with the old Siemens technology since their high costs mean theywill be the first companies that will experience a shakeout if there is apolysilicon bust and a sharp drop in polysilicon prices.2. Focus on investing in polysilicon companies with low polysilicon production costs stemming from manufacturing scale and advanced technology.3. Focus on investing in polysilicon companies that are capable of establishing long-term contracts with financially secure solar module manufacturers to protect revenues and margins out through at least a threeto-five-year time frame.
THIN FILM THREATS TO CRYSTALLINESILICON SOLAR CELLSThe traditional silicon solar cell industry is being shaken up at present bythe fast emergence of thin film solar players. Crystalline silicon solar cellscurrently account for about 94 percent of solar module production, versusabout 6 percent for thin film. However, the industry consensus is that thinfilm solar will rise to a 20 percent market share over the next few years.Applied Materials (NYSE: AMAT) is selling turn-key factory productionline equipment that solar module companies can use to manufacture solarmodules with thin film silicon. Applied Material’s sales have exceeded management’s expectations. There will be numerous companies over the nextfew years producing solar modules with the Applied Materials’ productionline equipment. First Solar (Nasdaq: FSLR), which produces thin film solarmodules using its own cadmium telluride production process, has seen itssales skyrocket because of its low costs and competitive prices.The main thin film technologies in use today are amorphous silicon(a-Si), cadmium telluride (CdTe or CadTel), and copper indium galliumselenide (CIGS). Other thin film PV technologies include gallium arsenideand organic thin film. The CadTel, CIGS and gallium arsenide technologies
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TABLE 5.5 Solar PV Company Breakdown by TechnologyTechnology
Siemens Silicon
Fluid Bed Silicon
Companies
Silane
REC Silicon
Trichlorosilane
Hemlock, Wacker, Tokuyama, MEMC,numerous new entrants
Silane
REC Silicon, MEMC (building full scaleplant)
Trichlorosilane
Hemlock, Wacker (older technology;status uncertain)Elkem, Dow Corning, JFE, NipponSteel, Becancour, Ferro Atlantica,Scheuten, Solar Value, others
UpgradedMetallurgicalSilicon (uMGS)Thin Films
Silane-Base amorphoussilicon (a-SI) thin filmmodule mfgs
Applied Materials, Oerlikon, UniSolar,Kaneka, Mitsubishi HeavyIndustries, CSG Solar, others
Cadmium Telluride(CadTel or CdTe)thin film
First Solar, AntecSolar
Copper Indium GalliumdiSelenide (CIGS) thinfilm
DayStar Technologies, Shell Solar,Global Solar, Nanosolar, Heliovolt,others
Organic thin film
Laboratory stage
Source: Renewable Energy Corp. presentation. www.recgroup.com.
have the advantage of not being subject to the current shortage of silicon,although they do have some of their own supply issues. For example, indium is a limited resource and indium prices have risen from $60/kg to$1,000/kg in the last three years. Telluride is a rare metal.Thin film PV technologies have substantially lower production coststhan silicon crystalline technologies, but they also have lower efficienciesof only about 6 to 10 percent, which is well below the efficiencies for crystalline silicon solar cells of 15 to 20 percent. Still, thin film is typicallycheaper on a per-watt basis as compared with crystalline silicon technologies. In addition, thin film solar has a wider range of applications since itcan be applied to backings of different shapes and sizes, making it ideal forexample for building integrated photovoltaics (BIPV) where the coating isplaced on office windows or roofing shingles.Figure 5.20 lays out how the DOE Solar America Initiative believes solar PV technologies may play out. The first stage on that time line is currently in progress.
1
2
1149
10
Revolutionary(10 Years and beyond)
12:40
Source: U.S. Department of Energy, Oﬃce of Energy Eﬃciency and Renewable Energy, Solar American Initiative: A Plan for theIntegrated Research, Development, and Market Transformation of Solar Energy Technologies, 5 February 2007, p. 21, http://www1.eere.energy.gov/solar/solar america/pdfs/sai draft plan Feb5 07.pdf.
