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By Ucilia Wang

The shortage is over and the glut is just around the corner.

Although demand for polysilicon to make solar panels will grow by 34 percent next year, the supply will likely double, thanks to new factories that were planned out years ago, according to a new report by iSuppli.

As a result, the price for silicon will drop dramatically, the firm said. And since silicon is a major component in the cost of solar cells, those will likely swoon too (see abstract).

The slide will even likely accelerate in 2010.

Spot market prices for polysilicon hit $500 per kilogram earlier this year, compared with $200 per kilogram in 2007. iSupply expects the spot market prices to fall as low as $200 per kilogram next year. By 2010, the prices could drop as low as $100 per kilogram, wrote Henning Wicht, iSuppli's principal solar analyst.

Most silicon is bought under long-term contracts and not under the spot market. Movements in the spot market, however, can often reflect price directions in the industry. Companies also examine changes in the spot when renegotiating supply contracts.

Market and financial analysts have been predicting an end to the polysilicon shortage that began in late 2004 and early 2005 as solar companies began to compete more fiercely with chip companies, which use the silicon for making chips that run computers, cell phones and other gadgets. Subsidies offered by the German government also prompted demand to skyrocket.

Silicon remains the primary ingredient for making solar cells and panels today, although a raft of other companies are exploring different materials. First Solar (FSLR), one of a handful of successful thin-film companies, uses cadmium tellurium for its thin-film panels. Startups such as NanoSolar use copper indium gallium selenium instead, although CIGS panels have a market penetration right now that's close to zero.

In 2007, 90 percent of polysilicon came from seven companies, including Wacker, REC and MEMC (WFC). Since then, more than 60 additional companies have said they plan to start producing the material in 2009, said iSuppli.

iSupply's report echoes  what Travis Bradford, president of the Prometheus Institute, a research partner of Greentech Media, said earlier this year (see New Research Predicts End to Silicon Shortage and Oversupply of Silicon to Be Worse than Expected).

Although the drop in polysilicon prices is good news for solar cell and panel makers, their customers will expect lower prices for their solar energy equipment as well. That, in turn, could lead to a tough fight for market share, particularly during an economic downturn.

Solar company executives and analysts have predicted a drop of anywhere from 5 percent to more than 20 percent in solar panel prices next year. During an industry conference in September, SunPower Corp.'s (SPWRA) CEO Thomas Werner told Reuters that panel prices will likely fall between 10 percent to 20 percent in 2009.

click to enlarge

source: iSuppli

Source: Polysilicon Prices Head for Steep Fall: Good News for Solar?