Thanks to the supply-chain issues currently plaguing the global economy, prices of everything from paper to petroleum have been rising across the board.
But the cost of polysilicon—a purified form of silicon that’s also a key component in the solar panel supply chain—has been skyrocketing at such a precipitous rate it makes the price increases of less-fundamental raw materials seem negligible.
Polysilicon ingots are created by melting raw silicon at extraordinarily high temperatures. Along the way, it’s also purified. These ingots are then sliced up into thin wafers which form the main ingredient of solar cells.
Since a solar panel is nothing more than a bunch of solar cells connected and wired together, rising polysilicon prices immediately translate into more expensive solar panels.
And, of course, when solar panels get more expensive, the cost of solar power quickly follows suit.
For the first time in decades, the per-watt cost of solar power, instead of decreasing, has risen, going from below $0.20 in 2020 to between $0.28.. That’s an almost 50% increase. And the jaw-dropping 300% hike in the price of polysilicon over the past 18 months is one big reason.
Why Polysilicon Hyperinflation?
Numerous factors have combined to create a perfect storm for pushing polysilicon prices through the roof.
Contrary to the situation now, a few years ago the world was facing a polysilicon glut. Many smaller companies, finding themselves unable to compete with the lower prices larger manufacturers were able to offer in an abundant market, were thus forced to shut down.
Unfortunately, this turned out to be an over-correction. There weren’t enough manufacturers left to meet the ever-increasing demand for solar panels and as often happens, scarcity followed glut.
But there were other consequences which drove up polysilicon prices as well.
When those smaller manufacturers shut down, China achieved near-complete market dominance.
The top five polysilicon manufacturers, which in 2017 already accounted for 60% of global production, wound up responsible for 73% of the world’s supply in 2020.
Since four of those top five companies operate from China, Chinese consolidation of the polysilicon industry became almost complete, with a whopping 77% of the global supply coming from China in 2020.
Though it’s received scant attention in the U.S. media, China has been suffering under a severe energy crisis.
Due to falling coal production, poor energy efficiency, and a surge in demand, over the last year the Chinese people have been plagued by power shortages and skyrocketing prices.
In order to deal with the crisis, Chinese leaders ordered silicon plants to shut down in September, a move that, however necessary, served to push polysilicon prices even further through the roof.
Speculative traders, seeking to take advantage of the spike, have exacerbated the situation by hoarding supplies. According to Chinese media, by April at least 20% of the world’s polysilicon supply was being hoarded by middlemen.
China’s near complete dominance of the polysilicon market means its economic fortunes are going to play an outsized role in determining the cost of solar power for the foreseeable future.
It’s not clear when the interlocking factors driving this bout of polysilicon hyperinflation will resolve themselves. But, until they do, expect the cost of solar power to keep increasing.