Polysilicon prices have a history of dramatic changes, but until recently, polysilicon prices had held up better than wafer and module prices. This encouraged continued capacity expansion despite growing concerns of over-supply throughout the supply chain. Now, sluggish end-market demand in 2011 has exacerbated the glut, and severe price erosion since mid-September suggests the poly bubble has now fully burst.

Polysilicon prices rose from around $30/Kg to well over $450/Kg during the first half of 2008, then settled into the $50-100/Kg range for the past couple of years. In Q2’11 average polysilicon spot prices were $60/Kg. During the week of November 7, Solarbuzz has confirmed several quotations from tier-two Chinese polysilicon producers for $24/Kg, while rumors on the internet have suggested prices as low as $20/Kg.

At $20-25/Kg, even tier-one polysilicon producers will struggle to cover their costs. After falling more than 90% since 2008 highs, polysilicon spot prices may already have been squeezed to near-term limits. As polysilicon prices fall below cash costs, marginal producers will reduce production and capacity expansion plans will be re-evaluated.

It is important to remember that the large majority of polysilicon for is procured through long-term contracts, so industry average polysilicon prices are significantly higher than the extremes that these spot prices imply. But spot prices are an important indicator of where supply/demand is trending.

The entire PV supply chain has struggled to digest an enormous amount of over-capacity, so prices for poly, wafer, and modules are reaching historic low levels. Module costs, which have typically accounted for up to two-thirds of installation costs, have fallen to less than half of the system price. In the future, further reduction of BOS (Balance of Systems) costs will be critical to continue to push PV costs down and competitiveness up.