Look Upstream To Stabilize The PV Supply Chain


The U.S. solar sector is currently experiencing a period of immense growth. Just last year, the market set another record with 4.75 GW of new photovoltaic capacity installed, representing a 42% increase over 2012.

This rapid expansion can be attributed in large part to rapidly declining equipment costs. Since 2011, the average price of a PV module has declined by 60%, hitting an all-time low of $2.89 per watt by the end of 2013.

As a result, the industry has shifted focus to slashing costs further downstream, such as balance-of-system (BOS), operations and maintenance, and soft costs. Improving the economics in these areas is no doubt important – BOS costs alone now account for more than 60% of the price of U.S. rooftop PV systems – and will serve to further fuel market growth.
However, for the module manufacturers who've seen their margins shrink despite increased demand for their products, the question remains: Is there more to be done to safeguard the upstream market?

Simply put, the answer is yes. Module manufacturers operate in a highly crowded market, which has spurred a ‘race to the bottom.’ Despite being faced with increasingly tight margins, manufacturers feel pressured to sell their products at lower prices just to stay competitive. This strategy is clearly not sustainable – module manufacturers must continue to identify opportunities for cost reduction if they are to remain competitive in the long run.

But where should module manufacturers turn to seek out cost reduction opportunities? Let's start at the top of the supply chain: polysilicon. While wafer, cell and module prices are on the decline, polysilicon remains the most expensive component in the solar supply chain. Prices hit $20 per kilogram in January, and some analysts are forecasting a 25% demand increase in the next 12 months, which could further increase pricing. At the same time, we're seeing a potential supply shortage, as producers hesitate to expand capacity due to uncertainty in demand.

Polysilicon production is an area that has not experienced meaningful innovation in decades. Since the 1960s, the vast majority of the polysilicon used by the solar sector has been produced via the Siemens method, named after the company that commercialized the process. The Siemens method yields electronic-grade (EG) silicon, a crucial feedstock in the semiconductor industry.

However, EG silicon is refined to a purity level that far exceeds the needs of the solar sector, resulting in an unnecessarily high cost for module manufacturers. In today's margin-constrained environment, the time has come for solar manufacturers to once again focus on improving cost efficiencies at the top of the supply chain, identifying alternative processes that can produce the quality of polysilicon required by the industry, at a more palatable cost.

As the industry looks toward new polysilicon manufacturing processes, it must take into account several key factors.

First and foremost, it is imperative that any alternative process produces solar-grade silicon that achieves consistent quality. As with any commoditized industry, there is an expectation among consumers that any decrease in product price does not come with a decrease in quality, and module manufacturers will also expect the same of their suppliers.

Secondly, this alternative process should considerably reduce energy consumption. Energy use is a major cost driver for the Siemens method, which generally requires between 75 kWh and 125 kWh per kilogram of silicon produced. Reducing the energy required to produce solar-grade silicon would go a long way to bringing down the cost of the final product.

Third, there is much room for improvement in terms of the safety and environmental impact of polysilicon production, particularly in the area of hazardous materials. For example, the Siemens process utilizes toxic trichlorosilane gas, which requires a robust management process to ensure it is not released into the environment. When airborne, trichlorosilane reacts with water to form hydrochloric acid and a white residue of silica, which can be hazardous to both humans and the environment. Identifying new polysilicon production processes that can eliminate the use of these hazardous materials should not be overlooked.

Although increased demand for solar PV is great for the industry as a whole, we must ease the stress on module manufacturers before it is too late. Advancements in solar silicon that focus on reducing costs without sacrificing performance will carry us into the next phase of industry maturity.

Theresa Jester is CEO of Silicor Materials, a producer of solar silicon. She is a 30-year veteran of the photovoltaic solar sector, with extensive experience in manufacturing and engineering.

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