It all depend on what you think of polycrystalline silcon - will supply catch up with demand and when?

I'm a great advocate of balance. It's always worth looking at both sides of the argument, particularly if you are an investor when getting swept up with all the hype is the easiest path of all. So do look at this piece published a couple of weeks ago in the FT on solar prices.

The pessimistic scenario

It is easily the most pessimistic I have seen. To quote one analyst - Jeff Osbourne at CIBC - “Expectations that the polysilicon supply shortage will ease in 2008 are overly optimistic and we do not expect supply/demand equilibrium until after 2010”. Prices for silicon, now at up to $200 a kilo may go up another 30% over each of the next 3 years.

The optimistic scenario

Is outlined in this 26 page report here, which is full of very good information but misleadingly confuses solar thermal (flat plate collectors for the generation of hot water) with concentrated solar power (angled mirrors and turbines) and I would suggest a bit too optimistic about thin-film solar's chances. After all, if all thin film solar needed to succeed was higher silicon prices, then why have companies like Solar Integrated done so badly?

My conclusion

The vital statistic to watch is the global annual production of polysilicon in tons. In 2006, it is estimated to be around 35,000 tons. In 2008 it could be as much as 76,000. Straight mathematics suggests that for the solar industry to keep growing at a 30% clip over the next 5 years, 2010 will have to see a production of about 100,000 tons - a tripling of capacity which right now looks more unlikely than not. Forecasting any further out than the next year's production of polysilicon still looks a bit like guesswork. So on the balance of evidence, I'd suggest the growth of solar power over the next 5 years will not be a rerun of the last 5. Supply is not going to catch up with demand any time soon and demand growth will suffer. Without a major technological breakthrough which precludes the use of silicon, the next 5 years might see a growth rate therefore closer to 15% rather than 30%.