Please ensure Javascript is enabled for purposes of website accessibility

Price of Solar Power Gets Astronomical

By Dan Bloom – Updated Nov 16, 2016 at 1:33PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A polysilicon shortage may affect solar power growth.

Energy prices have been going through the roof lately, even before Katrina devastated the Gulf Coast. Oil prices are well more than $60 per barrel, natural gas prices have leaped to the $10 per million BTU range from less than $6 a year ago, and even uranium, used as fuel in nuclear power plants, is in short supply. With surging energy prices, interest in solar power is rising.

Unfortunately, solar power, which has always been a high-cost method of power generation relying on government subsidies for its growth, may be no closer to economic viability than it was several years ago. Here's why.

Most solar panels are made from a material called polysilicon -- and even though you may not know it, the world is addicted to the stuff. Polysilicon is used in many semiconductor devices. Intel (NASDAQ:INTC) and AMD (NYSE:AMD) use polysilicon in the manufacture of computer microprocessors, for example. Fortunately, the amount of polysilicon inside a microprocessor is very small, so the real driver of the shortage is increased solar panel production.

Solar panels are huge in size compared with electronic components, and they require large amounts of polysilicon. With high energy costs, producers are doing what comes naturally -- raising panel production. As a result, prices for polysilicon have surged from just $9 per kilogram in 2000 to at least $60 earlier this year.

Since Intel and AMD don't use much polysilicon to make a processor and their growth rates are relatively low, the shortage is unlikely to have a big effect on them -- unless it becomes very severe. The same cannot be said for solar panel makers, though. Since many solar panels use thick polysilicon (rather than a thin film of the stuff), the price of polysilicon represents about 80% of the cost of a solar panel.

So who, specifically, will be affected?

Those companies most affected will be those that want to quickly raise their panel production. In order to raise production, a company will have to find additional sources of supply, but that isn't easy in the current environment. CypressSemiconductor (NYSE:CY) subsidiary SunPower, which recently filed for an IPO, is one company in this position. SunPower is building new production lines and is planning to grow by 50% per year over the next three years. SunPower may have the technology to be very competitive in the solar power market because its panels have the two advantages of being both more efficient and better looking than competitors'. These advantages aren't so meaningful, though, if SunPower can't find the raw material needed to build its panels in the first place.

The polysilicon shortage is generating concern in the semiconductor industry, and polysilicon suppliers like Hemlock Semiconductor, partly owned by Dow Corning, are working to add capacity. Bringing substantial capacity online will take time, however. In the meantime, polysilicon prices will likely continue to be high.

To discuss the companies mentioned in this article with fellow Fools, hang out at these discussion boards:

For more polysilicon-related Foolishness, click here:

Dan Bloom owns shares of Cypress.

None

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Intel Corporation Stock Quote
Intel Corporation
INTC
$27.52 (-1.96%) $0.55
Advanced Micro Devices, Inc. Stock Quote
Advanced Micro Devices, Inc.
AMD
$67.96 (-2.22%) $-1.54
Cypress Semiconductor Corporation Stock Quote
Cypress Semiconductor Corporation
CY

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
339%
 
S&P 500 Returns
109%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.