Being a solar vendor used to mean making calls, building relationships, and beating the competition. Times have changed. “Right now they literally can just sit back and answer the phone,” says Matt Cheney, CEO of renewable energy financing company MMA Renewable Ventures. Instead of sales pitches, solar integrator Sun Light and Power CEO Gary Gerber now hears a line about solar panels he’s come to hate: “We don’t have any.”
That’s because there’s a shortage of solar-grade silicon. Demand for solar power now far outstrips supply. Mr. Gerber says he hasn’t been able to get all the solar modules he’s wanted for the last year and a half—despite a 30-year history and well-established supply relationships. In silicon’s white-hot aftermarket, prices have gone from an average of $32 per kilogram at the end of 2004 to more than $150 per kilogram today, according to Michael Rogol, managing director of Photon Consulting.
Isn’t silicon supposed to be the second-most common element on Earth’s crust? Yes, but it starts out as sand, and purifying it into the high grade required to turn sunlight into electricity is an expensive, difficult process even at high volumes. That is why, shortage or no shortage, silicon remains the costliest component of solar cells.
The other problem is capacity. More and bigger plants might be around today, had silicon manufacturers anticipated today’s solar boom. But they didn’t, and it takes typically three years to build a silicon fab.
Globally, the solar industry’s sales—including all components such as modules, inverters, and installations—have grown from $8.3 billion in 2004 to an estimated $19 billion this year, Mr. Rogol says (see “Solar Industry Forecast: Bright With Some Clouds,” p. 38). That curve would be far sharper if manufacturers could get their hands on more silicon. But signs of the shortage are everywhere—in the long-term contracts, in the high prices for solar panels, and in the growing investment in technologies that use less silicon.
Startups might have the most to lose, and to gain. Some are struggling to get materials amid more established players with longer supply-chain relationships. Others are taking advantage of short supplies to push forward with new silicon-saving technologies that could disrupt the market. “The silicon shortage is jumpstarting these promising alternatives that are doing more with less,” Mr. Cheney says.
Making MoreThe shortage, in short, is changing the industry. Manufacturers have been making their highest profits in years. Because solar companies are selling as much as they can make, publicly traded companies are being valued according to their silicon supply, says B.J. Stanbery, CEO of solar startup HelioVolt. So investors are pouring money into companies that can make silicon—as illustrated by Norway’s Renewable Energy Corporation (REC) and Munich-based Wacker Chemie, which both enjoyed strong IPOs this year.
Alternative silicon-making is also getting renewed attention. Purifying solar-grade silicon from “dirty” metallurgical-grade silicon could cut the price and expand availability. Oslo-based Elkem, Tokyo-based JFE Steel, and Dow Corning are all working in this area, as is solar cell startup CaliSolar. (The Sunnyvale, California-based solar cell company raised $9 million in a first round of funding from Advanced Technology Ventures and Globespan Capital Partners in July.)
SRI International has developed and is looking to license its own low-cost technology that uses low levels of energy, according to Vice President Larry Dubois. Then there is the Solsinc Consortium, made up of ECN, Sunergy, Sintef, Norwegian Crystallites, and Scanarc; the group is trying to figure out how to make silicon out of quartz and carbon. And there’s Solaicx, which is developing a crystal grower—the company says it can produce high-efficiency silicon ingots five times as fast as traditional crystal growers, at lower cost.
Doing More With LessAt the other end of the supply chain, solar manufacturers are trying to make more with less silicon. SunPower has thinned down its wafers from 250 microns to 190 microns, for example. At 330 microns two years ago, SolarWorld’s wafers were positively obese; now they’re a very smart 210.
Evergreen Solar’s “string ribbon” technology won the company a joint venture deal with solar majors Q-Cells and REC—and the new venture scored a coveted seven-year polysilicon supply agreement from REC. That’s a big deal for a small company, and Mark Farber, founder and vice president of business development, says it’s due to Evergreen’s technology. Instead of cutting wafers from bricks, Marlboro, Massachusetts-based Evergreen developed a system that pulls two high-temperature strings through a crucible filled with liquid silicon, using surface tension to form a ribbon between the strings. As of June, the wafers were 200 microns thick, and Evergreen says it could reduce that to less than 150 microns.
But the biggest tech benefactors of the shortage are probably the thin-film solar companies (see “Talking the Talk,” page 35). In the past, thin films were discounted as too expensive and difficult to manufacture in volume, besides being less efficient at converting sunlight into electricity. Now, with traditional crystalline technologies selling out—and high market prices for the few modules available—these issues are less daunting. And new materials and processing technologies are making thin films much more viable.
Venture capital has given thin films a bigger vote of confidence, too, as Nanosolar showed in June with its $75-million round; other startups like Innovalight, Konarka, Miasolé, and HelioVolt have all raised money.
But will VC interest—and the market for thin films—dry up once the shortage problem is sorted out?
HelioVolt’s Mr. Stanbery doubts that. He says thin-film startups like his are only using this window of opportunity to develop their technology and capacity so they can undersell crystalline when the market finally settles down. “This is absolutely a classic setup for disruption of the silicon market,” he says. “It’s a classic scenario for startups like us to get a foot in the door and bring to the market a lower-cost-structure product.”
The Long ViewWhatever happens with thin film, the tension is likely to lead to more changes down the road. “When you look at what happens in crises in other industries, a lot of the smaller companies disappear and bigger companies become more efficient,” says Greg Watt, an operating agent for the International Energy Agency’s Photovoltaic Power Systems Programme. “At the moment, there are a lot of small companies in the solar industry. Will the shortage let large companies grow and small companies disappear, or will they find a niche and grow?”
Probably both, companies say. There is certainly evidence that some consolidation is happening. In August, China’s Suntech Power bought Japanese solar company MSK. That same month, SunEdison bought solar integrator Team Solar. Then in September, SolarCity bought Declination Solar and Palo Alto Solar.
You might say that consolidation was already underway last year, when Energy Innovations acquired Prevalent Power. “I think there will be a great deal of consolidation,” Mr. Stanbery says. “Anybody with a modest supply of silicon locked up will become an attractive acquisition.”
Yet some companies that you’d think would be disadvantaged—startups making silicon-based modules, for instance—are doing well on their own. SunPower, Yingli, and Suntech Power all have silicon agreements, and capital from successful IPOs. And in an environment where 30-year-old Sun Light and Power can’t get some of the modules it wants, integrators such as SunEdison and groSolar have supply agreements with Evergreen, and the funding to match.
Whether they are fueled by government subsidies, energy prices, or supply constraints, boom-and-bust cycles are inevitable, says Jonathan Klein, CEO of Topline Strategies. Those could shake up the industry, and give startups a chance to find a niche and grow it. Frank Asbeck, CEO of SolarWorld, probably puts it best: “Big cycles clean the markets, and only the strongest survive.”