January 12, 2008
FIGURE 5.20 Solar PV Technology: Possible Development Timeline
3rd Generation PVOuantum dotsNanotechnologyMulti-MultijunctionsThermophotonicsIntermediate bandBoi-Inspired
8
2nd & Advanced 1st Generation PVThin filmsConcentratorsOrganicsSi wafers<100 umSi cell beyond 25%
Disruptive(3–10 Years)
7
1st & 2nd Generation PVLower Si feedstock pricesThinner Si wafer technologyThin filmsImproved processingImproved integrationAdvanced packaging
6
BASIC SCIENCE DRIVEN
5
TECHNOLOGY DRIVEN
4
INDUSTRY DRIVEN
3
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YEAR
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In the present state of the solar industry, current demand for PV modules is so strong that virtually all technologies can thrive over the shortterm. In this demand-driven market, buyers of solar modules are snappingup solar modules of all technologies. Over the longer run, however, it islikely that the market will be segmented so that different PV technologieswill win within particular PV application markets. It is not necessarily thecase that one solar PV technology with the lowest price/watt will win theentire solar PV marketplace.For example, in the residential and commercial building market, crystalline silicon wafers will likely retain a large market share because thereis often a premium on minimizing the space required for the solar installation, thus favoring the higher efficiency solutions. However, in commercial applications where there is plenty of room available for solar modules,thin films may win over the long-run. For building integrated PV (BIPV),thin film applications will clearly win since only thin film can be appliedto windows and building materials. For solar parks that produce electricity for the grid, the ultimate winner is unclear at this point. Thin film hasthe advantage of being cheaper per watt, but the installation area needs tobe much larger, thus raising land requirements and increasing installationcosts. Traditional crystalline silicon cells will likely still be strong playersin the solar power plant applications where the system design puts a premium on higher efficiencies and lower land usage.The incumbent technology of crystalline silicon wafers is likely to dominate the industry for at least the next 5–10 years, but thin film will growfaster than crystalline silicon and will gain market share. As mentioned earlier, the market consensus is that thin film will grow to a 20 percent marketshare from 6 percent at present, although with the extraordinary growthrates seen in the solar industry, a setback in market share does not meansales are going to be weak.Another important point to make regarding solar PV technology isthe importance of the large knowledge base for silicon-based technology,which is shared with the semiconductor industry. The large knowledgebase gives silicon-based technologies a large and potentially sustainableadvantage over newer, nonsilicon technologies. Some nonsilicon technologies may have attractive attributes in the laboratory but then fail to receivesufficient R&D investment to come to fruition on a mass scale. This point ismade in the Handbook of Photovoltaic Science and Engineering: “Technically astute investors know that other factors can be more important thanefficiency in selecting a technology for development.”48The Handbook of Photovoltaic Science and Engineering goes on topoint out that thin-film silicon has always had a lower efficiency than CadTel and CIGS, but that thin-film silicon has nevertheless been commercialized much earlier and more widely because of the huge knowledge base
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and capital investment behind silicon from its history in semiconductorindustry. By contrast, the CadTel and CIGS technologies, despite their attractive PV properties, are trying to overcome their “orphan” technologystatus since they have no applications outside photovoltaics and have notattracted big research and investment dollars. The Handbook of Photovoltaic Science and Engineering says, “The highest efficiency technologyis not always going to be the best choice for a low-cost, high-yield process,at least not until much of the technical background is in place.”49 According to this view, crystalline silicon wafers and thin film silicon can fend offchallengers for some time to come.The bottom line is that there are clearly technology risks in investingin the solar PV sector. There is no way to completely avoid these risks, butseveral investment guidelines may be helpful in considering the role of PVtechnology in making a solar industry investment decision:
r Choose companies that can be flexible in shifting course as technologychanges.
r Choose leadership companies with aggressive R&D programs that canquickly capitalize on breakthroughs in efficiency and costs.
r Stay away from companies that are stuck using old or high-cost PVtechnologies.
r Be leery of companies that are using completely new technologies thatmay not have sufficient time or research dollars to bring the technologyto mass production.r Pay close attention to PV technology developments going forward sothat investment shifts can be made as fortunes shift among the variousPV technologies.
