Polysilicon Prices in 2012: The Tipping Point For Solar
by David Fessler, Investment U Senior Analyst
Tuesday, January 31, 2012: Issue #1697
Solar energy detractors point to the fact that it can’t compete without “huge” government subsidies. And up until now, I couldn’t argue to the contrary.
But very soon, those detractors will likely be eating their words. I’ve said it many times in the past: Technology marches on, and the cost of manufacturing will come down.
Well the cost of manufacturing solar isn’t just coming down; it’s dropping through the floor. By the end of this year, solar will be so cheap it will compete with just about any other form of generation. It already does in some places, and at commercial scale levels. The best part? It will do it without subsidies.
You see, solar panel prices are about to cross a tipping point. It’s all due to the drop in price of a solar module’s most crucial ingredient: polysilicon.
The Polysilicon House of Cards
Polysilicon prices have collapsed 90% in the last five years. That translates directly into lower module costs, lower panel prices and ultimately into a lower installed cost per watt.
How did this happen? Way back in 2006, there was a run on polysilicon. It turns out it’s the same material used to make integrated circuits. But all of a sudden, the solar industry was booming, and competing for what was then a limited supply.
Its use for solar was rising rapidly, and 2006 was the first year that 50% of all polysilicon went into the manufacture of modules for solar panels. And panel manufacturers were clamoring for even more.
Polysilicon makers were laughing all the way to the bank, and then some. They essentially were an oligopoly, and were earning upwards of 40% margins on their product, according to a recent research report published by GTM Research.
Prices just kept rising along with demand, and by 2008 the shortage was so severe, polysilicon was selling for over $400 per kilogram on the spot market. Margins had risen to 70%.
Naturally, this lured new players into the market, and led existing makers to expand manufacturing capacity. But they overestimated how much was really going to be needed.
By 2011, much of this additional capacity began to come online, and polysilicon prices started falling. By March of 2011, the spot price had dropped to $80 per kilogram, and by this past December, it was all the way down to $30 per kilo.
This incredibly low spot price was all the leverage customers with long-term contracts needed to renegotiate lower prices.
GTM Research predicts that in 2012, these declining silicon prices will lead to even lower module prices. At the beginning of 2011, module prices were $1.80 per watt. By the end of 2011, they were halved to $0.90 per watt.
Closing in on Grid Parity
This year, GTM expects module prices to breach the $0.70-per-watt barrier and continue to head south. Of course, with other manufacturing costs and installation being relatively fixed, lower raw material means lower panel prices. And $0.70 per watt is below the magic $1.00-per-watt level that’s widely viewed as “grid parity” for solar.
That’s the point where it makes just as much sense to use solar as any other form of generation.
The system I installed at my farm is 10.08 kilowatts (KW). Over its 25-year lifetime, it’s expected to produce an average of 12,000 to 18,000 kilowatt-hours (kWh) per year.
I’m leasing my system for five years, and will then purchase it. My total all-in cost is about $27,000. (Since I’m leasing the system, I don’t receive any government subsidies or tax breaks.)
Let’s assume that the system produces the minimum amount per year, 12,000 kWh.
Multiplying by 25 and then dividing by the cost of the system, we come up with $0.08 per kWh. My current electricity from the grid operator costs $0.14 per kWh.
That’s almost a 50% savings. If I produce even more, my savings will be even higher.
And this system has panels that were manufactured in 2011. Panels made this year will be even cheaper, and so will the all-in cost.
Misinformation and Black Eyes
So what’s keeping solar from being widely adopted? Lack of information, for one…
The industry got quite a black eye over the Solyndra deal.
GTM Research Senior Analyst, Brett Prior, believes the industry will continue to grow at 10% to 20% per year for the foreseeable future. He had this to say about the polysilicon market today:
“After a half-decade of silicon demand outstripping supply, the aggressive expansion plans finally overshot.
“This supply/demand imbalance will push producers to lower contract prices closer to the level of manufacturing costs at $20 per kilogram, and will force higher-cost manufacturers to exit the industry.
“The end result is that the current roster of over 170 polysilicon manufacturers and startups will likely be winnowed down to a dozen survivors by the end of decade.”
I believe that as prices continue to drop, solar will continue to gain in popularity.
Big panel manufacturers like U.S.-based SunPower Corporation (Nasdaq: SPWR) will be around when the dust settles. They currently make the most efficient (19%) commercially available panels in the world. The stock is way off its highs of a year ago, but is up a healthy 22% since the beginning of the year.
So is it solar boom time? I don’t have a crystal ball, but with module prices continuing to drop, it becomes more attractive every day. That’s good news for panel manufacturers, as they’ll continue to improve as volumes ramp up. Investors certainly won’t find them any cheaper than they are right now.
Good Investing,
David Fessler
Polysilicon Prices in 2012: The Tipping Point For Solar,Any investment contains risk. Please see our disclaimer.
11 Responses to “Polysilicon Prices in 2012: The Tipping Point For Solar”
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David Fessler is the energy and infrastructure expert for Investment U.
