Shortages of turbines and polysilicon are holding back the clean-tech boom

Economist
Saturday 31/3/2007 Page: 68

THESE should be heady times for Vestas, a Danish firm that makes more than a quarter of the world's wind turbines. The wind business is booming, and the company said last week that it had swung into profit in 2006, thanks to an 8% rise in revenue.

But there is "significant unexploited production capacity", Vestas says, due to shortages of high-quality turbine components. Other companies grumble about a lack of gearboxes and bearings.

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. (This week Energias de Portugal became the latest European utility to invest in American wind farms, with the $2.2 billion purchase of Horizon Wind Energy.) And when a solar incentive scheme took hold in Germany in 2004-05, demand in Europe roughly doubled, says Ron Kenedi of Sharp, the biggest solar-cell maker.

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 MEMO, 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.

Sharp opened a silicon refinery - its first, in Japan in January. 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. A federal tax credit for wind has been allowed to expire three times in recent years. 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. If the Democratic Congress would kindly extend the credit for ten years-and also pass a federal "renewable portfolio standard" mandating that, say, 15% of America's energy should come from solar, wind and other alternative sources-the lobbyists would be delighted.