Solar power CEO says sector needs to cut costs

By Gerard Wynn

LONDON (Reuters) - The risk of a glut in solar panels sales, as input costs fall, makes cost-cutting now key, Iain Dorrity, Chief Executive of PV Crystalox, said on Tuesday.

At present a shortage of high grade silicon, a key component in solar panels, has created a bottleneck, boosting producer profits as demand for the clean energy source outstrips supply.

But a ramping up in silicon investment means the production of solar panels could surge in the next two to three years, risking a shakeout across the supply chain to mirror a glut now in the biofuels sector, another renewable energy source.

PV Crystalox is half-way through that supply chain, making wafers from high grade silicon, to sell to manufacturers of solar cells and panels. It wants to move up that chain to try and contain costs.

"Our position as one of the lowest cost producers will put us in a strong position," Dorrity said. "Our strategy is to move upstream, not to compete with customers."

The group's London-listing last month raised 50 million pounds ($101.9 million) to build a high grade silicon production facility in Germany.

Dorrity didn't rule out a glut, and said he wanted more countries to copy Germany's generous support for the energy source, which isn't yet competitive with more conventional sources of electricity like coal.

"It's a possibility. We need more Germanys. Governments will have to drive more incentives if they want to meet their renewable energy targets."

Instead much attention is focused on an expected cut in Germany's solar power incentives, with an accelerated phase out of support one possibility in an announcement expected later this year.

European Union leaders recently backed a commitment to get a fifth of the bloc's energy from renewable fuels like wind, solar and biofuels by 2020, three times its current level.

The silicon supply bottleneck will ease in the next two to three years, Dorrity said.

But much of that increased supply will already have been sold, he added, meaning input costs could remain high even then.

Another renewable energy source, biofuels, is suffering a shakeout after a rush to produce the alternative transport fuel created a glut and raised the cost of inputs like wheat and sugar, squeezing producer profits.

Dorrity expected the price of solar power to be competitive with conventional electricity in the next 10 years, and sooner in very sunny areas such as southern Spain and California.

The sector will have to weather a tough time before then, said New Energy Finance analyst Michael Liebreich.

"The shakeout will be across the supply chain," said Liebreich. "The golden years everyone is expecting won't happen until after that."