Solar Power Supply Chain

To make a solar cell, you need a semiconductor material like silicon or the more exotic compounds that go into next-generation thin films. And you need specialized machines to turn raw materials into intermediate products and then into solar cells. The result is several distinct supply chains, each with its share of public companies.

Silicon Solar-grade silicon is made from silica, a ubiquitous material that makes up nearly 26 percent of the earth ' s crust. Before it can become a solar cell, its impurities have to be removed in a complicated refining process. Table 20.5 gives a partial list of the public companies that do this.

Purified silicon is processed into ingots, which are then cut and polished into wafers by the companies listed in Table 20.6.

The microchip industry contains a similar supply chain (hence the name "Silicon Valley"). Before the solar boom, silicon was already the main raw material for microprocessors, which have evolved from specialized, expensive brains of large computers to cheap, ubiquitous brains of everything from toasters to wristwatches. Because demand

Table 20.5 Silicon Suppliers

Market Value,

6/27/08

Company

Ticker/Exchange

Headquarters

($ millions)

Mitsubishi Materials

5711/Tokyo

Japan

5,478

Renewable Energy

REC.OL/Oslo

Norway

12,998

SolarWorld

SWVG/Frankfurt

Germany

5,025

Timminco

TIM.TO/Toronto

Canada

2,939

Wacker Chemie

WCHG.F/Frankfurt

Germany

9,958

Table 20.6 Silicon Wafer Suppliers

Market Value,

6/27/08

Company

Ticker/Exchange

Headquarters

($ millions)

BP (BP Solar)

BP/NYSE

U.K.

213,250

Evergreen Solar

ESLR/NASDAQ

U.S.

1,180

Kyocera

KYO/NYSE

Japan

17,960

MEMC

WFR/NYSE

U.S.

13,310

Mitsubishi Electric

8058.T/Tokyo

Japan

52,408

Renewable Energy

REC.OL/Oslo

Norway

13,005

RWE

RWEG.F/Frankfurt

Germany

61,680

Sanyo Electric

6764/Tokyo

Japan

4,669

Sharp

6753/Tokyo

Japan

19,050

SolarWorld

SWVG/Frankfurt

Germany

5,025

was soaring, the companies in the microchip supply chain tended to periodically overexpand, causing a pattern of booms and busts in which silicon prices would spike and then plunge, taking the earnings and share prices of the various players along for the ride. In this decade, the solar power boom caused by German and Japanese subsidies amplified the wave, sending silicon demand far beyond suppliers' capacity. The shortage caused solar-grade silicon prices to soar, which sent the profits of the silicon makers through the roof. This in turn caused everyone in the business to add capacity, and now a glut is projected for the final two years of the decade.

If the glut occurs, the silicon makers will see their margins contract as rising supply pushes down prices, while the solar cell makers will respond to falling silicon prices by embarking on a price war of their own. The year 2009, in short, may not be the most auspicious time to buy into the silicon supply chain. But within a couple of years this excess supply will be soaked up by soaring PV demand around the world, and the cycle will begin again. Knowing the players will be very helpful.

Solar Cell Machinery Turning silicon into solar cells is a lot like turning silicon into microchips, so for microchip equipment makers, solar is a natural growth path. California-based Applied Materials, for instance, makes equipment that deposits thin layers of various materials onto microchip wafers and flat-panel display screens. This expertise is easily adapted to solar cells, and when solar took off, Applied Materials became the supplier of choice for rapidly-growing PV companies. And it now operates as a factory integrator, essentially building solar panel factories from scratch by supplying the key gear and acquiring whatever else is needed.

One of the keys to understanding suppliers is assessing the relative importance of the green part of their business. In Applied Materials' case, sales to solar panel makers accounted for only about 10 percent of 2007 revenues, so this is not yet its mainstay. But solar will be its fastest-growing segment for years to come, especially as it introduces new lines capable of working with bigger glass panels that dramatically lower solar cell unit costs. More of a pure play is Germany's Roth & Rau, which makes 10-meter-long, $3 million machines that give about 40 percent of the world's silicon wafers their antireflective surface. Solar panel makers account for about 90 percent of Roth & Rau - sales, which makes it a bit more vulnerable to the coming glut but also more sensitive to the upswing that will follow. Some other possibilities are listed in Table 20.7

Other PV Materials Silicon is no longer the only semiconductor material used to generate solar power, and eventually it might not even be the main one, as new thin-film materials like cadmium telluride (CdTe) and copper indium gallium selenide (CIGS) become more cost-effective. Since these new materials are composites, they create complex new supply chains that present both opportunities and risks.

