Solar: What Happens When Polysilicon Prices Collapse?

[OKIsItJustMe]

http://blogs.barrons.com/techtraderdaily/2009/02/12/solar-what-happens-when-polysilicon-prices-collapse/

February 12, 2009, 12:37 pm

Solar: What Happens When Polysilicon Prices Collapse?

Posted by Eric Savitz

Yesterday afternoon, MEMC Electronic Materials (WFR) disclosed in an SEC filing after the closed that it had struck a revised silicon wafer supply agreement with Suntech Power (STP) which cuts the price Suntech is paying per wafer, but increasing volume to maintain the revenue targets under the deal for both 2009 and for the remainder of the 10-year deal, which was struck in 2006.

The revised agreement is a symptom of a key underlying dynamic in the solar industry: collapsing prices for raw polysilicon in the face of dramatically increasing supply. In a comprehensive report on the subject this morning, Collins Stewart solar analyst Dan Ries notes that spot market poly prices have fallen from a peak of about $450/kg in mid-2008 to the $130-$150/kg range more recently. That’s a pretty dramatic move - but the decline is far from over.

Ries contends that spot prices by mid-2009 will plunge to the $40-$60/kg level, due to a severe oversupply. As the solar industry has blossomed over the last few years, margins exploded for the poly manufacturers like MEMC, drawing in a host of new players. Capacity expansion has boomed, and now appears to be well in excess of demand. Ries estimates that in 2009, polysilicon production will reach 80,300 metric tons, 49% more than his demand forecast of 53,905 tons. That’s a surplus of 26,395 tons. He sees the surplus in 2010 rising to 48, 785 tons, as demand grows 22% while supply increases 43%.

The way Ries see it, oversupply will continue until some production capacity is taken off line. For that to happen, he says, prices will need to drop below $60/kg, roughly the marginal cost for the highest-cost producers.

…

[Vincardog]

1. So we can expect the price of solar collectors to drop soon?

[OKIsItJustMe]

2. Seems reasonable

Of course, the "stimulus plan" may increase demand…

[RC]

3. I suspect this works the same way gasoline prices and credit card interest rates work.

In other words, not by much.

[kristopher]

4. Huh?

"...oversupply will continue until some production capacity is taken off line. "

OR until lower prices and new government policies stimulate end use demand, creating a shortage that will require more investment in manufacturing instead of shutting down existing capacity.

[OKIsItJustMe]

5. Demand will probably not increase instantaneously

These things are dynamic.

[kristopher]

6. The word "instantaneously" isn't in my post.

Nor could it be inferred by a reasonable reading.

[OKIsItJustMe]

7. OK, then there will be an oversupply

Which will likely lead to a cut in production, until demand increases sufficiently to warrant greater production.

[kristopher]

8. Is that going to happen "instantaneously"?

[OKIsItJustMe]

9. There already is an oversupply, production (and jobs) are already being cut

http://www.greentechmedia.com/articles/applied-materials-no-new-solar-contracts-expected--5691.html

Applied Materials: No New Solar Contracts Expected

The solar factory equipment maker said some of its thin-film customers are having trouble lining up money to build their production facilities. The company expects to layoff roughly 200 more than previously anticipated.

Ucilia Wang
February 10, 2009

Applied Materials (NSDQ: AMAT) will enact multi-week shutdowns on its factories and doesn't expect to sign new contracts for solar equipment in the next few quarters, said Applied Materials CEO Mike Splinter Tuesday.

The company is carrying out more cost-cutting measures than it had announced last November, when the financial market crisis was in the early stage of ballooning. When the crisis will end is still difficult to foresee, Splinter said.

"We are planning for a prolonged period of weakness. We are still in the early days of this crisis. There is much we will still learn over the next year," said Splinter over a conference call with financial analysts to discuss the company's quarterly earnings.