I, too, made the “solar plunge”, installing a home off-grid system in 2006. It was a system originally designed as an emergency power source, as my home/office were without commercial power for 3 weeks at a time 3 times during 2004 and 2005 due to hurricanes. The last one, Wilma, took 98% of the grid down, so the gas stations could not pump fuel for our home generators. A couple of years ago, I wanted to modify the system to connect to the grid, but ran afoul of the state/local ordinances and permitting procedures. Result: lots of my capacity is wasted, even though my system runs every day. This is the point of my comment–now that PV panel prices have dropped significantly, the biggest obstacle to micro PV generation is government bureaucracy. Lots of manufacturers offer code compliant grid tie inverters, but the permitting and application process is a nightmare.
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When some of the producers fall out will the prices creep back up? Will those producers left
keep production at the same level which currently
results in an over supply and thus lowering of prices. i do hope for consumers and the sake of the environment that prices continue to fall.
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We are experiencing a very mild Winter in PA and you haven’t had any freeze-thaw cycles or, unusual cloud cover to interrupt, or reduce your efficiency.
It was interesting that you only shared the $27K installation costs and not the lease cost and residual purchase price. As a result we can’t calculate whether you got hosed or not– I think you probably did!
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Prices of solar are dropping and making it more cost effective and with all products that have enough competition prices will eventually fall.
There are other aspects of the solar, wind and alternative energy scenario that should be considered. For any inconsistent (wind, solar) power source there must be a backup source of readily available power. That is why natural gas, nuclear and coal will always be the backbone of any electricity production. You need low cost base load which can be combined with alternative energy. When the sun does not shine or the wind does not blow you always need that reserve margin of base load power. It costs electric utilities big bucks to keep that reserve margin of power available when you want it and in the quantity (demand)that you need.
Is it fair for your neighbors to pay taxes to reduce your costs and to also pay for the extra reserve margin the utility needs to keep ready when your alternative energy system is not producing the power you need and you want the utility to back up your system so you have power when you want it?
We all must realize that when the government provides incentives (other peoples money – taxes) for us to do something that is otherwise not cost effective – and is not cost effective after the incentive – then we are contributing to the failure of the government to be sustainable. That is one of the many reasons we are $16 trillion in debt and digging deeper.
If the investment is good (either socially, environmentally or fiscally) we should do it without using other people’s money (taxes) to support our own interests.
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solar will be so cheap it will compete with just about any other form of generation.
in Africa we have the sun but no capital now can be easy to use??
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This is really good news! The article would be much more complete if there were two things: 1.)Source material credited for the facts that you list, and 2.)Sources for where to look for solar supplies. I would like to watch what the prices are doing to see when/how I could get into it. Also, are there any good websites out there that help you get started, such as answering questions like “How many panels do I need to power my house? What will my local electrical utility require of me? What electrical rules do I need to know about?”, etc…
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OK, David, I’ve looked around a bit at other things you’ve written. Last October 28, you said “…solar still isn’t cost-effective.” The current article makes it sound like a great thing (i.e. cost-effective). Are you changing your position? Has it changed that much in 3 months? Or are you just saying it’s about to change?
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Tim,
Thanks for your comment.
As Dave stated above, the general grid-parity for solar is supposedly when modules reach $1.00/kWh. Grid-parity varies according to where you live and what sources of energy are around you, though. So keep in mind this is a very general rule of thumb. For instance PV Insider recently reported that in California solar will reach grid parity by 2015.
Right now the modules are pushing about $.90/kWh (in October is was slightly above $1.00/kWh)and could be headed for $.70/kWh in the very near future. The only issue is that many of the polysilicon suppliers have locked up long-term deals with panel manufacturers that will have to be renegotiated to reflect the much lower costs in polysilicon wafers.
This will take some time. But the idea is that with this abundance of supply and the lowering costs of modules that 2012 very well could be the year that propels solar into mainstream adoption.
Keep in mind these things don’t happen overnight, but it’s very positive news for an industry that’s been incredibly hammered down due to the Solyndra scandal. And it certainly looks like a very intriguing contrarian story to watch this year.
Thanks,
Investment U
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It strikes me that nobody talks about the battery pack cost that is the storage for the DC electricity.
The life of the batteries and maintenance are a significant cost factor in calculating the Kwh cost. Why are all factors not included in articles that want to be objective and informative.
Thanks for replying.
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I’m not a fan of government subsidies. I believe that if a technology/etc. can’t stand on it’s own (financial) merit then it isn’t ready for prime time…and certainly it shouldn’t be asking the taxpayer for grants!!! When solar (‘batteries included’, not just “the modules are pushing about $.90/kWh”) stands on it’s own parity with generated electricity delivered to my house I will get interested.
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David, $27,000 at 6% over a 25 year life requires a monthly payment of $173/mo. If your system produces 1,000 kwh per month as you estimate, that electricity will cost 173/1000 kwh = $0.173/kwh.
Its simple math, but that’s how I’d figure out if this made sense. By the way, I am glad that there are people like you who continue to install solar. Because of your small sacrifices, solar may eventually actually become a big deal.
I’m curious, if you could email me this info. I’d appreciate it. Of the $27,000 you invested for this system, what portion was for installation and what portion was for the panels.
I’m doing some research for stock investment purpose. My theory is.. when solar panels are available from China at $1000/kw, solar could become a big deal in places like India. India has cheap labor for installation, and an excellent solar profile of over 4 kwh/m^2 per day of surface solar energy. And, because of the southern latittude, the solar energy available varies little from winter to summer.
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