The Photovoltaic Boom

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.

9 Responses to “The Photovoltaic Boom”
  1. Rich Lobel says:

    Would like to be kept in the loop about developments in photovoltaic market.


  2. Jdallas says:

    For the reasons you’ve stated, I’ve chosen to get my solar panels now, while they’re available at a reasonable cost. As utility costs continue to escallate, my panels will be producing free electricity, and I’m polluting the planet less. The demand for solar panels could escallate to a point where they’re almost impossible to get. I write about my experineces on my blog, hoping to convince others to do the same:

  3. James says:

    Since this article came out the 5 companies listed have doubled or tripled in share price.

  4. Kelvin Phillips says:

    please provide update and current price for silicon ingots

  5. Thanks a great deal for such vital information on PV’s. At the moment, My family is in an advanced stage in introducing wind and solar energy devices in the sunny/windy Caribbean islands.

    Any relevant information pertinent to this endeavour would be greatly appreciated.

    We are not short of technical know-how relating to project; however any information in relation to sourcing of cost effective related hardware including “franchising” ect. would be be useful.

    Best regards!

  6. Manish Agarwal says:

    Dear Sir,

    Excellent article, i am very very interested in the development of solar energy and am looking at investing in the same, could you suggest some small scale project that can be taken up with an investment of (only) around $1-2 million in India. Please keep me in loop about the developments in the industry if possible.

    Warm Regards,

    Manish Agarwal,
    D.K. Trading Company.

  7. i am an electrical engineer and now working as chief executive.can you clarify and send me the litrature by mail-electrical energy required to produce 1wattsolar panel with polysilicon solar cells will be more and i heared that it is waste to manufacture 1watt solar panel by using more energy.
    kindly clarify?i think though the energy used will be more solar panel can be used for many more years to produce electricity.


  8. i have gone through this and i am happy to note the developments.i need some more details.
    sethuraman iyar

  9. We may all be relying on photovoltaic energy in the future, we need to spread the message loud and clear.


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