Applied Materials, based in Santa Clara, Calif., jumped into the solar equipment market in 2006 and now sells machines for making crystalline silicon panels, as well as thin-film panels using amorphous silicon or a combination of amorphous silicon and microcrystalline silicon. The company has been a long-time developer of factory equipment for making integrated circuits and display panels.

…

http://money.cnn.com/2009/02/11/news/international/powell_shi.fortune/

…

Shi believes the U.S. market for solar under President Obama will take off starting in 2010, when subsidies for solar energy are likely to increase as part of a stimulus plan to revive the overall economy. But the year until then, Shi himself acknowledges, will be unlike anything Suntech has confronted to date.

…

Dealing with overcapacity

The rapid success of Chinese solar companies such as Suntech has spawned lots of imitators. And that's why the market is now plagued by overcapacity. A new report from research company iSuppli says 11.1 gigawatts of panels will be produced in 2009, up 62% from 7.7 gigawatts in 2008. However, iSuppli says just 4.2 gigawatts are expected to be installed in 2009, up from 3.8 gigawatts in 2008.

Shi has responded by significantly scaling back planned capacity increases in 2009. Suntech had originally hoped to raise production from its current one gigawatt to 1.4 gigawatts by the end of 2009, and two gigawatts by the end of next year. Now, Shi says, expansion plans are on hold until the financial crisis passes and the market improves.

That's part of the reason that Suntech fired 800 employees at the end of 2008 - the first layoffs in the company's short lifetime. Shi believes that the scale Suntech has already achieved will enable the company to withstand what will be an industrywide shakeout - with smaller producers of cells and panels falling by the wayside.

…

[kristopher]

18. All because of projected demand based on carbon control

All of that is new production built because of projected demand based on carbon. Any industry has spurts and lulls in it's growth. The basic trend is NOT one of decline, as you seem to so gleefully predict; it is a trend of strong, sustained growth with a virtually unlimited future. The new US president has been in office 3 weeks and has yet barely touched on the two relevant policy issues of energy and climate change. It is hard to take seriously projections of gloom for the industry when no one yet knows where we are headed in either of those areas.

[OKIsItJustMe]

19. What makes you think I'm "gleeful?"

I'm simply reporting the grim reality you apparently choose to ignore.

I'd love to report that the industry is going great guns. I hope that very soon it will be. Today, it is not.

[kristopher]

21. "Today, it is not"

62% growth in production capacity in one year and you fixate on a few layoffs while policies catch up with investments. I can't imagine why anyone would think your perspective is somewhat canted...

Personally, I see all the investment in production as more than just (as one snip you provided put it) "imitators" of one successful company. All of that investment is a picture of things to come and is much, much more significant that a brief period of overshoot and industry consolidation.

[bananas]

24. I'm psychic! I predicted this in December 2, 2007!

As I predicted, "doomers and pro-nukes and pro-coals will use this chaos to justify their wrong opinions and flawed analysis."
This shake-out period is typical with any new industry. It's been exarcebated by problems with the economy, but it's exactly on schedule.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=115x123885

[OKIsItJustMe]

26. Nah, this doesn't count as psychic

I'm not pro-coal, or pro-nuke, I try not to be a "doomer," although lately, my basic optimism has been sorely challenged.

I don't think the solar industry is down for the count.

All I did was post a story that suggested that an oversupply of polysilicon would lead to price and production cuts. To me, this was (in part) good news, since it should also lead to less expensive solar panels.


At the same time as this dramatic oversupply, the economic downturn means that there is less demand for PV. The two combined mean that the solar industry (like the wind industry) is experiencing tough times.

http://www.guardian.co.uk/business/2009/feb/15/green-energy-cutbacks

Clean energy at a crossroads

Green power firms are cutting staff and scaling back plans as the supply of development cash dries up, writes Terry Macalister

The Observer, Sunday 15 February 2009

Green companies are in retreat, with a wave of staff layoffs and production cuts that could have dire consequences for government efforts to fight climate change by quickly bringing low-carbon power projects on stream.

