Competition also comes from across the Taiwan Strait. Suntech Power Holdings Co (
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But these companies all face a common problem -- the shortage of polysilicon, the raw material used for making solar cells and semiconductor wafers.
According to a report by Merrill Lynch, demand for polysilicon is increasing 30 percent annually, while supply has only expanded by 10 percent.
Major suppliers of polysilicon include Hemlock Semiconductor Corp, Wacker Chemie AG, and Tokuyama Corp. They have signed two-to-three-year contracts with their long-term clients, mostly semiconductor manufacturers, and barely have extra capacity for the startups in the short term, said Ho Chiao-ling (何巧玲), an analyst at Industrial Economics and Knowledge Center under the Industrial Technology Research Institute.
"Controlling the raw material is the key to succeeding in this industry, as the shortfall may not be solved by 2008," Ho said.
Tight supply has driven up the price of polysilicon by 30 percent this year, to between US$80 and US$90 a kilogram, compared with between US$50 and US$60 last year, the Merrill Lynch report said.
Intensive competition normally brings down costs, but the rising raw material costs will increase solar cell prices, discouraging installation, said an energy analyst at Yuanta Core Pacific Securities Corp (元大京華證券) who spoke on condition of anonymity.
"In this way, even with the mushrooming number of players in the market, solar panels will still not be economically viable," the source said. "It is possible that solar cell manufacturers' bubble will burst the way the Internet sector did several years ago."
He said investors should be cautious about the risks of investing in solar cell makers, despite the seemingly bright outlook of the market now.
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