Average costs for vertically integrated tier 1 makers are now forecast to fall yet another 6 percent in 2014 to a record low of $0.20 per watt (W), according to the NPD Solarbuzz Polysilicon and Wafer Supply Chain Quarterly report. Since 2008, solar PV wafer manufacturing costs (the combined costs of polysilicon and wafer processing) have declined more than 16 percent per year.

“Wafer costs are only a third of what they were five years ago, and even though the rapid pace of cost reduction is starting to decline, the severe oversupply and extremely low selling prices are forcing polysilicon and wafer makers to continue to find ways to lower costs to previously assumed impossible levels,” said Charles Annis, vice president at NPD Solarbuzz.

On the polysilicon side, manufacturers are relocating capacity to areas with low electricity prices, building new fluidized bed reactor (FBR) plants or converting Siemens capacity to FBR, reducing power consumption, increasing plant productivity, and even building in-house power plants. Recently, multiple leading polysilicon producers have suggested they can cut Siemens costs to less than $14 per kilogram (kg) in the near future, and FBR costs to less than $10 per kg within a few years.

“At the same time, wafer makers are also reducing costs by increasing the multicrystalline ingot size from Gen 4/5 to Gen 6/7, reducing slurry consumption and increasing recycling, adopting diamond wire sawing for monocrystalline applications, and benefiting from rising conversion efficiencies as crystallization quality continues to improve,” added Annis.

With NPD Solarbuzz having recently upgraded its PV industry end-market demand forecast to between 45 GW and 50 GW for 2014, the reduced cost basis should help support improving profitability at leading polysilicon and wafer makers. At 45 GW to 50 GW, the seven polysilicon makers NPD Solarbuzz defines as tier 1 (GCL, Hemlock, OCI, REC Silicon, SunEdison, Tokuyama, and Wacker) will all likely return to high utilization rates, which will help amortize fixed costs over increased shipments.

Strong end-market demand will also enable some wafer makers to ramp up equipment previously purchased, but never used. Some suppliers are already acquiring previously mothballed lines or competitors’ capacity. Larger ingots and improving wafer plant productivity will also help meet growing demand. A few wafer suppliers, such as Comtec, will build completely new factories to satisfy specific market opportunities such as N-type wafers.

Increasing demand should help firm up both polysilicon and wafer prices. In some cases, such as high efficiency wafers, supply tightness may enable price increases. Even so, NPD Solarbuzz still assumes extreme competition and production sufficiency will restrict broad-based polysilicon and wafer price increases.

Compared to the very challenging past couple of years, increased productivity that enables wafer manufacturing costs as low as $0.20 per watt, along with firm pricing and rapidly growing shipments is expected to create a substantially more optimistic opportunity for best-of-class polysilicon and wafer makers in 2014.