Shell Hedges Singular Solar Bet on Thin-Film

Last week Royal Dutch Shell’s prominent solar division bowed out of the crystalline solar industry, agreeing to sell all of its yearly solar crystalline production capacity to SolarWorld. The move represents SolarWorld’s increasing global footprint as it seeks to expand beyond its own borders in Germany to other promising markets such as the U.S. It also, however, represents one of the first major industry reshufflings that can be attributed to the crippling shortage of raw material for the photovoltaic (PV) industry.

Call it a silicon shortage, or an insatiable demand outstripping supply, but however it’s spun, it’s been the bane of every segment of the solar industry. High purity solar-grade silicon is an essential component of approximately 90 percent of the solar market and without an adequate supply, cell and module manufacturers are hampered in their ability to produce the volumes of PV modules the global market demands. This prevents the industry’s growth and economies of scale from translating into lower costs for consumers. And in the worst cases, it prevents solar installers from even being able to secure the modules they need to meet their customers’ basic needs. A combination of the tight silicon supply and a very strong German market fed by high value government incentives is actually driving solar costs higher and making the technology less competitive says Tim O’Leary, Manager, External Affairs Shell Renewables & Hydrogen. He said that the expectation is for this situation to remain the same for quite some time, well into 2007-2008. “We had supply problems throughout 2005, worsening an already difficult situation,” said O’Leary. “At the same time, terms and conditions to secure more silicon were aggressive and not acceptable to Shell. The silicon dependence of crystalline will remain a challenge to the industry and as such Shell has decided to focus on next-generation technologies.” That focus will instead be on CIS thin film solar, based principally on Copper, Indium and Selenium. The cells typically produce a lower total energy output than crystalline solar cells but they’re also cheaper to manufacture; most of all, they don’t rely on silicon. And the efficiencies are coming up. Last fall, Shell announced its CIS solar had achieved 13.5 percent efficiency, a new world record for thin-film. So in divesting its entire crystalline operation — approximately 80 MW of yearly production capacity potential — the company held on to its small, 3 MW production line in California for thin-film CIS solar. And on the same day as this announcement from Shell, the company struck a deal to explore the eventual construction of a 20 MW CIS module production facility with the France-based glass specialists St. Gobain. Shell may have been one of the biggest players in the crystalline solar industry, but O’Leary characterized its time in the business as a learning experience. “This is a high-growth, fast-moving technology industry,” O’Leary said. “Experimentation and technology choices are and will continue to be part of operating in such an industry. We will enter some sectors, learn and exit to focus on the most promising technologies just as we did with Forestry, and are also doing now with the switch from silicon PV to CIS. In moving toward CIS thin film, O’Leary added that Shell had placed its silicon business with a partner who is better placed to maximize that technology. This is a point that a number of industry experts, including Paul Maycock of PV Energy Systems, agree with. “I think SolarWorld is in a far more powerful position to exploit crystalline solar than Shell was,” Maycock said. “I find it encouraging that SolarWorld, who thoroughly understands solar crystalline, has access to this key technology. It has recognized that Shell has decided on CIS instead.” Maycock also believes that SolarWorld’s U.S. expansion ambitions played a strong role in Shell’s large divestiture, which he estimates to be a USD $300 million dollar market. “I think the announcement says that SolarWorld will go after the U.S.,” Maycock said. “And that instead of exporting most of their product from Germany, I would expect most of product will be made in the U.S.” Maycock said Shell, like many other companies worldwide, has been exporting its solar products to Germany. For example, he said Shell only allocated roughly 20 MW of solar for the U.S. market in 2005 with close to 40 MW going abroad to Germany. Since SolarWorld is already producing in Germany, but now has U.S. ambitions, he said buying up factories in the U.S. made the most sense. Through this acquisition, SolarWorld will gain large commercial manufacturing facilities in Vancouver, Washington and Camarillo, California. Both facilities manufacture solar silicon crystals, wafers, cells and modules. “I think SolarWorld recognized that Shell was exporting mostly to Europe so product rationalization dictates you ought to make it where you sell it,” Maycock said. “I think it makes an awful lot of sense if SolarWorld wants to be a U.S. player. Why ship to the U.S. when you can just buy a plant.” He added some of SolarWorld’s motivations could be based on risk aversion whereby the company’s commercial success in Germany has been driven almost single-handedly by Government incentives that pay a solar producer around USD $0.40 cents per kWh, the best rebates in the world. Although these are in no near-term danger of drying up as Germany’s new Prime Minister has publicly stated her support for a continuation of the incentives, Maycock says the move reflects a long-term play for SolarWorld. Joe McCabe, solar industry consultant with Energy Ideas, agreed with Shell’s characterization of the sale as being driven by the tight silicon supply situation. He says the move toward a singular focus on CIS acts as a hedge against the tight silicon market. While the thin-film market is currently very small — just under 10 percent of all photovoltaic sales — he believes there’s great potential for CIS. And not just for Shell, but anyone else in the nascent field specifically because it removes the silicon variable from the business equation. McCabe said the reshuffling also reflects an industry business cycle moving forward with two major components; mergers and acquisitions such as this one, and popular spin-offs such as SunPower breaking away from Cypress Semi-conductor and going on to a highly successful IPO. “It’s to be expected,” McCabe said. “Eventually you’ll have a handful of major players and how it gets there is anybody’s guess.” And however it gets there is clearly on the mind of the wider business community, which McCabe said is paying increasing attention to solar. Frost and Sullivan’s Energy Research Manager, Roberta Gamble, has seen the same trend, especially in the past six to twelve months. “Solar has been one of those industries that’s somewhat cyclical but now I think with higher efficiency, more aesthetically pleasing products, and also the issues we’ve had with energy prices, especially following Hurricane Katrina, there’s been a real convergence of issues,” Gamble said. “It’s certainly happening with solar and it’s also happening with other markets such as wind, but also heat and power co-generations and conservation technologies.” With this convergence of factors in mind, Gamble found it “interesting” that Shell would move away from its major solar business, especially when large companies such Shell, BP or General Electric are increasingly trying to appear “green.” She also questioned the timing in relation to the recent implementation of the California Solar Initiative, the new rebate plan passed by state utilities regulators that effectively guarantees a robust solar industry in California. “Personally, I do see a bit of a risk getting into thin-film and not crystalline, but we do expect growth with thin film.” said Gamble, who added that her firm’s analyses show slightly higher growth rates in 2006 and beyond for thin-film technologies versus crystalline, which will continue to be mired in the raw material squeeze for at least the next year or two.

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