Talking of silicon…

Polysilicon is used to make two things: silicon chips and photovoltaic cells for solar power. The two industries have co-existed happily as the solar industry has tended to use the waste from the semiconductor industry. Now, however, there is both increased demand for solar power as part of the renewable energy push and increased efficiency in chip manufacturing, meaning less waste. The result is entirely predictable:

A Merrill Lynch report on the solar sector cites recent isolated polysilicon transactions at “unsustainable” prices of about $200 a kilogram — nearly 500 per cent higher than in 2004.

Average polysilicon prices, which have doubled in the past 20 months, are expected by some to rise by about 30 per cent over each of the next three years.

Tokuyama, Japan’s largest producer, admitted last week that its facilities were unable to keep up with demand.

Of course, the solar industry is not yet economically viable, which means that it is the taxpayer who will foot the bill:

Merrill Lynch estimates that governments around the world will have to provide subsidies of up to $24bn (€19bn, £13bn) by 2009 to achieve current solar panel deployment forecasts.

Newer panel-makers in promising solar markets such as India and China will probably be forced to reduce production to a small fraction of capacity or abandon expansion plans altogether…

A prolonged shortage could cause what one analyst described as a “substantial delay” to solar power’s forecast turning-point around 2018, when production costs had been forecast to fall far enough for it to be competitive with prevailing energy prices without subsidies.

The other issue is that this could affect the price of semiconductors, making the price of computing technology rise or, at any rate, fall less than it would. That’s unquestionably a bad thing for the economy.