Reference no: EM131489383

Question: What's Raining on Solar's Parade?

The solar power industry has been on a tear, growing at more than 30% per year for the last six years. It's poised to reach a surprising milestone within two years, when it will gobble up more silicon for its electricity-generating panels than semiconductor makers use in all their chips and devices. So what's the problem? "Global demand is stronger than the existing supply," says Lee Edwards, president and CEO of BP Solar. His company and others can't buy enough of the ultrapure polysilicon now used in 91% of solar panels. The raw material shortage has slashed growth for the industry from more than 50% in 2004 to a projected 5% in 2006. The shortage has caused prices for polysilicon to more than double over the last two years. As

Economics 101 teaches, that should prompt producers to expand capacity. But for suppliers such as Michigan-based Hemlock Semiconductor Corp., the world's largest producer, the decision hasn't been easy. For one thing, the company was badly burned in 1998. It had just built a new facility in response to pleas from semiconductor makers when Asia went into a slowdown. Demand for silicon plunged, and the factory had to be shuttered. Hemlock finally decided that the industry is real, but only after solar companies agreed to share the risk by signing contracts to buy the future output. So in December the company began an expansion worth more than $400 million that will increase silicon production by 50%. Competitors are following suit.

Examining the Newsclip Question

1. Understanding Cause and Effect How did the shortage of polysilicon affect its price?

2. Analyzing Why was Hemlock Semiconductor Corp. at first reluctant to increase the production of polysilicon?