Solar Feels Polysilicon Price Pinch

NEW YORK (TheStreet) -- Most solar panel manufacturers rely on polysilicon as their primary raw material to capture electricity from the sun. However, the price of the commodity has fluctuated sharply over the past two years as polysilicon producers ramped up production capacity to match rising demand for solar modules.

In 2007, undercapacity and short supply led the price to rise to $400 per kilogram, equivalent to about $2.80 per watt. This spurred manufacturers to lock in long-term contracts and invest in their own polysilicon production.

LDK Solar (LDK), Yingli Green Energy (YGE) and ReneSola (SOL) all had plans to begin polysilicon production for themselves, but some may now regret their expensive ambitions as polysilicon spot prices plummet, hitting $60 in the third quarter of 2009.

LDK Solar, a solar wafer producer, broke ground on its polysilicon production plant in August 2007, at a point when polysilicon was around $350 per kilogram on the spot market. It was to build a small plant and three larger plants, with an original plan to produce 150-350 metric tons of the material in 2009 at its smaller facility and a further 5,000-7,000 metric tons at its larger facilities in 2010.

LDK has now delayed its polysilicon production facilities several times due to issues in plant commissioning and poor market demand for wafers. The company lowered its 2009 target to 15-25 metric tons for the year. The company's larger project -- a 15,000-MT capacity plant -- was originally slotted to reach full capacity in 2009, but 10,000 MT of capacity have been pushed back until further notice. Production targets for the year have also been cut by 66% from the original estimate of 5,000-7,000 MT over 2009.