The price of silicon has fallen through the floor and now the solar industry is in a state of flux, reports Barron’s this weekend:
A year ago, refined silicon for solar cells cost 450 bucks a kilo on the spot market. You can have it today for closer to 100 and if you wait a month it may be cheaper still. Thanks to the workings of international capitalism, the 90% margins available in last year’s market spurred silicon-factory expansions around the planet. But the new supply arrived just as end-market demand for solar panels got eclipsed by faltering government incentives, lower oil prices and the world financial freeze.
As the price of silicon lowers, the companies that offered non-silicon panels are suddenly facing a trickier propsition. First Solar (FSLR) and Energy Conversion (ENER) are particularly highlighted as they offer thin film panels which are a lower cost alternative to silicon based panels.
A key selling point of thin-film panels is their reduced use of costly materials like silicon: a 97% reduction, in most thin-film technologies. Now that silicon is cheaper, First Solar is hustling around to investor conferences explaining how it aims to fly under silicon’s descending cloud ceiling (see the bottom chart to the left). Some silicon panels have already become cheaper than the products of Energy Conversion. Sadly, First Solar’s margins and its premium stock multiple of 22 times this year’s estimates seem fated to decline. Energy Conversion will likely revert to the losses that dogged it for almost 50 years, leaving little solid value in the 15.77 stock except its net cash of $3.30 a share. Neither company responded to our repeated inquiries about cheap silicon.
…First Solar panels convert less of the sun’s energy to electricity, roughly 11% compared with 20% with the best silicon-crystal panels from SunPower. But a developer can afford to buy more of the cheaper First Solar panels. After factoring in the higher hardware expense for its panels, First Solar claims that its panels cost about $1.20 per watt of generating capacity. Cheap silicon, however, slashes the cost of goods for First Solar’s rivals. By its own reckoning, silicon rivals get cost-competitive with First Solar as silicon feedstock drops toward $50 a kilo.
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