The polysilicon intersection

Solar power heats up, at the expense of the chip industry.

By Andrew Leonard

Published December 7, 2005 10:40PM (EST)

I am suddenly obsessed by the news that polysilicon prices are going through the roof. A kilogram that cost $25 in 2004 will now run you around $80, and prices on the spot market have spiked as high as $100. Even worse news, if you really need the stuff, is that the handful of companies that produce polysilicon claim to be sold out for the next two to three years! So prices are likely to continue to head straight up.

Why should we care? Well, polysilicon is a specialized form of crystallized silicon that is particularly well-suited for the supercomplex circuity etched into state-of-the-art semiconductor chips. So it's in high demand, especially in China, where chip manufacturing is booming, but domestic suppliers could provide only about 60 tons of the 2,300 consumed last year.

But there's another industry that craves polysilicon, and that's where the story gets interesting. The photovoltaic cells that are the core engine of solar power are also big consumers of polysilicon. And the global market for such cells has been surging, growing by around 30 percent a year over the last couple of years.

The market has gotten so tight that REC, a Norwegian renewable energy company, took the step of purchasing ASiMI, a Japanese polysilicon producer, primarily to lock up a supply for its own needs. ASiMi, which produces about 5 percent of the global supply of polysilicon, then proceeded to rock the chip industry when it announced earlier this fall that it would no longer sell its polysilicon to chip companies in 2006.

My first reaction was that this was great news! Here's an under-the-radar indicator that solar power has finally come of age. Made more desirable by the double whammy of high oil prices and substantial government incentives (particularly in places like Germany, California and New Jersey) solar power is at long last hitting that sweet spot where it becomes economically feasible for it to make a difference in world energy markets.

Of course, in the short term, if the chip industry takes a hit, prices of consumer electronic devices and computer gadgets might slow down their free fall, and irritate shoppers, depending on how long the polysilicon shortage continues (and, at the moment, the major polysilicon producers are ramping up production like crazy). But that's not too big a price to pay for a cleaner world, right?

My initial enthusiasm was tempered, however, by some additional research. Ironically, some analysts are suggesting that the healthy annual growth rate of solar power is now set to plummet, hamstrung by the surging prices of a key raw material. The very success of solar might be a limitation on its further growth. And nothing comes for free: There's also the niggling problem that production of polysilicon is a fairly toxic process, so even as renewable use goes up, the environment doesn't come away unscathed.

So, high oil prices and hefty European renewable energy subsidies encourage a Norwegian solar power company to buy a Japanese silicon manufacturer, which then sends tremors through the Chinese chip-making industry. Maybe instead of asking somebody to give me that new iPod Nano for Christmas, it's time to finally see about getting those solar panels installed on my roof.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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