In our feature “Photovoltaics – The Ultimate Renewable” we demonstrate why photovoltaics are a compelling long-term investment even at 2006 prices. In short, the reason you would pay a lifetime cost of $.20 per kilowatt-hour to install a photovoltaic system is because once you’d absorbed that initial installation cost, your annual cost to replace photovoltaics at the rate they degrade is well below the market price of conventional electricity, under $.02 per kilowatt-hour. For this reason, even at today’s high prices, photovoltaic manufacturers are selling them as fast as they can make them.
So why isn’t there more photovoltaic manufacturing capacity? Why is the installed base of photovoltaics in the world barely over 10 gigawatts?
Most photovoltaics are manufactured using polysilicon, the same semi-conductor substrate used for integrated circuits. For years, the photovoltaic manufacturers have bought their polysilicon from manufacturers who primarily produced this product for the computer industry. But in 2005, photovoltaic manufacturing output rose to over 1.6 gigawatts, and for the first time, the solar energy industry was competing with the computer industry to buy polysilicon. Photovoltaic panels consumed about one-third of the 30,000 tons of polysilicon produced worldwide in 2005, about 10,000 tons. Some people think there’s going to be a shortage of polysilicon, and in the short run, they’re probably right.
The economics of polysilicon production, however, rule out the possibility of a long term shortage. Currently polysilicon costs $60 per kilogram. According to an excellent report authored by Jesse Pichel and Ming Yang, Research Analysts with Piper Jaffray, posted on the website Renewable Energy Access, it costs $200 million to build a manufacturing plant capable of outputting 3,000 metric tons of polysilicon per year. That means that at $50 per kilogram, such a factory would gross $150 million every year. Considering the raw material, unprocessed silicon, is one of the most abundant materials on earth, the margins must be pretty good. When the photovoltaic industry only consumed 10% of the world’s polysilicon manfacturing capacity, manufacturers were reluctant to build new plants since the integrated circuit industry – their primary customer – is cyclical and experiences booms and busts. But now the solar cell manufacturers are consuming over 30% of worldwide polysilicon manufacturing capacity, with no end in sight. Demand from the photovoltaic segment is significant, sustainable, and growing fast.
This changes things. Look for the major polysilicon manufacturers – Hemlock, Tokuyama, Wacker, REC, and MEMC – to ramp up production significantly by 2008, and expect many new entrants.
Why, for example, aren’t the major solar customers for polysilicon – BP Solar, Energy Conversion, Evergreen Solar, Kyocera, Mitsubishi, Motech, Q-Cells, Sanyo, Sharp, Sunpower, Suntech, and Shell Solar – investing in their own polysilicon manufacturing?
For $200 million these value-added photovoltaic manufacturers can build their own polysilicon plants to create 3,000 tons of polysilicon per year, which at $50 per kilogram would have a market value of $150 million. When one considers that a kilogram of polysilicon can then be turned into a photovoltaic panel with an output of about 125 watts, then at a price of $2.00 per watt (much lower than today’s prices), another $750 million in revenue is possible per year per plant, or $600 million in margin after purchasing the polysilicon – plenty of money to cover the cost of the value-added processes to turn the polysilicon ingots into photovoltaic panels.
What is most amazing is that the worldwide photovoltaic industry is still so small. The entire world output of polysilicon for photovoltaic panels could be doubled with an investment of $600M for three plants producing 3,000 tons per year each. World energy consumption from all sources, last year, topped 20,000 gigawatts – and only 10 of these 20,000 gigawatts (that’s 0.05% or one-twentieth of one percent) were supplied by photovoltaics – the ultimate renewable. This industry is going to take off in a very, very big way.