The Economist : Supply Side Constraints On “Green” Energy

Tuesday, April 3, 2007

The wind business is booming…but there is “significant unexploited production capacity”, Vestas says, due to shortages of high-quality turbine components…..Wind firms’ worries echo those in the solar-power business, which is also booming but where a shortage of polysilicon has hampered growth.  Silicon is made from sand, which is abundant, but there are not enough refineries to turn it into solar-grade polysilicon.  As a result, prices for silicon contracts have more than doubled, to $70 or $80 per kilogram, in the past three years, says Jesse Pichel, an analyst at Piper Jaffray.  In both industries demand has rocketed and supply cannot keep up.  The wind business is growing by more than 30% a year worldwide, with America leading the way.  Supply shortages will not ease quickly in either case.  Wind turbines are giant machines that require lots of parts.  Several firms are building new factories: Vestas has just announced its first American plant, which will make blades in Colorado.  But new factories will take several years to get up to speed.  In the meantime, buyers are putting down deposits to reserve their turbines.  GE Energy, the largest turbine installer in America, is already booked up until the end of next year.  Similarly, the big polysilicon producers, including Hemlock and MEMC, are expanding their capacity, says Rhone Resch of the Solar Energy Industries Association.  But some of their additional output will go to chipmakers, which are still the biggest buyers of polysilicon (though the solar industry is about to take the lead).  So polysilicon shortages and the associated high prices will not ease until at least 2009, Mr Pichel predicts.

Technological advances may help.  As solar panels become thinner and more efficient, less silicon is needed to make each one.  And new “thin film” solar cells, being promoted by Sharp and a host of start-ups, require little or no polysilicon and are thus not vulnerable to supply shortages.  The wind industry, meanwhile, is hoping that America’s government will come to its aid…..Indeed, the recent spike in wind activity may be due, in part, to efforts by companies to take advantage of the current tax credit, which expires at the end of 2008, notes Vic Abate, head of renewables at GE Energy.  Credits that expire every year or two cause sudden booms and busts, making it hard for turbine-makers to make longer-term plans and thus holding back the industry, say proponents of wind power…..

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