Apr 09 - The Sacramento Bee

Mark Fischer is glad he plunked down $2 million for 144 solar-power systems last year. He beat the Germans to them - and largely defied the ruthless law of supply and demand shadowing the solar market just as it's poised to break out across sunny California.

Fischer, vice president of Stockton-based Grupe Development Co., oversees the Sacramento region's largest all-solar subdivision, now rising in Rocklin. It marks the firm's first venture into a solar-energy market that increasingly has found itself squeezed at the same time it has high hopes of becoming a serious option for homeowners.

The problem: There isn't enough polysilicon being manufactured for both the global semiconductor industry that has traditionally been its biggest user and an upstart solar cell industry that's experiencing unprecedented demand. The result is a supply shortage that's unexpectedly driving up prices for an already expensive home addition.

Generous new German government subsidies for solar installations in that country have especially pressured supplies just as California has approved its own 10-year, $2.9 billion program giving residents a $7,000 subsidy to add the units to their homes. With developments like Grupe's Carsten Crossings, the state aims to spur thousands more systems that can halve energy demand for an average home and add thousands of megawatts into the energy grid.

For years, solar cell prices gradually fell as demand grew and efficiency improved. But the tug of war between the huge chip industry and the growing solar cell manufacturing sector has pushed costs of solar systems up at least 10 percent, said Howard Wenger, executive vice president of Berkeley-based PowerLight Corp., which calls itself the nation's largest buyer of solar cells. A typical installation of a system that is integrated into the roof now averages about $21,000.

The polysilicon in the cells is the raw material that receives and stores sunlight to convert to electricity. Wenger said that just four years ago, the industry "consumed less than 5 percent of the silicon material" worldwide.

But today, said Dick Swanson, founder of SunPower, a Sunnyvale-based solar cell manufacturer, the solar industry "is using as much silicon as the microelectronics industry. There is a shortage and prices have gone up dramatically."

What's not going up is the rate of installations. In California, which boasts 80 percent of the nation's solar energy production, installations, which surged almost 40 percent in each of 2003 and 2004, slowed last year to 22 percent, according to California Energy Commission statistics.

The commission has subsidized up to 90 percent of the solar installations statewide since 1998.

Roseville homeowner Anita Mathis bought a new solar-powered home during the recent rush. She typifies homeowners who like the idea of saving money - typically solar systems can pay for themselves in about seven years - as well as the notion of being part of the energy solution.

"We lucked into this," she said. "We didn't mean to buy a solar home. But it's nice to know we're not contributing to the energy problem."

Some industry analysts say price increases and shortages are likely temporary. Polysilicon supply shortages may continue until 2008 or 2009, according to Chicago-based Navigant Consulting Inc.

"We believe the situation will reverse itself in two years," said PowerLight's Wenger.

Solar advocates such as SunPower's Swanson contend that solar cells will become thinner by half each decade and use less silicon raw material to generate the same amount of power.

They also point to a rapid expansion in manufacturing capacity in China, Russia and other nations that will ease the polysilicon shortage.

Statewide, the Energy Commission reports that owners of 16,684 homes and businesses have installed rooftop solar units since 1981. That puts California third globally in solar production behind Germany and Japan, said Bernadette Del Chiaro, clean energy advocate for Santa Monica-based Environment California.

Grupe's Carsten Crossings, with 144 all-solar homes priced between $476,000 and $526,000, will add to an estimated 2,000 homes already powered by the sun in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties.

Still, solar's 130 megawatts of power statewide represent just a fraction of the 33,032 megawatts that California produces on average each year. And the number of installations on rooftops is just a mere sliver of the 12.2 million homes and apartment buildings in California.

California home builders last year received permits to build 154,853 new single-family homes and 53,000 new apartments and condominiums, according to the Construction Industry Research Board. But statewide, they have built only 1,500 to 1,600 new homes with solar systems already included, the Energy Commission's Amy Morgan reported.

Solar advocates like Chiaro and Wenger said it's cheaper to install the systems on new houses than to retrofit older homes. But many builders fear the extra costs of solar systems will price their product beyond the means of many buyers.

Grupe's Fischer said the company began considering an all-solar subdivision two years ago.

"A day doesn't go by that you (don't) open the paper and see something about rising energy costs," he said.

He said the company paid $14,000 each for residential solar systems after a $7,000 discount provided by state government subsidies. Homebuyers will receive another $2,000 federal tax credit their first year.

Fischer said his ability to purchase all the units at once ensured he was able to install solar on his entire subdivision without running out of systems.

Roseville-based Premier Homes, which already has built smaller all-solar home developments in Roseville and Sacramento, is considering a new 148-home sun-powered subdivision next year in Lincoln. That would become the region's largest.

"The price has gone up from previous projects, but I think we're going to be able to make it work," said John Ralston, Premier's vice president of sales and marketing.

But the company decided against making solar systems standard equipment at another 65-home subdivision. The reason: uncertainty over the supply of polysilicon and the higher prices.

Ralston said solar advocates reassured him in the past the supply crunch would be eased by now. Yet it continues.

"I appreciate your optimism," he said at a forum recently for solar industry officials and advocates. "I sit on the other side of the table when I'm buying it, and it worries me."

-----

Copyright (c) 2006, The Sacramento Bee, Calif.

Distributed by Knight Ridder/Tribune Business News.