By Russell Hasan,
President of Altenews.com
I recently wrote a research report on the solar power industry and solar
power investment for Alternative Energy News Source (http://www.altenews.com).
In this report I noticed several factors that will cause the solar power
industry to extend its five-year trend of 30% annual growth for at least
another ten years, and possibly longer. Various factors that will help
solar power include government incentives, new solar technologies, the
rising demand for electrification in rural areas of the developing world,
the growing trend towards “green building” which often puts
solar panels into rooftops, and the fears of air pollution in industrializing
China and India. Solar power is also helped by the “triple threat”
that encourages alternative energy: the growing concern over global
warming, the desire for energy independence, and the rising price of
oil. There is, however, one aspect of solar power that, according to
many experts, threatens the future growth of the solar industry. This
danger is the shortage of silicon, which is the main raw material for
manufacturing the most popular kinds of solar panels. Investors who
understand the dynamics of silicon supply may have an advantage when
investing in solar stocks.
Solar power investors should have a basic understanding of solar technology
and the economics of silicon. The most prevalent kind of solar technology
is photovoltaics, or in other words solar panels, and the vast majority
of solar panels are silicon-based solar panels. About 90% of photovoltaic
sales are made from silicon-based solar cells. Silicon-based solar panels
are made from silicon wafers that have their front and back sides treated
with chemicals to make them react with light to produce electricity.
The solar panels differ only in whether they are mono-crystalline, which
are made from one big silicon crystal, or multi-crystalline, which are
made from many tiny silicon crystals. Both mono- and multi-crystalline
solar panels are made of silicon.
Silicon is made from sand, a common natural resource. From this it could
be assumed that silicon is plentiful. Unfortunately, this is not the
case. High-grade processed silicon is in such high demand among computer
chip makers and solar panel manufacturers that competition for silicon
from the computer chip industry has driven the price of silicon way
up. In general, the computer chip industry can pay more for silicon
than the solar power industry. This has created a shortage of solar-grade
silicon with which to make silicon solar panels. In fact, most of the
silicon used by the solar industry comes from reject silicon wafers
that were found unsuitable for use by the computer chip industry. The
price of silicon has gone up from around $25/kilogram in 2004 to around
$200/kilogram in 2006 due to the increased demand for silicon. The massive
demand for silicon from both solar makers and computer chip makers has
caused a significant shortage of solar-quality silicon, which is having
an adverse impact on the solar industry. The high price and tight supply
of silicon is forecast to cause serious harm to solar power growth,
with some analysts claiming that solar growth, which has recently been
30% per year, may decline by 10% to 20% in the coming years due to the
solar silicon shortage.
There are two main effects of the solar silicon shortage. First is that
silicon-based solar manufacturing stocks now go up and down wildly based
on announcements of the acquisition or loss of stable supplies of silicon.
The second effect is the growing popularity of “thin-film”
technology. Thin film solar panels either use a very thin coating of
silicon, which uses as much as 99% less silicon than a solid silicon
cell, or else it uses no silicon whatsoever and relies on other photovoltaic
materials such as copper compounds. Thin film technology is a way to
get around the silicon shortage. However, thin films are typically much
less efficient than silicon, with 7% to 10% efficiency compared to silicon’s
average 15% efficiency. Thin films normally take up twice the space
of silicon panels with the same wattage. Thin film technology is also
less developed and more complicated than silicon technology. Up until
the silicon shortage, silicon technology had dominated the industry,
but the solar silicon shortage has led to a sharp reversal in which
thin film now gets more attention. Investors who are afraid of the silicon
shortage are pouring money into thin film at such rates that all of
the excitement is focused on thin film, creating a “thin film
craze.” Most silicon-based solar manufacturers are now ignored
in favor of thin film technology-based companies that employ methods
such as copper ink printing, CIGS, CIS, dye PV and organic PV.
Solar power investors are putting money into thin film startups in such
a way that they seem to think that the solar silicon shortage will last
for decades, and that thin film is going to replace silicon as the standard
in solar technology. However, while writing the Altenews research report
“Solar Power Investment: The Dawn of Solar Power,” which
is available free to the public on http://www.altenews.com, I found
that the solar silicon shortage will likely end at some time from 2009
to 2010. One industry forecast places current silicon capacity at 34,000
tons, and estimates capacity to rise to 70,000 tons by 2009. Another
source predicts that silicon capacity will grow to 78,000 tons in 2010.
Three of the biggest silicon suppliers, Renewable Energy Corp. of Norway,
Wacker of Germany, and MEMC of the USA, have all announced plans for
large increases in their silicon capacity. REC plans to add 6,500 tons,
Wacker will add 3,500 tons by 2009, and MEMC will double its present
capacity by 2010. Chinese silicon suppliers plan to expand their capacity
by 10,000 tons by 2009. Based on this it is reasonable to suppose that
the solar silicon shortage will continue in 2007, but will be greatly
reduced in 2009 and will come to an end by 2010.
Investors who understand the solar silicon shortage may be able to see
higher than average returns if the predictions turn out to be accurate.
It is a fundamental law of economics that when demand goes up and price
goes up, supply will rise to meet demand and the price will drop to
the point of equilibrium. Contrary to popular belief, it is fair to
expect this to happen with silicon. In the research report, I explain
the various kinds of thin film technologies and their advantages and
disadvantages. I also look at solar markets, and the conclusions differed
based on the markets. In industrialized nations with solar incentives,
such as the USA, Germany, and Japan, the trend is towards a need for
smaller and higher efficiency solar panels, which means that silicon
is best suited for this market. In the developing world the need is
for cheaper solar panels that may take up more space, so that low cost
thin films are best suited for that market. There are many different
competing thin film technologies, each of which is designed for a different
purpose, but this description of silicon for the First World and thin
film for the Third World is a good general account of the best usage
of solar technology.
Thus, there are two recommendations for investors. In the short term,
in 2007, thin films are a way around the silicon shortage, and so thin
films may outperform silicon next year. In the long term, after 2009
or 2010, the solar silicon shortage will be over, and investments in
silicon-based solar manufacturing stocks will make sense as a long-term
strategy. Secondly, with silicon technology, the demand in wealthy industrialized
nations is for higher efficiency, while the demand in impoverished developing
countries is for lower cost. Thus, when looking at which companies to
invest in, two things that investors should look for are high efficiency
silicon tech and low cost thin film tech, and investors should also
look at which markets the companies are seeking to sell to. The thin
film craze, which is focused on high efficiency high cost thin film
tech, may not make much sense in a post-silicon shortage market. However,
there are many different thin film technologies, and each one must be
evaluated separately, since some thin film technologies are better than
others. More detailed information about the silicon shortage, solar
technology, solar markets, and the solar industry’s historical
growth can be found in the Altenews.com research report “The Dawn
of Solar Power.” The most important conclusion is that because
the solar silicon shortage will be over soon there are no major obstacles
to solar progress, and the solar industry should see high annual growth
for many years to come. Solar power is a sector with high growth potential,
and every investor interested in alternative energy should look carefully
at the solar power industry.
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