Power Play: Exploring the intersect of Solar and Semi

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The economic impact of fuel costs, especially oil, is reducing the spending power of many consumers and causing downgrades in forecasts for the second half of 2008 across industries. But these skyrocketing fuel and energy prices are proving advantageous for the alternative energy industry and those, such as the semiconductor sector, supporting this new industrial growth.

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With higher prices per kilowatt for existing energy, alternative energy sources are now able to near a pricing break even point, also known as 'grid parity.' More and more entrants to the market place are further reducing price barriers for alternative energy. The influx of competition has resulted in a reduction of final product costs (e.g., the price of solar panels is significantly lower than ever before because of increased supply and economies of scale). Combining the higher cost of energy with the lower cost of the equipment needed to produce alternative energy, plus adding the effect of inflation on all goods and services, the average consumer (residential and commercial) is also now more interested in investing and participating in alternative energy opportunities. It is likely that public momentum will enforce the continued exploration and improvement of alternative energy technologies (cf. www.industryweek.com/ReadArticle.aspx?ArticleID=16985&SectionID=25). This increased participation is creating increased demand and a favorable mass market configuration.

Mass market gains for alternative energy benefit the electronics industry: solar is dependant on semiconductor equipment and materials, research and development (R&D), production and manufacturing best practices, and electronic components. Alternative energy in general also promotes the purchase compatible or complementary electronic products, such as smart meter devices for all energy consumer sectors (residential, commercial and in some cases industrial, though more the former two than the latter). The proliferation of alternative energy, therefore, presents important revenue growth and diversification opportunities for many in the electronics industry and those supporting the industry (e.g., equipment manufacturers and materials suppliers and producers).

Mass market opportunities are fueling investment and collaboration
The semiconductor sector is already playing a vital role in mentoring and financially backing many in the solar sector. Semiconductor corporations engaged with the solar sector are able to diversify their business into a compatible sector while paving the way for new end product opportunities
(cf. http://greenwombat.blogs.fortune.cnn.com/2008/06/19/intels-solar-ambitions).
Given the cyclicity now inherent in the semiconductor market, this diversification opportunity is welcomed, but does pose some risk (cf. www.iht.com/articles/2008/06/27/business/mwind.php).

Investment and collaboration from the semiconductor sector is a natural fit because of the number of business intersects, the most binding of which is the high tech materials, engineering, and research and development interests. Photosensitive cells capture sunlight and generate energy. Solar photovoltaics (solar PVs) have been the traditional solar energy harnessing method, most commonly thought of as flat solar panels that are used to ‘catch’ the sunlight and convert that process to energy. Solar PVs are made, in part, from solar grade polysilicon (s-poly), silicon that has specific impurities added to it to increase the photosensitivity of the material. S-poly is a different grade of polysilicon than used in the manufacturing of semiconductor wafers, but follows a similar production path. The prices of these different polysilicon materials are, naturally, different as the grade and supply-demand balances are sector specific.

Due to the sudden high number of market entrants producing s-poly, spot prices have skyrocketed. Spot prices for s-poly have more than doubled since the second half of 2007, reaching a spring high of over US$500, but stabilizing presently in the lower US$400 range. Semiconductor grade scrap polysilicon (scrap poly) has also risen to a spot price that continues to hold in the US$300 range. The scrap poly is typically combined with the high-grade s-poly during production for making solar wafers, so the spike in both s-poly and scrap poly spot prices is a double hit for solar wafer manufacturers.

The pricing increases translate to higher costs for producing solar modules, thereby reducing solar's grid parity. Less costly thin film photovoltaics (TFs), therefore, have been given a significant boost as a competitive technology to solar PVs, despite their lower efficiency levels. TFs are a direct descendant of the thin film technology (TFT) display sector in the electronics industry, and as such, an intersect between the solar and semiconductor sectors occurs. This intersect has lead to a number of natural joint ventures (JVs), investments from semiconductor to solar, and new value chain relationships being forged in the TFs sector.

TFs research is receiving considerable backing, such as Intel Capital's recent US$12.5 million investment in Voltaix, a materials producer for semiconductor and TFs solar applications and Sulfurcell, a solar module producer (www.intel.com/capital/news/releases/080729.htm and
www.powermanagement-europe.com/208803326). These investments support R&D in TFs and are providing the cash flow to allow new technological developments to come into production. Successful examples include contracts for building integrated photovoltaics (BIPV)
(cf. http://www.greentechmedia.com/assets/pdfs/executivesummaries/BIPV_
Market_Outlook_2008_Beyond_Executive_Summary.pdf),
and commercial solar TFs products such as the 2010 Toyota Prius hybrids, one line is planned to have solar panels installed on the roof (www.reuters.com/article/technologyNews/idUST29871820080706 and http://online.wsj.com/article/SB121496449430221935.html ).

The revenue forecasts for TFs is strong, with market analysts looking for US$2.4 billion in 2008, US$12 billion in 2013 and then doubling to US$22 billion by 2015 (www.pv-tech.org/market_watch/article/thin_film_pv_revenues_to_exceed_12_billion_in_2013).
As of the middle of July 2008, many TFs solar production lines are running at capacity and are fully booked, some with contracts extending through 2009 and with new lines to support additional orders being equipped (e.g., Sun Well Technologies,
http://www.greentechmedia.com/articles/sun-well-rolls-out-thin-film-panels-1124.html).