Table 20.7 Solar Cell Machinery Makers

Market Value,

6/27/08

Company

Ticker/Exchange

Headquarters

($ millions)

Applied Materials

AMAT/NASDAQ

U.S.

26,150

Centrotherm Photovoltaics

CTNG.F/Frankfurt

Germany

1,928

Cypress Semiconductor

CY/NYSE

U.S.

3,750

Meyer Burger Technology

MBTN.S/Swiss

Switzerland

902

Roth & Rau

R8RG.F/Frankfurt

Germany

740

Tellurium, for instance, is a key part of the CdTe thin film that helped make First Solar the lowest-cost PV producer. One of the rarest elements on earth, it's harder to find than platinum. And it isn't mined directly, instead being produced as a by-product of copper, lead, and gold refining. A smelter has to process 500 tons of copper ore to get a pound of tellurium, which until recently wasn 't a problem because it was used only as an additive in the smelting of certain metals and as a catalyst in a few chemical processes. But now it's about to become very popular, thanks to two developments: First, chip makers Intel and Samsung are introducing tellurium-based "phase change" flash memory devices that use less power and hold more data than conventional memory technologies. Their potential market extends from computer hard drives to cell phones to RFID (radio-frequency identification) chips. Meanwhile, CdTe thin-film solar is generating cost and efficiency numbers that imply nearly unlimited demand. Already, before either of these new uses really kicks in, tellurium 's price has soared from $6 per pound in 2000 to $36 in 2007 (see Figure 20.2).

Now, there are two ways to use this information. One is to find the miners most likely to benefit. But since there are no pure-play tellurium miners, we're left with copper companies that might decide to emphasize their tellurium production to give themselves a bit of market cachet. The other advantage of understanding a material like tellurium is the clues it offers to the fortunes of the companies that use it. In early 2008, for instance, analysts were discussing the impact on First Solar of a tellurium shortage and wondering whether its aggressive expansion plans would be derailed. This was pure speculation in early 2008, but it's a great example of the kind of potentially useful data that an understanding of an industry's supply chain offers.

Figure 20.2 Tellurium Price

Source: U.S. Geological Survey

Indium, meanwhile, is a soft, gray metallic element crucial to CIGS, which is made into low-cost PV films that can be sprayed on pretty much any surface and are nearly as efficient as conventional silicon PV. Nanosolar and several other CIGS pioneers are attracting massive venture funding and building factories, and they will soon be out in the marketplace buying large amounts of CIGS.

Like tellurium, indium is a by-product of the mining of other metals. According to the U.S. Geological Survey, the United States produces no domestic indium and relies on imports from China, Canada, Japan, and Russia, with China accounting for about 60 percent of the world' s refined indium production. The electronics industry is already consuming increasing amounts of indium for use in video screens. Consumption has about doubled so far in this decade, to about 1,000 tons annually in 2007, which caused the price to soar from $70 a pound in 2003 to over $350 in early 2008 (see Figure 20.3). And that's before thin-film solar ramps up, which some analysts predict will cause demand to double. Indium isn ' t exactly an intensively studied market, but in the opinion of some researchers there ' s not enough of it in the ground to satisfy prospective demand at anything like current prices.

Again, the result is potential trouble for the currently hot CIGS thin-film makers and a possible windfall for the miners that produce it. As a by-product, most indium comes from much bigger zinc mines,

Dollars per pound

Dollars per pound

Figure 20.2 Tellurium Price

Source: U.S. Geological Survey

2000 2001 2002 2003 2004 2005 2006 2007

2000 2001 2002 2003 2004 2005 2006 2007

Dollars per pound

50 0

2003 2004 2005 2006 2007

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