In December 2005, on the very first day of this blog, I mulled over reports warning that a bottleneck in the production of polysilicon would lead to huge price spikes that could imperil the growth of solar power. On the one hand, I was encouraged by the notion that solar power was growing so fast that the industry was putting a crimp on polysilicon supplies. But it was at the same time worrisome to think solar's success was paradoxically inhibiting its own ability to become cost competitive.
In December 2005, a kilogram of polysilicon could cost you as much as $100 on the spot market. In mid-2008, prices hit a peak of around $450 per kilo. But the solar power industry never even seemed to notice. In 2007, global production of solar power photovoltaic panels grew by a huge 51 percent, after growing by 40 percent in both 2006 and 2005.
And now polysilicon prices are crashing, Barron's Eric Savitz tells us, "in the face of dramatically increasing supply." Prices have sunk to the $130-$150 range and are headed further down.
As testament to how free markets react to price signals, the boost in global production of polysilicon is pretty impressive, even if it's bad news for polysilicon producers, who are already facing a shakeout, and not so great news for the environment. But for the solar power PV industry, the price drop couldn't have happened at a better time, and may even raise the possibility that the long-promised day of "grid-parity" -- that moment when electricity generated by solar power costs as much as that produced from coal or natural gas -- could finally be imminent.
The silver lining here is that in the long run, much lower prices for polysilicon are the most direct way to bring down solar electricity production costs low enough to compete with conventional utility scale power generation. With poly in the $40-$60/kg range, [says Collins Stewart solar analyst Dan Ries], module prices would drop to the $1.70-$2/watt range, and utility scale projects could produce power for 11 cents/watt. At that rate, he says, solar would be "reasonably competitive" with combined cycle natural gas facilities and wind turbines.
Electricity generated by burning coal would still be cheaper, although not, of course, if the environmental costs are taken into account.