First Solar (FSLR): Silicon Shortage May Be Followed By Other Bottlenecks

The price of silicon, a key ingredient in most solar panels (though not First Solar’s), has jumped 10X in five years, from $25 a kilogram to $250. This price move is constraining the solar industry’s growth and slowing the fall in the price of panels. The industry has reacted accordingly–by ramping up silicon production–and most analysts expect the shortage to ease in 2009. Once this bottleneck is eliminated, however, analysts fear there will soon be others: wafer-manufacturing and specialised chemicals.

The Economist: New Energy Finance, a research firm, expects the output of silicon for the solar industry almost to double next year. It has asked big buyers and sellers what prices they have agreed on this year for silicon to be delivered in the future. The responses suggest that participants in the industry expect prices to fall by more than 40% next year, and over 70% by 2015 (see chart).

Other analysts are more cautious. HSBC, an investment bank, expects shortages to last throughout 2009. Cyrus Mewawalla of Westhall Capital, a broker, notes that predictions of silicon prices were notoriously unreliable even when chipmakers were the sole customers; the rise of the solar industry adds another variable…

Yet even if the silicon price falls, other bottlenecks may well appear. The first step in making solar cells is to shape silicon into ingots and then slice it into wafers. Ingot- and wafer-makers hope a surge in the silicon supply will expose a lack of capacity in their fields. Others wonder whether there will be enough of the specialist chemicals that coat cells. HSBC predicts that the solar industry will grow by 45% a year until 2012. Such searing expansion is bound to cause more growing pains.

First Solar (FSLR) itself does not use silicon-based solar cells. SunPower (SPWR), Evergreen Solar (ESLR), Solarfun Power (SOLF) and most other major players do. First Solar (FSLR) uses cadmium-telluride (CdTe) thin-film technology. However, it is still unclear if Tellurium, a rare element, is as abundant as FSLR says it is.

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