Thin-film cells fatten solar market

With the political winds starting to blow its way, the solar-cell industry is poised for explosive growth. But advocates for this inexhaustible and nonpolluting energy source still need a few technical breakthroughs and a measure of political stamina.

The latest civic breakthrough was the recent passage of the California Solar Initiative, the largest solar-energy bill in U.S. history. The California Public Utilities Commission's bill establishes an 11-year solar rebate program worth $3.2 billion for new and retro- fit installations of solar photovoltaic systems.

On the national level, the House of Representatives recently introduced legislation that would extend solar tax credits, now due to end in 2008, through 2017 (see sidebar, page 20). Under the plan, residential and commercial installations receive a tax credit of $1,500 per half-kilowatt in power use reduction, among other incentives.

Observers said U.S. interest in solar energy might be catching up with the interest seen in the rest of the world.

"American taxpayers want to invest in technologies that create jobs, reduce emissions, lower our energy bills and keep our energy dollars here in the United States," the Washington-based Solar Energy Industries Association said in a statement praising the bill. That group and other alternative-energy advocates are swarming the halls of Congress to compete for federal largesse, as lawmakers seek to reduce U.S. dependence on foreign oil.

Nonetheless, the 2007 solar-cell market is expected to be virtually a mirror image of last year's: Demand is astronomical, but worldwide growth remains hampered by persistent shortages of the critical polysilicon materials used to make the cells.

One change this year is that thin-film solar cells have arrived and are poised to steal market share from conventional solar-cell products. One thin-film startup, First Solar Inc. (Phoenix), is ramping up at a frenetic pace and claims to have the industry's lowest-cost panels, priced at $2.40/ W--up to 45 percent below its rivals.

The Wild West of the booming clean-technology sector boasts no fewer than 40 companies scrambling to develop thin-film cells. Even Sharp Corp., the world's largest solar-cell maker, is entering the fray. Venture capitalists are pouring millions into thin-film solar startups, and a diversity of companies, from Google to Honda, has invested in the sector.

The appeal of thin-film cells is that they require little or no polysilicon, a critical material now in short supply because of spiraling solar-energy demand. Conventional solar cells, which account for 90 percent or more of today's shipments, are manufactured using the polysilicon materials, which constitute 40 to 50 percent of the cost of a conventional photo- voltaic cell. In contrast, thin-film cells use a thin layer of materials formed on a substrate.

For some time, polysilicon shortages have disrupted the supply chain and stunted overall growth rates in the solar-cell market. Piper Jaffray & Co. (Minneapolis) predicts that the sector will see a 22 percent jump in worldwide sales in 2007.

Polysilicon shortages may last until 2008 or longer--a trend that opens the door for thin-film technologies, said Jesse Pichel, an analyst with Piper Jaffray. "We don't expect to see a polysilicon glut for the foreseeable future. However, it's a better situation than in past years, in that we have several new polysilicon plants moving into production," he said.

What this means is that the solar-cell industry is out of balance and under pressure. "The solar-power evolution is in its early stages, and there is no single-point technology," Pichel said. "Polysilicon feedstock prices are rising, and module ASPs are falling 6 percent annually, squeezing margins and limiting capacity."

The solar-energy industry as a whole faces a multitude of challenges. First, the solar-cell market could be overhyped and due for a shakeout.

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