Siemens, Clipper Windpower and even BP are among the big names that say they are reacting to a slowdown in the clean energy sector, which had hitherto seen massive growth. The credit crunch is starving wind and solar developments of urgently needed cash and the situation is being exacerbated by prices crashing to record lows in the carbon trading market.

New Energy Finance, a consultant in the field, says that the next six months are likely to be very difficult for a sector that saw 60% growth in 2007 over 2006, but then almost no further expansion in 2008.

Siemens Wind Power plans to make 400 redundancies at three sites in Denmark and accepts that the 30% growth seen in the sector over recent years could be cut to 20% or even 10% this year.

…

(English "redundancies" = American "layoffs.")


I want the transition to "Green power" to go faster than it has been going, not slower.

[OKIsItJustMe]

16. For Clean Energy: Layoffs and Plummeting Demand

http://greeninc.blogs.nytimes.com/2009/02/04/for-clean-energy-layoffs-and-plummeting-demand/

February 4, 2009, 7:40 am

For Clean Energy: Layoffs and Plummeting Demand

By Kate Galbraith

Wind and solar power have been growing at a blistering pace in recent years, and that growth seemed likely to accelerate under the green-minded Obama administration. But because of the credit crisis and the broader economic downturn, the opposite is happening: installation of wind and solar power is plummeting.

Factories building parts for these industries have announced a wave of layoffs in recent weeks, and trade groups are projecting 30 to 50 percent declines this year in installation of new equipment, barring more help from the government.

Prices for turbines and solar panels, which soared when the boom began a few years ago, are falling. Communities that were patting themselves on the back just last year for attracting a wind or solar plant are now coping with cutbacks.

“I thought if there was any industry that was bulletproof, it was that industry,” said Rich Mattern, the mayor of West Fargo, N.D., where DMI Industries of Fargo operates a plant that makes towers for wind turbines. Though the flat Dakotas are among the best places in the world for wind farms, DMI recently announced a cut of about 20 percent of its work force because of falling sales.

…

[jpak]

10. I'd say this would be a good time for Obama to support PV deployment in his Energy Bill

and support the US PV industry...

[Finishline42]

11. Obama should establish a goal of 15% of US govt

Obama should establish a goal of 15% of US govt electricity generated by renewables in 10 years.

Create a program with utilities to install PV on the roofs and openspaces of government buildings. That would take care of any over supply in a hurry.

[jpak]

12. That might be part of the current stimulus package

but the republics cut it back quite a bit...

[Finishline42]

13. From your post on what's in the stimulus bill on energy

From your post on what's in the stimulus bill on energy

"$4.5 billion to make federal buildings more energy efficient."

Which is what should be done first before spending money on alternative energy.

[OKIsItJustMe]

15. Priorities

Spending money to put solar panels on federal buildings is good. It will put some people to work in the short run, and save taxpayer money in the long run.

However, I think we should be investing more in basic research. It may not be as "stimulating" but the potential future dividends are tremendous. The solar plants currently being built in the South West owe their existence to basic research done by Carter's Department of Energy.

[kristopher]

17. What "basic research" do you think needs to be done?

This thread demonstrates the nut of the issue - increased capacity results in declining prices. Declining prices result in greater demand and increased market penetration. All of which is the very best prescription for R&D into application and improved technology.

This is the time for deploying existing technologies, not for providing the fossil fuel interests more excuses for delaying the transition.

[OKIsItJustMe]

20. I'm not saying that all money should be put into basic research

However, how much money (for example) is being funneled towards http://www.emc2fusion.org/">EMC²? How much money (for another example) is being spent to research http://www.nature.com/nmat/journal/vaop/ncurrent/abs/nmat2379.html">organic PV?

By all means, let's support the industries working with today's technologies, but in the meantime, let's encourage even more efficient technology for the future.

[kristopher]

22. Screw that.

Fusion and advanced fission, sure, that is a place for basic research. But that isn't what you were calling for. We are there with solar and any further advances are the province of the marketplace IF we can make the political move to supplant fossils with renewables.

