Why did the price of solar PV Si feedstock fluctuate so wildly in 2004–2009?

Great attention has been paid to the origin of observed wild price fluctuations of solar PV Si feedstock in both contract and spot markets during 2004–2009. This paper sheds light on this issue and tries to resolve it by addressing the following questions: what kind of structural shock is underlying the price fluctuations of PV Si feedstock? How can we quantify the magnitude, timing and relative importance of these shocks? What are their dynamic effects on the real price of PV Si feedstock? By carefully studying development conditions, the structural decomposition of the real price of PV Si feedstock is proposed: exchange rate shocks, production cost shocks, aggregate demand shocks and demand shocks specific to feedstock markets. With a Structural Vector Autoregression model, the paper quantifies and verifies the impact of structural shocks on PV Si feedstock real price changes. Based on national data, an analysis is further taken to confirm the essential role of demand shocks specific to feedstock markets in determining sharper price fluctuations during 2004–2009. The results of this study have important implications for national solar PV development, which can be better promoted and administrated if structural shocks in feedstock markets can be carefully evaluated and understood.