Are your PV materials costs out of control?

andarchan

by Lita Shon-Roy, Techcet Group LLC

December 16, 2009 - The basis for all supply chain issues is growth, and usually it's unexpected growth. Our market analysis of square meters of solar cells by various cell technologies reveals that the thin-film area is indeed still growing in excess of 20% per year. However, growth alone is not a problem. The unstable tipping point that has put CdTe and CIGS/CIS materials into a supply-constrained situation is caused by the tellurium and indium metals on which they rely. The supply and availability of these metals are largely dependent on other markets; their use in PV is small in comparison to worldwide consumption. Additionally, these metals are not directly mined. Each of these metals is a byproduct of some other refining process and therefore, the supply is dependent on whether enough copper or zinc is mined and produced.

Lita Shon-Roy, senior managing partner, Techcet Group

Tellurium

Use of tellurium for PV applications represents ~11% of the total worldwide consumption of the metal. The majority of tellurium is used for metal alloying and additives; these other markets are relatively large and do not grow much from year to year (i.e., <5% growth). Hence, the metals markets that cater to these applications plan to add only as much material into the supply stream as they are sure to sell. This typically means relying on history, which indicates a growth of ~3% per year. So, when the PV industry grew more than 7× that amount in 2007 and 2008, the supply chain choked down to a drip. The mines and refiners are low-margin operations in comparison to what an electronic device and cell manufacturers might expect. It is therefore no surprise they are not easily convinced to invest in increasing their production for the PV market that has had large swings in growth.

How, then, can a PV manufacturer prevent the availability issues and pricing increases that comes with lack of supply? Two methods that are most useful in this situation would be to either secure long term contracts with refiners, and/or buy and keep more inventory. A third alternative would be to actually invest in the mining of tellurium itself. This metal is a byproduct of copper refining, so volumes are highly dependent on a copper refiner producing enough copper and collecting the anode slimes from which tellurium can be extracted. Securing an investment position with a mine might allow for an uninterrupted supply of material. There is also a fourth strategy that could be employed to ensure stable prices and material availability: investing in direct mining of tellurium. First Solar appears to be looking for a partner to develop a direct mining process for culling tellurium. It is unclear as yet, how feasible this option is, but it is important to note that this avenue is currently being explored.

Indium

Is Indium also plagued with the same supply chain problems? Yes and no. There are availability issues that could be alleviated by some of the same strategies indicated above. However, very unlike tellurium, the growth of indium supply is increasing at a healthy clip. Instead of a conservative supply chain unwilling to mine more of the metal, the indium supply chain is being propelled forward by one large consumer: the thin-film transistor (TFT) display industry. Indium PV applications represent <2% of the worlds applications, in contrast to TFT display's >80%. This poses a major supply problem: one application consuming huge amounts of indium overshadows the need for PV indium, creating a shortage of indium when TFT display demand surges. 2009 was such a year -- growth in TFT displays climbed &gte;20%, indium supplies tightened, and prices escalated >35% from January to November.

To counteract indium availability issues, many of the same strategies mentioned above for tellurium can be used effectively. In particular, keeping more inventory on the shelves is of high importance -- although prices increase when demand rises, it won't matter if you have preferred pricing from a long-term contract if there is no material in the pipeline to buy. Additionally, to better control material availability and pricing, it is critical to track the TFT display industry and anticipate upswings that will ultimately impact supply and pricing. And if all else fails, one might want to look into stockpiling indium. One such company, SMG Indium Resources Ltd., has been formed to do just that. There is no indication of whether this business has been successful, but the mere fact that a company has formed just for the purpose of trading indium lends credence to the importance of keeping track of the supply chain and taking steps to minimize availability and pricing problems.

Lita Shon-Roy is senior managing partner in the Techcet Group, LLC, 2103 El Amigo Rd., Del Mar, CA 92014; e-mail: lshonroy@techcet.com.