Back to the Future

Being a CEO of a solar panel producer is also fast becoming a career move to be avoided. Here's why:

The price of polysilicon has fallen swiftly on the spot market in recent months, dropping to about $200 per kilogram from $450 to $500 earlier in 2008. Analysts predict spot prices to sink below $100 by the end of 2009 and to a $50 to $80 range in 2010. That's roughly the same levels as prices in long-term contracts.

The plunge in polysilicon prices shows a dramatic reversal in the cost situation solar panel makers have faced during past four years. During that period polysilicon prices have surged and would-be buyers often found it difficult to source enough product.

On the face of it the drop in the cost of polysilicon is good news for the solar cell makers because the raw material is the single biggest expense in making a solar module, accounting about half of the costs.

However, any cost relief is going to be offset by the slowdown in demand for solar products resulting from the global credit crunch.

Increased polysilicon production capacity worldwide will switch the shortage in polysilicon into an excess by 2010. In 2009 the global supply of polysilicon is set to double and is expected to outpace demand growth. Within two years, supply will outstrip demand and will widen further by 2012.

Even though demand will continue to keep growing until 2011, it simply won't keep up with the supply side of the equation.

The collapse in polysilicon prices fueled by the release of new output is going to force consolidation among the 70 or so producers of the raw material.

There is already major pressure around the world to renegotiate polysilicon contracts and it is going to weigh on margins at the established polysilicon manufacturers such as MEMC, Germany's Wacker Chemie AG and Norway's Renewable Energy Corp .

To add to the solar panel maker's woes it seems that up to 80 percent of solar projects are financed by banks and institutional investors. Solar panel producers rely on credit to ensure their customers can place new orders. A credit crunch is just not what the doctor ordered. Although panel prices have been rising for the first nine months of this year they are now on track to fall as much as 15 percent in the fourth quarter.

In a sign of things to come, Suntech slashed its revenue forecasts for the fourth quarter, citing the euro's sudden fall against the dollar and delayed orders by customers who had trouble getting project financing.

In the past couple of years solar manufacturers have been forced to enter into five-year contracts with polysilicon producers at high prices to ensure raw material supplies. So now we find many of those companies busily trying to renegotiate the contracts to reflect the lower price of polysilicon.

So headaches galore for the CEO of a solar panel producer and no doubt for their employees and component suppliers too.

Here is one last point. Back in May 2006 EETimes reported the following: The contract price of polysilicon has soared 80 percent in the last 18 months to $60/kg, and we anticipate further increases to $80/kg in 2006 and more in 2007.

So the price of polysilicon has soared and crashed. By 2010 the price is likely to be in the $50 to $80 range. Sounds familiar?

Clearly it is a case of back to the future. Now where did I put my DeLorean?