The major silicon supply contract signed Wednesday between Germany's ErSol Solar Energy AG and Wacker Chemie AG highlights one of the biggest problems in the solar industry: the extreme scarcity of the product's main ingredient.
"For 2006 ... there are roughly 13,000 to 15,000 tons of high-grade silicon available," Erik Thorsen, the president and chief executive officer of the Norwegian silicon supplier Renewable Energy Corporation, told United Press International.
"Probably the demand (from solar companies) is twice the current supply," he said.
This imbalance makes prices high, and is part of the reason photovoltaic solar energy, which converts sunlight into electricity by chemical reaction, must be heavily subsidized to compete with the price of electricity from fossil fuels.
It's also affecting the solar business.
"The shortage is part of what caused (photovoltaic) stocks to pull back since May," J. Peter Lynch, a financial consultant and an expert on the renewable energy industry, said in an e-mail.
"Wall Street analysts had be looking for 40 percent-plus growth and all of a sudden (sometimes it takes some time to sink in) they are looking at 15 percent to 20 percent growth because of the shortage, and stock got hit as a result," Lynch said.
It also makes securing good supply contracts essential; ErSol's contract with Wacker takes effect in 2009 and will give ErSol an additional production output of approximately 100 megawatts peak over six years, according to an ErSol company statement.
The contract "is quite a significant success," ErSol Chief Executive Officer Claus Beneking told UPI. "Silicon is not easy to get, but already having (supply contracts for the material) makes it easier than it is for newcomers."
Thanks to this deal, ErSol will boast 150 megawatts to 200 megawatts per year in production capacity starting in 2009, Beneking said.
"In total, we will have more than doubled our silicon supply as compared to one year ago," he said.
In the short term, there is no way to increase the silicon supply to meet demand, REC's Thorsen said.
Lynch, the financial consultant, said he agreed.
"I think the shortage is definitely a short term 2008-2009 problem," he said in an e-mail.
However, a few years down the road, the market will be able to realize a major capacity expansion. "It takes two to three years to build a plant like that," Thorsen said, explaining the necessary delay.
Silicon is the second-most abundant element in the Earth's crust, making up 25.7 percent by weight. However, refining it enough for use in semiconductors and solar cells takes a "big chemical plant," Thorsen said.
"To produce this kind of silicon, you need to refine it using a chemical process, then bring it back to solid form using reactor devices," he said.
Many suppliers are already working toward expanding their capacity, and therefore, "toward 2008 and forward, more capacity will be available."
"If you're looking at it from the 2008 to 2010 perspective, capacity will at least triple," Thorsen said.
Will demand for solar still be greater than silicon supply after this dramatic increase?
"We think so," ErSol's Beneking said. Speaking in terms of his company's own new silicon reserve, he said, "We have two new long-term contracts that will take a significant amount of the new quantity (of silicon acquired in the deal)."
"We wouldn't have a problem to sell everything in advance, but we want to be flexible and keep some back," he said.
Other factors might drive photovoltaic demand up as well: "(Silicon supply) could be a long term problem because things like global warming and peak oil (prices) may force more PV use, and that would put silicon into a catch up mode even over the long term," Lynch said.
Source : Semiconductor International - Solar World: Silicon deal amid scarcity.
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