Silicon rally

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: For 40 years or so, the price of solar panels fell steadily, as volumes grew and technology improved. But in 2004 Germany enormously increased subsidies for solar power, prompting a surge in demand. The supply of pure silicon, the main component of most solar cells, did not keep pace. Its price rose from $25 a kg in 2003 to as much as $250 this year, abruptly halting the downward march in the price of panels. If making energy from sunlight is ever to become as cheap as burning fossil fuels, the price of silicon will have to fall.

Happily, it seems likely to do so soon. Silicon producers, whose biggest customers were always chipmakers, have been slow to cater to the solar industry. They were scarred by the memory of the technology bust of 2001, which had weighed them down with excess capacity, and so delayed expansion—despite the boom in solar. Moreover, it takes three years or so to get a new plant going, so new silicon supplies are only just beginning to materialise.

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.

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.