Global demand from the solar power industry for silicon – the raw material for making solar panels – is set to outstrip demand from microchip manufacturers for the first time this year.

Green demands for more solar power, which relies on silicon for the manfacture of photovoltaic cells, have pushed up the price for the element by 40 per cent this year to $1,600 (£790) per tonne.

The result is a global shortage of the highly refined crystalline polysilicon, even though it is produced from raw materials as common as sand. This is pushing up prices and forcing the world’s biggest producers to invest heavily in new refining and production capacity.

Solar Buzz, the research and consultancy group, said that the booming sales of refined silicon to the solar industry grew to an expected 23,102 metric tonnes this year, up 12 per cent from 20,719 tonnes last year.

It is the first time that annual volumes have exceeded those for manufacturers of semiconductors used in computers and other electronic equipment, which are expected to reach about 22,882 tonnes this year, up slightly from 22,086 last year.

“Solar demand is the main driver of growth for the business at the moment,” said a spokesman for Wacker Chemie, a business based at Burghausen, Germany, that is the world’s second-largest manufacturer of polysilicon. “We are experiencing 20 to 30 per cent growth in demand from the solar power industry.”

Polysilicon is extracted by heating sand and converting it into a crystalline form and then reducing and refining it using heat until fine slices can be shaved off. Semiconductor-grade silicon needs to be more highly refined than the kind used to make photovoltaic cells, and so it fetches an even higher price.

Wacker was planning to more than double capacity at its plant in Bavaria to 22,000 metric tonnes by 2010, up from 10,000 tonnes currently. The world’s other top manufacturers of raw silicon – Hemlock of the US and Tokuyama of Japan – are also expected to almost double their overall manufacturing capacity by 2009 to keep pace with demand.

Dipesh Shah, chairman of Jetion, a solar panel manufacturer, and the former head of BP’s solar business, said that demand was growing “very rapidly”.

Mr Shah said: “The industry is being driven by renewable power initiatives in a number of countries, economies of scale, continued cost reductions and better use of raw materials.”

Sales in the solar power industry are expected to reach $14 billion for 2007, up from $10 billion last year. Solar power still provides only 0.04 per cent of the world’s total energy use, but the industry’s growth is being led by countries such as Spain and Germany, where it enjoys a subsidy regime.

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