UPGRADED METALLURGICAL SILICON(UMGS): A THREAT TO TRADITIONALPOLYSILICON PRODUCERS?Several companies are experimenting with a shortcut method for producing solar-grade (SoG) silicon by using a metallurgical smelting process totransform metallurgical silicon (MGS) directly into solar-grade polysilicon.This process bypasses the Siemens or fluidized bed reactor process of gasifying metallurgical silicon and then growing pure polysilicon rods or granules. This direct-to-polysilicon technique is called “upgraded metallurgicalsilicon” (or uMGS) and is just getting off the ground. The uMGS processcan reduce power consumption by 60 to 80 percent relative to the currentSiemens process and overall production costs can be cut to less than $20per kilogram versus $25 to 35 per kilogram for the traditional Siemens and
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near $17 per kilogram for Renewable Energy Corp.’s fluidized bed reactor process.50 The uMGS process therefore appears to be about 20 percentlower than Siemens-based production costs but not as low as REC’s claimof a cost reduction of more than 30 percent for FBR technology.Technical details are sparse on uMGS technology at this point becausethe companies involved in the research are protecting their trade secrets.However, uMGS so far does not appear to be a disruptive technology thatwill upend traditional polysilicon producers. Rather, uMGS is simply another source of solar-grade silicon capacity that will be coming on line incoming years. Renewable Energy Corp., in a presentation, forecasted annual uMGS production of 5,000 metric tons by mid-2008, growing to 35,000metric tons by 2011.51While uMGS production costs are relatively low, the polysilicon thatcomes from uMGS production is not as pure as the polysilicon that is produced with the Siemens or fluidized bed reactor process (where impuritiesare measured in parts per billion). In some cases, uMGS needs to be mixedwith pure polysilicon to get the quality up to solar-grade. In addition, uMGScurrently appears to be capable of producing solar cells with efficienciesof only about 15 percent, which is below the 18 to 20 percent that can beproduced with pure polysilicon. That means that the price of uMGS willhave to be lower than the price of polysilicon in order to maintain equalityon a price/watt basis.The development of uMGS needs to be watched very carefully goingforward because uMGS producers will be direct competitors with traditional polysilicon producers and will contribute to the available supplyof polysilicon. Polysilicon supply from uMGS will be on the market assoon as mid-2008 when Elkem Solar finishes its plant that uses the uMGSprocess. Companies working on uMGS include Nippon Steel (Japan), JFE(Japan), Arise (Canada), Global PV Specialists (United States), and GiraSolar (Netherlands). In addition, the following companies have already announced actual production plans for uMGS production:
r Dow Corning. Dow Corning, which is a part owner of Hemlock Semiconductor, announced in September 2006 that it had produced solargrade (SoG) silicon derived from metallurgical processes.52 The product is called PV 1101 SoG Silicon. The PV 1101 SoG Silicon can bemixed with traditional 100 percent pure silicon to produce a siliconmix that is good enough to manufacture solar cells, though at a lowerefficiency than pure polysilicon. Dow Corning is producing SoG Silicon in bulk and began bulk customer shipments in August 2006. DowCorning is a 50–50 joint venture established in 1943 between CorningInc (NYSE: GLW) and The Dow Chemical Company (NYSE: DOW).
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r Elkem Solar. Elkem Solar has announced plans to build a $450 million plant in Norway to produce Elkem Solar Silicon® , which is solargrade silicon manufactured through a metallurgical process. The plantwill have an initial annual capacity of 5,000 metric tons. The plant isscheduled to start production by mid-2008. Elkem says that its plannedproduction is already sold out through 2012. Elkem said that production “requires less energy and production costs will compare favorablywith the costs of using existing technology.” Elkem Solar is a divisionof Elkem, which is a Norwegian metals and materials company withabout $300 million in reven