If you are invested in solar energy or are thinking about it then it’s important to get a clear picture of the polysilicon supply in the coming years. Right now the only thing stopping solar cell/panel manufacturers to increase production is the shortage of polysilicon.
What is Polysilicon?
Polycrystalline silicon or polysilicon or poly-Si or simply poly (in context) is a material consisting of multiple small silicon crystals (wikipedia). Polysilicon is a key component of solar cells and the recent shortage has caused the prices to soar.
There are two scenarios here:
If the polysilicon shortage continues to last beyond next year and continues for a few year then it benefits:
* MEMC Electronics (NYSE: WFR) - Polysilicon supplier
* First Solar Inc. (Nasdaq: FSLR) - Thin film solar cell manufacturer
* Evergreen Solar (Nasdaq: ESLR) - Uses string ribbon technology that uses less polysilicon.
* Daystar Technologies (Nasdaq: DSTI) - Thin film solar cell manufacturer
If we see more supply and prices stabilizing or declining starting next year then it benefits:
Let’s look at what the solar cell makers have to say:
We do believe in the next year or two there will be about five or more polysilicon manufacturers in China, and as I always say manufacturing polysilicon is not a rocket science. There could be some teething problems in the beginning, but we do believe polysilicon will be manufactured in China very soon in large quantities. (CEO Zhengrong Shi from SeekingAlpha conference call transcript)
* We expect polysilicon prices increase further in 2007.
* We expect that polysilicon demand will continue to outstrip supply throughout 2007 and potentially for a longer period.
* According research firm The Information Network, the amount of polysilicon shortfall is likely to triple to 71,000 metric tones (NYSE:MT) during 2006 to 2010. (Digitimes)
* Polysilicon supply will remain tight until 2008, according to research by JP Morgan in a September 2006 research report. The equity firm attributed the cautious expansion to the vast investment involved and the experience of vicious oversupply in 1998. JP Morgan further noted that most polysilicon vendors require stringent long term contracts with favorable pricing agreements before they start building new capacity under the mentioned considerations. (Digitimes)
* Hemlock Semiconductor, the largest polysilicon maker, is spending nearly $500 million to double its output from 7,700 to 14,500 metric tons annually by 2008. Germany’s Wacker-Chemie is boosting production from 5,500 to 9,000 tons. MEMC Electronic Materials, which makes polysilicon and silicon wafers, plans to double production from 4,000 to 8,000 tons. [EDN]
* Several leading solar energy companies projected that the global shortage in silicon, will ease by 2008 as production capacity expands. The forecast was made by Elkem Solar, a leading polysilicon supplier, and BP, one of the largest producers of photovoltaic [PV] cells, at the second annual “China’s Power and Alternative Energy Summit 2006” on June 8 and 9, 2006. (WorldWatch)
I still don’t know if the shortage will end next year or continue until 2010 and beyond. Right now I am betting that we start seeing some relief in supplies starting next year. Chinese polysilicon suppliers should help with the supply constraints as well and my guess is that we will see Suntech Power, the largest of the Chinese solar cell manufacturers, to vertically integrate by adding polysilicon production.
Right now my holdings reflect that I believe polysilicon shortage will ease in 2008.
Disclosure: I own call options on STP and SPWR and put options on WFR and FSLR.