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California’s Silicon Valley is suffering acute shortages of the very material that gave it its name.

But the main victims of the squeeze are proving to be new solar-panel producers with insatiable needs rather than the semiconductor companies who established the valley’s reputation with their silicon chips.

The base material for both chips and the vast majority of solar panels is polycrystalline silicon, or polysilicon, which is raw silicon refined to 99.99999 per cent purity.

The global solar-panel industry, boosted by government subsidies and incentives, is expected to consume 30 per cent of world supplies this year.

But the production of polysilicon is limited to a handful of factories, which have been unable to keep up with demand.

“I think the incentives that have been given in Europe and other areas have really spurred the growth and that’s what put the squeeze on. Solar panels consume a phenomenal amount of silicon,” says Len Jelinek, a principal analyst with the iSuppli research firm.

Photovoltaic panels are made of silicon wafers laid side by side to absorb the sun and convert it to electricity. The more used, the greater the energy produced.

But prices have risen from an average of $30 a kilogram for polysilicon in 2003 to about $72 this year, with some companies desperate enough to pay more than $300 for a few tonnes on the spot market.

Solar-panel companies in Silicon Valley include SunPower, a spin-off from Cypress Semiconductor that floated successfully last year, and Google-backed Nanosolar and Miasole, who are both using a copper alloy rather than silicon for their solar cells.

Most semiconductor companies, including Intel and Advanced Micro Devices, appear to have long-term fixed contracts for their polysilicon needs.

Nevertheless, there is evidence suggesting chipmakers are becoming concerned about the shortages and are beginning to stockpile silicon wafers.

Industry figures show wafer shipments rose 22 per cent in the second quarter when sales of finished chips were up only 9 per cent.

It was the third successive quarter that wafer shipments were up more than 20 per cent on the previous year but chip sales grew only in single digits.

“That would indicate to me that the purchasing agents have noticed that supply and demand are tightening, so they are buying more than they need,” says Rich Winegarner, president of Sage Concepts, a market research firm specialising in semiconductor materials.

Copyright The Financial Times Limited 2017. All rights reserved.
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