Cost, Price and Politics: The Growing Photovoltaic Industry

Photovoltaic (PV) industry insider views diverged on worldwide PV market growth with forecasts ranging from 5.5 gigawatts (GW) to 11 GW of annual installation capacity by 2010 -- up from about 1.4 GW in 2005. This divergence on PV market growth was driven by continued concerns about silicon feedstock supplies and PV industry reliance on political renewable energy policy incentives and subsidy programs.

The European Photovoltaic Industry Association (EPIA) established the PV Industry Forum as a platform to discuss industry related issues. Dr. Winfried Hoffmann, President of EPIA and general manager of SCHOTT Solar GmbH, reviewed the state of the PV industry and provided the conservative EPIA PV market forecast of 5.5 GW by 2010 and another 5-10 years to reach grid price parity in sun-rich Southern Europe.

On the silicon feedstock front, Dr. Hubert Aulich, CEO of PV Silicon AG, analyzed silicon feedstock availability for PV and semiconductor industries through 2010 and concluded an additional 35,000 metric tons of silicon feedstock production capacity, beyond all the recent announcements, is required to fuel 35% annual PV market growth.

'Cost, Cost, Cost' was the mantra of German PV market leaders Q-Cells and Deutsche Solar (a subsidiary of SolarWorld). Both companies recognized the importance of driving down costs for crystalline silicon technologies to achieve grid electricity rate parity and position the PV industry for long-term growth.

"It's not a question of growth -- it's a question of cost," said Boris Klebensberger, COO of Deutsche Solar. His company forecasts a worldwide PV market of 10 GW by 2010: 8 GW for crystalline silicon products and a possible 2 GW for thin films with the refrain "Now or Never."

Klebensberger himself predicted increasing economies of scale as PV factories evolve from 100 megawatt-peak (MWp) production today to 250 MWp and even 1 GWp by 2010 and beyond as Big Players dominate the industry.

Q-Cells AG co-founder and CEO Anton Milner also emphasized the rapid cost reduction of photovoltaics to lower the Euros per Watt cost. Milner believes the supply side will correct in 2008-2009 as more silicon feedstock becomes available to close the demand gap, but the underlying demand in 2010 is unclear with 80 to 90% of PV installations dependent on government feed-in tariffs or subsidies.

However, Milner thought the PV market in 2010 could be as large as 11 GW. He pointed out multi-crystalline silicon (mc-Si) has the potential for cost reductions of 40-50%, and thin film technologies such as CSG Solar's micro-crystalline silicon will not become mainstream before 2010.

While Germany is committed to renewable energy sources for electricity generation and is investing in renewable industries as a growth and job creation engine, politicians may become fickle about high PV industry margins and profits and consider accelerating the feed-in tariff digression to jostle the PV industry on pricing.

In response to a question about lower solar module prices in 2007, Klebensberger said, "No Idea, but most probably. Prices are made by the Market and nothing else."

Dr. Karin Freier, German Federal Ministry for the Environment, expressed concerns regarding Mr. Klebensberger's glib statement, underscoring the fragile relationship between PV companies and politicians.

Given EPIA's track record of underestimating PV market growth, I give the forecast edge to a 10 GW market by 2010 if there is sufficient silicon, favorable renewable energy policies, and 40% cost reductions resulting in lower solar module pricing.

The PV industry is poised to continue fast growth but not at a constant rate; there will be periods of greater than trend growth and slower periods of supply correction to match demand. I expect sharp, downward price corrections at the module level in the 2008-2009 timeframe as idle cell, wafer, and module capacity and new production facilities are supplied with new silicon feedstock.

Contract silicon pricing and increasing economies of scale will return the PV industry to the historical cost curve making up for lost time between 2005 and 2007.

About the author...

Edgar Gunther is seeking to expand his work into the solar photovoltaic industry and, in doing so, researches and writes occasional articles on the solar industry. Mr. Gunther has 15 years of experience in product marketing, management, and engineering delivering semiconductor and multimedia solutions with Lamina Ceramics, Liquid Audio, S3, AMD, and Commodore. Mr. Gunther received his B.S. in Computer Engineering from Lehigh University and earned an MBA in Marketing from the Villanova School of Business at Villanova University. More information on Edgar can be found at http://guntherportfolio.blogspot.com/