Polysilicon Price Plunge Provides a Ray of Hope for Solar Industry

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The market for solar-grade silicon has seen a night-and-day change compared to a year ago.

Polysilicon, a key ingredient in most solar products, was in short supply and selling on the spot market last summer for almost $500 per kilogram.

Enter a global recession and credit crunch, and polysilicon prices plunged alongside those for many other raw materials.

Today, that same polysilicon goes for well below $200. A report issued last week by New Energy Finance predicts polysilicon prices will continue falling as much as 43 percent next year.

The solar industry is seeing a badly needed "normalization" in the cost of raw materials, said Shyam Mehta, a solar analyst with Greentech Media. It’s one bright spot for an industry that is dealing with two other major problems in this economy: deflation and slumping demand.

Polysilicon accounts for a significant portion of the cost of a finished solar module. The solar industry initially used leftovers from the semiconductor industry and later built its own production plants. Still, the supply has been tight most of the last half-decade.

Prices have receded recently because of new plants coming online, as well as slumping demand due to the economy.

Many consumers are nervously putting off big purchases until they feel the economy has improved, and that’s having a big impact on the solar industry, said Ed Gunther, author of the Gunther Portfolio blog, which tracks news about the photovoltaic industry. Meanwhile, solar developers are running into difficulty financing commercial and utility projects because of the credit market.

The price of solar photovoltaic modules started dropping sharply in the fourth quarter of 2008, Mehta said. That’s good news for consumers and the climate, because it means solar electricity is getting closer to the point where it is competitive with grid electricity prices.

According to Solarbuzz , a research and consulting company, the average U.S. retail price per watt for 125-watt and larger systems fell from $4.85 in December to $4.78 in March (note correction). That’s the lowest point the index has reached since April 2006.

But the price solar manufacturers have been paying for raw materials hasn’t kept pace with that decline, Mehta said, and that has squeezed profit margins at companies whose growth will help solve our climate challenge.

The decline in polysilicon prices should help manufacturers maintain "decent" profit margins, he said.

"The real question at the moment is: can poly prices fall faster than module prices," Mehta said.

When polysilicon price declines start to show up in the price of photovoltaic modules, that should help the industry by spurring demand.

Mehta expects the polysilicon market to stabilize over the next few years. For now, though, the lower prices are among a few positive signs among an otherwise gloomy outlook, courtesy of the economy.

    It’s a good thing, Mehta said, "but by no means is it a panacea for the solar industry."


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