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Summary:

Solar-grade silicon prices are falling — at least according to the latest New Energy Finance report due out this week. Back in August, the London-based research firm forecast that prices would fall in 2009, and Jenny Chase, a senior associate at the firm, tells us that […]

Solar-grade silicon prices are falling — at least according to the latest New Energy Finance report due out this week. Back in August, the London-based research firm forecast that prices would fall in 2009, and Jenny Chase, a senior associate at the firm, tells us that the prediction appears to be coming true. The conclusion is the opposite of one that another research company, Photon Consulting, presented earlier this month forecasting that prices will rise this year.

The price of silicon, the active material at the core of most of the solar market, is important because it plays a major role in setting solar-panel prices and margins. For the last few years, a shortage of solar-grade silicon increased prices all along the manufacturing chain, boosting panel prices — and margins — as their supply failed to keep up with the perceived demand.

“Spot prices” — the most current value of silicon being traded on the open market — are considered the leading bellwether of silicon prices because they are more responsive to market changes than long-term contract prices, which are set months — and even years — in advance. If spot prices are far higher than contract prices, that indicates that silicon is worth more than it was expected to be worth when the contracts were signed, while significantly lower prices indicate the price of silicon has fallen more than expected.

Chase says spot prices have fallen to one-half or even one-third of their prices late last year, bringing them below longer-term contract prices. As a result, some solar companies are renegotiating their silicon contracts to get prices more in line with those spot prices, and some silicon companies have started offering their customers more silicon for the same price. “There is certainly evidence that spot prices have fallen and contracts which were thought to be quite firm are starting to be looked at again in a new light,” Chase says.

As solar panel prices start to fall amid gloomy predictions of a worsening oversupply, industry insiders are watching silicon prices for a hint of the future. While plenty of other factors play into the equation, plummeting silicon prices might indicate that solar-panel prices could continue to fall steeply for some time, while higher silicon prices might indicate that solar-panel prices are stabilizing.

But low silicon prices could be both good and bad. They would mean lower costs for solar manufacturers, which could enable them to become more competitive with conventional electricity, in turn growing the solar market. But they also could indicate lower profit margins and more competition in the short-term, if they represent an oversupply compared to demand. Either way, they most certainly would represent change and a market shakeout that could put new winners on top.

The news from New Energy Finance comes after some conflicting evidence that prices could actually be rising. According to Ed Gunther, author of the Gunther Portfolio blog, Rogol reported last week that silicon spot prices averaged between $100 and $180 per kilogram in the first quarter, compared with long-term contract per-kilo prices that range from $50 to $90. “This appears to signal polysilicon is not in oversupply,” Gunther wrote. “Otherwise, the spot price would have crashed below the long-term contract price.” Rogol also forecast that spot prices would climb to between $125 and $250 per kilogram during the rest of the year, he wrote.

The question is complicated by the fact that contracts don’t all fall into line with either theory. In other words, some companies signed contracts at lower prices than the current spot market, while others are locked into higher-priced contracts. And spot prices are notoriously difficult to track. A year ago, DigiTimes reported that spot prices for high-purity silicon had grown to between $450 and $470 per kilogram, while Travis Bradford, president of research firm Prometheus Institute, estimated they were closer to $120 per kilogram.

With the widely disparate chatter, it’s impossible to know for sure where spot prices are headed. But one thing, at least, is clear: You can expect far more speculation — and disagreement — about these prices in the months to come.

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  1. Green Ink: c – Environmental Capital – WSJ Thursday, March 19, 2009

    [...] prices are probably falling, new research suggests, which would be good news for solar-power prices, even if it causes the [...]

  2. Buy solar panels Thursday, March 19, 2009

    The dynamics of the solar panel market are crazy. We can only hope there is some price stability (with a downward trend) so that all players can deal rationally. Wild price swings will make it much more difficult for solar to gain traction with consumers – and for manufacturers to stay in the game.

  3. High grade silicon has always been a bottleneck for the solar industry. Maybe that’s easing now due to lots of thin film manufacturing methods coming through.

  4. Solar Power Update for March 22, 2009 « Askthefm’s Weblog Sunday, March 22, 2009

    [...] Next we have a stroy via Earth2Tech on the dropping prices of solar grade silicon (http://earth2tech.com/2009/03/19/solar-silicon-prices-dropping-new-energy-finance-says/). [...]

  5. Report says solar silicon prices are dropping | Solar Tech Times Sunday, March 22, 2009

    [...] Here’s the story from earth2tech. [...]

  6. Montana Flynn Monday, March 30, 2009

    Great news, hopefully more investors will wake up and see the value in renewable energy, for anyone looking to finance any alternative energy company check out Discount Capital Corp’s Green Lending Division at http://discountcapital.com/eco.html or for solar http://discountcapital.com/green-financing/solar-power.html

  7. Is It a Solar Bottom? Analysts Say No Tuesday, March 31, 2009

    [...] oversupply troubles may spread to thin-film makers as well. A report over the weekend from Barron’s argued that [...]

  8. Is It a Solar Bottom? Analysts Say No « shankarsoma; Change the View Tuesday, March 31, 2009

    [...] oversupply troubles may spread to thin-film makers as well. A report over the weekend from Barron’s argued that [...]

  9. Is It a Solar Bottom? Analysts Say No « Clean Tech News Tuesday, March 31, 2009

    [...] oversupply troubles may spread to thin-film makers as well. A report over the weekend from Barron’s argued that [...]

  10. Mind the Gap: LDK Solar and Cheap Silicon – Environmental Capital – WSJ Wednesday, July 8, 2009

    [...] [...]

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