Solar photovoltaic segment seems to be red hot. Several small and medium players are making a beeline to convert sunlight into electricity with the use of solar cells. As they start finalising their plans, however, most of these players are waking up to the market realities. One of the major constraints is the supply of essential raw materials, especially, polysilicon, a key component used to make solar panels.
Is there a threat on horizon for the much-hyped solar photovoltaic segment, where investments worth over $ 7 billion have already been pledged? Does it spell a threat to Indian companies trying to get a foothold in the global solar power market? As per market estimates, the photovoltaic industry is projected to touch $70 billion by 2012, up from $21 billion in 2007. However, the stockpiles of most of the polysilicon manufacturing companies have almost touched the bottom. Industry players are worried that this might affect the growth of the industry in the near future.
Mismatch is even more marked in India. This arises from the fact that there is no single manufacturer of silicon in India and there are very few players worldwide.
There are two ways to purchase silicon?long-term contract and on-spot supply. While a long-term contract costs about $230 a kg, it is $375 a kg for on-spot supply. The economics is as simple as the supply-demand ratio. Similar is the case of wafer, which is about $7 a kg in long-term and $12 in on-spot. As such, the demand has outgrown supply and there is a need for capacity building.
Says Amol Kotwal, deputy director (energy and power systems practice), Frost & Sullivan, South Asia and Middle East, ?The rapid growth of the solar PV industry, estimated at 40-50% year-on-year, has put pressure on the raw material supply (polysilicon) globally. The situation has led to skyrocketing polysilicon prices. Long-term contract prices for polysilicon have escalated to almost three to four times the prices in 2004, whereas spot prices in a few cases have touched $380-400 a kg, which is nearly 10 times the $40-a kg spot prices in early 2004.?
While it cannot be termed as shortage of raw materials, it is obviously the mismatch of supply capacity or lack of corresponding capacity to match the demands of the solar companies,? feels K Vasudev Rao, executive director, XL Telecom. In the last 10 years, the demand was very less and there are very few companies in silicon manufacturing as it is capital-intensive.
Given the robust growth that the solar PV industry is witnessing, polysilicon suppliers have been sprucing up their capacity. By 2010, capacity of the top seven polysilicon suppliers is expected to increase to almost two to three times the capacity in 2007.
Most of the capacity expansion plans would come on stream by this year, with further expansions at varying rates planned up to 2010. It is expected that the prevalent polysilicon demand supply gap could cool off in 2009, insists Kotwal. ?India does not have any major domestic source of polysilicon, except Metkem Solar (Sanmar Group), which supplies it in small quantities to Bhel and BEL for their solar cell production,? he adds.
At present, the solar cell producers import almost 100% of their solar wafer requirement, as the country does not have a domestic manufacturer. Poseidon Chemicals, which is a subsidiary of Solar Fabrik, Germany, reclaims/recycles wafers, but that too on a very small scale. Although, many companies have announced their foray into the solar PV space in India, most of these have been for solar cell/module manufacturing, and primarily for the export markets. Reliance has announced plans to set up a fully integrated solar PV facility (polysilicon, solar-grade wafers and SPV modules) with a total capacity of 1 GW in Jamnagar.
According to a report by Prometheus Institute and GreenTech Media, the three-year competition for silicon between solar and semiconductor companies will end later this year as silicon manufacturers roll out new production lines. The vast majority of today?s solar panels also rely on silicon to turn sunlight into electricity. The growing interest in solar energy worldwide has pitted solar companies against chip businesses in recent years, particularly because silicon producers couldn?t make enough to satisfy both types of customers.
The report says that in 2007, solar companies used about 30,000 of 48,900 metric tonne of silicon produced worldwide last year. By 2012, the total silicon-manufacturing capacity could reach more than 2,61,742 metric tonne.
A Frost & Sullivan report suggests that India has abundant solar resources, as it receives about 3,000 hours of sunshine every year. It has a potential of about 20 mw per sq km and the daily average solar energy incident is about 4.7 kWh per sq m depending on the location. However, investments in the solar power sector are relatively low when compared to Europe, North America and China.
Incidentally, some of the metals like cadmium used for producing solar PV cells are hazardous and all other materials, except silicon, are not recyclable. Of the total solar PV cells produced in the country, more than 60% is exported.
Another factor grappling the solar photovoltaic industry is the R&D costs. The R&D and engineering costs are rising at a faster rate than integrated circuit (IC) sales, says a report from IC Insights. The R&D and engineering expenditures increased at a CAGR of 12.7% between 1990 and 2007, while semiconductor sales grew at a CAGR of 9.9%.
In the first quarter of 2008, spending on semiconductor R&D grew 12% to $11.1 billion, compared to $10 billion in R&D expenditures in the same period last year. R&D spends, as a percentage of semiconductor market sales were 17.5%, compared to 16.4% in the same quarter last year. According to IC Insights, foundries spent only 7.1% of total sales on R&D and engineering expenditures in Q1 of 2008.