Solar's impact on the electronics industry
Nowhere has the intersection of industries been felt more than solar technologies and the semiconductor sector. From raw materials to the complex engineering and architecting of high-tech energy harnessing products, solar technologies rely on advances made in semiconductor production and architecture. While many solar corporations have been quietly pushing forward for decades, the recent spike in oil prices coupled with significant investment by major semiconductor corporations has changed the submarket dynamics
(cf. www.greentechmedia.com/articles/chip-giants-delve-deeper-into-solar-1015.html).

The role of silicon as a core material
Silicon is the base material from which various grades of polysilicon are made, such as s-poly for the solar sector and semiconductor grade poly for the semiconductor sector (see the discussion above). There is competition for silicon between solar and semiconductor sectors, and that competition is creating shortages and driving the price of this critical base material higher. But, as a Frost & Sullivan forecast early in 2008 reported, the significant increase in new silicon producers who are currently doubling their capacities may alleviate the silicon shortage as early as the end of 2008. Other forecasts warn of a possible silicon glut by 2010 or 2012 due to the new production. However, other analysts question the potential for many of the new material producers to succeed, either because of the increased CAPEX investments needed and/or their ability to actually produce the high-grade polysilicon needed, a complex and highly involved process that requires significant manufacturing capability to reach ROI levels
(http://seekingalpha.com/article/83134-memc-electronic-materials-climbing-the-wall-of-worry).

JV opportunities
There is a more interesting connection between the solar and semiconductor sectors than simply silicon and the various grades of poly, spot prices, etc. Given the high spot prices for s-poly, in order for grid parity hopes to remain alive and the new solar panel producers to stay in business, long-term contracts that avoid spot prices (with their high down payments) have become critical.

Out of this material procurement situation, a number of joint ventures (JVs) arose between long standing semiconductor companies and new solar wafer and panel companies.

These JVs can be grossly categorized:

  • supplier-manufacturer: typically when s-poly producers are long-standing poly producers with s-poly lines;
  • semiconductor manufacturers and solar manufacturers working together: a diversification opportunity for the semiconductor company and a leveraging opportunity for the solar company;
  • among other JVs and similar partnerships.

The reasons for these JVs include:

  • material integrity and quality when procuring from long-standing poly producers;
  • everaging long-standing value chain relationships between poly producers and semiconductor companies to secure long-term contracts and immediate product for new solar start-ups with little or no market power;
  • transference of knowledge from semiconductor to solar regarding business processes, value chain configurations, and process optimization;
  • among others.

Equipment manufacturing pricing
Another intersect of the solar and semiconductor sectors is occurring in the equipment manufacturing sector. In general, there is noteworthy overlap of specialized equipment needed by material producers for both solar and semiconductor sectors. All of these new solar manufacturers are requiring significant equipment ramps during their start-up heyday, while many on the semiconductor side have been faced with reduced CAPEX budgets for at least a few quarters. The influx of business to the equipment suppliers is welcomed, but there is now a competition between solar and semiconductor manufacturers, though the fallout has not been too severe as of yet.

While one might expect some price pressures being felt by those on the semiconductor side, given the greater demand from solar, the semiconductor players are recognized as long-term, stable clients coming from an established industry worth upwards of US$74 billion for equipment and materials in 2006, "compared to about $3.7 billion estimated for PV equipment and materials in 2006. […] mid-range estimates for 2010 see a PV equipment and materials market of about $10.3 billion" (http://www.eetimes.com/showArticle.jhtml?articleID=207400857). As a result, the value chain connections forged are able to satisfy, at least for the time being, the needs of both sectors.

Opportunities for semiconductor manufacturers, OEMs and EMS
The semiconductor sector has much to gain from the emerging solar sector. Due to the semiconductor market's cyclicity, the opportunity to diversify revenue streams across sectors is paramount. Chemical and material suppliers are already experiencing significant revenue streams reaching and expected US $240 million in 2008 and projected to more than double to US$575 million by 2010
(cf. www.powermanagement-europe.com/208808330).

In light of these cross-sector opportunities, semiconductor analysts such as Lehman Brothers are forecasting that "[g]oing forward, we believe that manufacturing for the solar industry may become a new growth area for some semiconductor vendors" (Lehman Brothers' Global Semiconductor Handbook 2008, p. 6). MEMC is one leading semiconductor wafer manufacturer that "[…] is targeting 40% of sales from solar wafers over time" (ibid., p. 282). While a promising opportunity for manufacturers such as MEMC, one cannot help but wonder what potential supply issues the semiconductor sector faces as a cross-over begins (e.g., pricing and ASPs, utilization and/or number of dedicated lines for semiconductor grade poly, value chain realignments due to competition from the solar sector, among other market influencing occurrences).

A cautionary note is warranted here, as is typical in emerging sectors, there is an unwieldy number of corporations in the solar market presently. There will be significant restructurings in the solar sector as mergers and acquisitions (M&A) occur, JVs increase, and shake outs remove the less successful from the playing field. In addition to these normal market growing pains, the effects of various governments’ subsidies and incentives being renewed or removed will also have a cascade effect on the solar sector due to the present reliance on such support to reach grid parity.

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