Just as California launches its Million Solar Roofs program, a worldwide shortage of polycrystalline silicon is raising the price of photovoltaic systems and crimping panel installations, say industry executives and analysts. New silicon production plants and increasing market penetration of thin-film materials promise to put downward pressure on panel prices in 2008, but until then photovoltaics will remain expensive, they say. "We're in a two-year severe shortage," said Jesse Pichel, Piper Jaffray analyst. "A lot of poly silicon comes on the market in 2008." About half of the cost of a solar panel is in the price of silicon. Pichel estimates that the commodity's rising price boosted the average cost of photovoltaic modules by $1 per watt recently. However, he added that all of that new capacity coming into the market in 2008 will be under immediate contract to existing photovoltaic cell and module manufacturers and the electronics industry. "It's a disastrous scenario for an industry that should be growing by 30 to 40 percent" a year. The average Californian would never guess there's a silicon shortage given the cosmetic surgery boom, joked Barry Cinnamon, Akeena Solar chief executive officer and president of the California Solar Energy Industries Association - referring to silicone, not silicon. But the shortage of refined silicon is serious, he added. Cinnamon said that the shortage of polycrystalline silicon increased the price of rooftop solar panels in California from around $4 to $4.50\/watt for many installers over the past year. He estimated that the increase has caused about 500 installations to be placed on hold so far this year. An Energy Information Administration report released last month, Solar Thermal and Photovoltaic Collector Manufacturing Activities 2005, corroborates that assessment. Despite a silicon shortage and higher prices for solar panels, total shipments of photovoltaic cells and modules in the U.S. rose by 25 percent in 2005 to 226,916 peak kilowatts. The average price for photovoltaic modules jumped 6 percent from $2.99\/watt in 2004 to $3.19\/watt in 2005. An ongoing shortage of silicon is continuing to drive prices higher, the EIA observed. Surging demand for photovoltaic panels spurred by strong incentives abroad - particularly in Germany (Circuit, June 18, 2004) - and higher fossil-fuel prices are driving the silicon shortage and recent price spike. Cinnamon thinks that the climbing price of electricity from the grid will keep the state's Million Solar Roofs program on track despite the silicon shortage and higher prices for photovoltaic modules. Yet offsetting the state's plans to spend $2.8 billion to subsidize solar installations over the next 10 years under the Million Solar Roofs program are slimmer subsidies per installation. The higher price for photovoltaics coincides with the California Public Utilities Commission's decision earlier this year to reduce its incentive payment for photovoltaic systems from $2.80 to $2.50\/watt (Circuit, March 24, 2006). The CPUC plans to trim incentives about 10 percent a year until they are phased out in 2017. Ultimately, thin-film materials, which use less silicon, may be the key to alleviating the materials shortage and lowering the price of photovoltaic technology to the point that it can compete with fossil-fuel-based power at a dollar per installed watt of generating capacity, said Pichel. In its report, the EIA tracked a major increase in the use of thin-film materials in 2005. U.S. shipments more than doubled from 21,978 kW in 2004 to 53,826 kW in 2005. Thin film is less expensive to produce than polycrystalline silicon, according to Pichel, although it produces less electricity during peak solar exposure. However, in installations where available space is not a constraint, the cost per kilowatt-hour of production can be less with thin film. Shell Solar Industries and the National Renewable Energy Laboratory released a study earlier this month that found that thin-film technology is well on its way toward achieving an installed cost of $2\/watt. It hit a mean energy conversion efficiency to date of 11 percent, compared to a U.S. Department of Energy target of 8 percent. The 2020 goal is 15 percent, said the report, Thin-Film Photovoltaic Partnership Program CIS Module Process R&D. CIS stands for copper indium selenide. However, thin film already is gaining widespread acceptance abroad, according to Terry Schuyler, DayStar Technologies vice-president of sales and marketing. The technology uses metals or combinations of metals and polycrystalline silicon applied to flexible substrates. In contrast, conventional silicon is produced in ingots and cut into needed shapes. New York State-based DayStar sells a thin-film product known as TerraFoilTM. It consists of copper indium gallium selenide cells applied to foils that can be used either in conventional flat plate photovoltaic modules or in other applications, including "free field" installations. These field applications are popping up on farms all over Germany, said Schuyler. Farmers place the photovoltaic systems on the parts of their farms with the worst soil, he explained, sometimes coupling them with wind turbines. The company is expanding its manufacturing capacity for TerraFoilTM. However, much of the increased output will be sold to Germany, which represents more than half of the world solar market. "It's a very mature industry," said Schuyler of Germany. "It's almost disheartening to see how small our [U.S.] market is." In San Diego County, Peak Sun Silicon is preparing to announce a new process that will reduce the cost of making polycrystalline silicon by producing it in the form of pellets instead of ingots. The process will use less energy and be more easily scaled up to meet the needs of the expanding photovoltaic market, said Ray Berardinelli, company spokesperson. Company president John Schumacher - who has been involved in the semiconductor equipment and materials industry for 30 years - plans to announce a commercialization plan for the new process before the year is out. Overall, world demand for photovoltaic power is projected to grow at the rate of 25 percent a year, according to the NREL. "It's really Germany, Japan, and California," observed Schuyler, who credited the state's solar roofs initiative as "an indication the market is maturing in the United States."