Trina Solar: Is the Silicon Choke Hold Easing?

Ask execs at the major solar cell makers what’s kept them up at night over the past year and the answer you’ll get will undoubtedly center around the tight supply of polysilicon, the key ingredient in traditional solar panels. That could be changing even sooner than expected, if a decision by Trina Solar is any indication. Changzhou, China-based Trina Solar said Monday that it’s ditching its plans to build a polysilicon plant, which would have supplied it with 10,000 tons of polysilicon a year for its own solar cells and modules.

The company claims a brighter polysilicon supply forecast is behind the decision:

As a result of recent favorable changes in the polysilicon supply environment, Trina Solar now believes it has greater access to polysilicon feedstock to support its growth objectives.

Well, and there’s also the fact that the company now says the plant would have cost the company a cool $1 billion to build. Back in November, Trina had estimated that the plant would cost between $500 million and $600 million. Perhaps double the planned cost was just too much.

While Trina says it will add more contracts to buy polysilicon, it also says it will “consider strategic investment options in future polysilicon projects which offer attractive economics and involve smaller investment requirements, although no projects are currently under consideration.” So maybe something a little closer to budget?

According to Lux Research, the constraint of polysilicon will start to relax as soon as 2009 and end in 2010. And while that might seem like nothing but a good thing for the solar industry, Lux says that means supply will outpace demand for the first time and companies that are relying too much on the price of silicon for solar to drop will have a few storms to weather.

But like most traditional solar makers, Trina has been bullied by the current tight polysilicon supply, so a sense of easing will help in the short term. In mid-March, ADRs of the company, which trade on the NYSE under the ticker “TSL,” closed at at 52-week low of $25.88. After today’s announcement, the company’s stock rose more than 15 percent to close at $43.95.

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