[OKIsItJustMe]

23. "But that isn't what you were calling for."

You never seem to actually read what I write, so how can you say, better than I, what I was or was not calling for?

There's room for basic research to be done in a number of fields related to energy and the environment.

As just one example, today's solar technology is either too reliant on rare metals to produce in sufficient quantities, or too inefficient. I want high efficiency, inexpensive, organic PV. That's the kind of basic research I want to see in Solar.

[kristopher]

25. I'm going by what you wrote

"Spending money to put solar panels on federal buildings is good. It will put some people to work in the short run, and save taxpayer money in the long run.

However, I think we should be investing more in basic research."

It seems pretty evident that you are calling for spending LESS on the initial roll-out of a renewable infrastructure and more on "getting it right" vis-a-vis SOLAR. So, let ME repeat myself, that type of development is best handled by getting an economic structure in place that stimulates private investment in product improvement by ensuring there is going to be a long term, intensive demand for the basic product.

And is it really possible that only explanation for people who disagree with your position is that they didn't read what you wrote?

[OKIsItJustMe]

27. "It seems pretty evident that you are calling for spending LESS …"

Evident to you perhaps. However, no, that's not what I meant.

Given a financial package of $787,000,000,000 there are many distributions that could include more spending on "basic research" without touching the money that's being spent to stimulate demand.

Quick: what's the breakdown? Here are some "highlights":
http://www.google.com/hostednews/ap/article/ALeqM5j81g2abYnnR730DbzIZpkDsGPAJwD969RCMG0

…

Energy

About $50 billion for energy programs, focused chiefly on efficiency and renewable energy, including $5 billion to weatherize modest-income homes; $6.4 billion to clean up nuclear weapons production sites; $11 billion toward a so-called "smart electricity grid" to reduce waste; $13.9 billion to subsidize loans for renewable energy projects; $6.3 billion in state energy efficiency and clean energy grants; and $4.5 billion make federal buildings more energy efficient.

…

Science

$3 billion for the National Science Foundation for basic science and engineering research; $1 billion for NASA; $1.6 billion research in areas such as climate science, biofuels, high-energy physics and nuclear physics.

…

Renewable energy incentives

$20 billion in tax incentives for renewable energy and energy efficiency over 10 years, including: extending tax credits for energy produced from wind, geothermal, hydropower and landfill gas; grants to build renewable energy facilities; tax credits for purchases of energy-efficient furnaces, windows and doors, or insulation; tax credit for families that purchase plug-in hybrid vehicles.

…

OK, so let's say that between all of energy and science, we're talking about $73 Billion out of $787 Billion (let's call it 10%.) Let's say we triple the research portion of it, not what I had in mind, but, what the heck, call it $5 Billion instead of $1.6. $3.4 Billion would amount to about half a percent of the rest of the bill. (It would be about 5% of the $70 Billion being used to ease up the Alternative Minimum Tax.)

Let's be cruel though, and, even though this is not what I was suggesting, let's take that increase in basic research all out of just the "renewable energy incentives" category. To triple the research spending would mean a decrease of just %17 in the "incentives" category. (That's without touching the larger "Energy" category at all.)

Let's be more modest though, let's look at an increase which would be more in line with what I'd like to see. We'll increase it by roughly half (let's go from $1.6 Billion to $2.5 Billion.) We'll do exactly what you're accusing me of suggesting. We'll take $900 Million straight out of the $4.5 Billion being used to increase the efficiency of Federal buildings. That's a 20% decrease to cover a %56 increase.

[OKIsItJustMe]

14. Here's an ironic quote

http://www.presidency.ucsb.edu/ws/index.php?pid=44684

… The Solar Energy and the Energy Conservation Bank will provide over $3 billion in direct subsidies to homes and to industries to conserve energy and to use renewable supplies of energy, helping us to reach our goal of deriving 20 percent of all the energy we use by the end of this century directly from the Sun. …

Energy Security Act Remarks on Signing S. 952 Into Law
June 30, 1980

Sigh…