For an industry obsessed with reducing costs, plunging raw material prices ought to be great news for manufacturers of solar panels. It is anything but.
Refined from silicon, the most abundant element in the earth's crust, polysilicon got very pricey a few years ago, reaching $500 per kilogram. That was annoying for microchip manufacturers, but a serious problem for makers of photovoltaic panels.
The pricing crunch led to a wave of investment in polysilicon capacity that came on stream just as some governments trimmed subsidies. With even the most efficient photovoltaic energy still 40 per cent pricier than it needs to be without such assistance, the 90 per cent plus drop in polysilicon prices is fuelling a glut in panels. But it is not making them quite cheap enough to spur incremental demand. This year IMS Research estimated that about 10 gigawatts of unsold panels had piled up, equivalent to a quarter of all installations in the industry's history. Oversupply of panels from China has pushed some manufacturers into bankruptcy.
Even as U.S. and European polysilicon producers such as Hemlock Semiconductor and Wacker Chemie are fighting to adapt, manufacturers from China are behaving as recklessly as their panel makers. LDK Solar, a vertically-integrated Chinese producer that just lowered profit guidance and took a charge to write down inventory, plans to triple its polysilicon capacity in the next three years. Daqo New Energy reported a halving of profits this week, but said it would carry on with expansion plans. GCL-Poly Energy, China's largest polysilicon manufacturer, also said this week that it would borrow money to grow further.
Water eventually finds its level. So will polysilicon. But throwing more capacity into a market enduring a glut means it may take quite a while. Raw materials that are cheap, but not cheap enough to stimulate fresh demand, will leave weaker players gasping for air.