The shortage of solar-grade silicon will ease in 2008, according to a report released Thursday by the Prometheus Institute for Sustainable Development.

The free report, titled “Polysilicon: Supply, Demand, and Implications for the PV Industry,” projects that the availability of polysilicon—a grade of silicon used by both solar and semiconductor industries—will grow from 34,710 metric tons in 2006 to 73,900 metric tons in 2008, and to 97,100 metric tons in 2010.

report

According to research firm Piper Jaffray’s estimates, cited in the report, the total polysilicon available for the solar industry alone will grow from 13,523 metric tons this year to 30,510 metric tons in 2008 and 49,308 metric tons in 2010.

That means there will be enough silicon to allow the solar-electric industry to grow to 8 gigawatts of annual peak capacity by 2010, writes Travis Bradford, president of the institute.

That means there will be enough silicon to allow the solar-electric industry to grow to 8 gigawatts of annual peak capacity by 2010, writes Travis Bradford, president of the institute.

Larger-than-expected expansion plans by major silicon manufacturers such as REC, Wacker Chemie, and Tokuyama, are pushing the positive prognosis (see Three Huge Solar Trends, Solar: 3 Reasons For Optimism).

Solar: 3 Reasons For Optimism

The institute also expects that thinner wafers, silicon recycling, a growing market share for thin-film technologies that use little or no silicon, and technology advances that enable modules to convert more sunlight into electricity using less silicon will help ease the shortage.

The prediction is good news for the booming solar industry, which has been constrained by the silicon shortage, resulting in high prices, long-term contracts for silicon and modules, and growing investment in technologies that use less silicon (see PowerLight Snaps Up Solar Cells, Nanosolar Gets $100M for PV).

Nanosolar Gets $100M for PV

How bad is it? Michael Rogol, managing director of Photon Consulting, the consulting and research arm of trade magazine Photon International, expects a total of 2.4 gigawatts of solar equipment to be produced this year, but says the industry could sell 5-gigawatts worth if more equipment was available.

Even Sharp, the world’s No. 1 solar manufacturer, could double its sales if it had the silicon, says Ron Kenedi, head of solar operations in North and South America.

And with “no significant new capacity” this year, solar’s growth will stay limited through 2007, according to the Prometheus report. “It is likely than 2006 and 2007 will be difficult for the PV industry,” the report states.

Silicon Prices

The silicon shortage became apparent in 2005. According to Mr. Rogol, prices—which had fallen as low as $9 per kilogram after the dot-com crash—averaged $32 per kilogram by the end of 2004, regardless of whether the silicon was bought directly from silicon manufacturers or second-hand.

Those averages jumped to $45 per kilogram for direct purchases, and $100 per kilogram for purchases on the aftermarket, in 2005. This year, aftermarket prices are more than $150 per kilogram, compared with about $60 per kilogram for direct purchases.

And next year, Mr. Rogol expects the prices to rise to $70 and more than $200, respectively. “The most profitable way to use silicon in the electronics sector is not to make a chip, but instead to resell it to solar,” he says.

Projections about when the shortage will end vary widely. Mr. Rogol says even the higher-then-expected growth in silicon production isn’t enough to match the growth in demand. “Supply this year, at an extreme, is up maybe 50 percent, but demand is definitely growing faster than supply,” he says. “Could that reverse eventually? Sure, it could happen, but not as long as grid prices keep rising and the government keeps putting strong incentives in place.”

Of course, not everyone wants the shortage to end soon. Some thin-film manufacturers have benefited from increased attention and funding, for example, and would welcome a continued shortage (See Blitzstrom Buys More Thin Film, ErSol Buys Into Thin Film, Solar’s Going Thin).

Blitzstrom Buys More Thin FilmSolar’s Going Thin

B.J. Stanbery, CEO of thin-film startup HelioVolt, says he doesn’t expect the shortage to abate until 2009, and says it won’t disappear altogether until 2010 or 2012, if at all.

The real trouble with predictions is that demand is theoretical and hard to quantify, depending on factors like government subsidies and pricing.

So opinions vary widely. With all the new silicon, many solar companies—including MMA Renewable Ventures, Trina Solar, Yingli Solar, and Conergy—say they expect the shortage to end in one to three years.

Contact the Writer: jkho@redherring.com