May 2011 Archives

Polysilicon.jpgPolycrystalline silicon, or polysilicon, is a material consisting of small silicon crystals that makes it a key component for the construction of solar panels. In 2010, the global photovoltaic (PV) industry experienced a strong return to growth. The informative website Solarbuzz reported that a record 18.2 gigawatts of photovoltaic capacity was added to the global sun power base in 2010, representing a 139% increase in new capacity from a year earlier. In fact, the global PV market more than doubled in 2010, with Europe accounting for more than 80% of this demand. This great rise in demand for solar panels in Europe is largely served by Chinese exporters, and the leading Chinese polysilicon producers in 2010 all reported encouraging profits as they are able to progressively capture market share, providing an average of 15% in price discounts compared to Japanese/Western producers. 

Overcapacity?
Demand in China itself for solar panels is still low. A recent Caixin article pointed to a recent research report which found that while China made half of the world's solar panels in 2010, only 1% was domestically installed. Hence Chinese polysilicon manufacturers depend almost entirely on foreign demand. Yet producing polysilicon is costly, and the industry is highly sensitive to prices. In 2007-08 before the worst of the crisis hit and polysilicon prices were high, many small polysilicon factories emerged, many of which were not economically or environmentally viable. One report put the number of polysilicon producers in China at only 7 in 2008, yet this increased to 70 in 2010. The upshot was a shakedown, and the policy 'axe' fell early this year. In late January, the Chinese government released its 'Polysilicon Industry Access Standards' outlining rules and restrictions that prospective polysilicon manufacturers in China must adhere to. Specifically, the standard specified that new facilities cannot be too small (and those that ARE too small be out of business by the end of the year) or be located close to nature reserves or residential areas. See this article for more info on the new policy. 

Shortage?
While there is doubt in some quarters on how effectively the new regulations will be implemented, many expect the shakedown to slow down the growth of China's polysilicon supply chain but improve its quality. By April this year, however, it seemed as if China's government may be having second thoughts about the controls it imposed on the polysilicon industry when it emerged that China's polysilicon self-sufficiency rate could fall to below 50% in 2011. Hence many polysilicon producers in China are presently increasing production, and thoughts of overcapacity are long gone. Nevertheless, the price of polysilicon will likely remain a key factor, as polysilicon cells can account for as much as 45% of the manufacturing costs of a solar panel. In early 2008 polysilicon prices were as high as $500 per kilogram, but in April it was trading at only just over $70 per kilogram. 

For further reading, see the list of articles on this piece at Seeking Alpha. Image: flickr / Elisabetta_81.