Oil isn't the only overpriced commodity.

Silicon, the raw ingredient for solar panels, is also in short supply and being sold for near-record prices. So precious is the metal that in some recent cases it has been sold for as much as $500 per kilogram at the spot price.

Those who've negotiated long-term contracts may enjoy a slightly lower price.

For some time now, silicon procurement and prices have been a driving factor behind the success of solar panel producers that use silicon-based technology.

If a company has a steady supply, secured by contracts, it's generally been less volatile than its peers struggling to secure feedstock on the spot market.

Some solar energy companies that have been buying silicon at spot prices have seen those increased costs reflected in the form of decreased margins. And not only do decreased margins look bad on quarterly reports, in many cases they're also cutting into net profit. Not a good situation.

In the face of high raw material costs, the companies that use the least amount of silicon, or the ones that use none at all, have been the companies to be in.

Naturally, solar companies that specialize in silicon production and refining have also found good success.

Let's take a look at a few of those success stories.

Solar Energy Companies and The Silicon Supply Supernova

You may already know what's coming, but the most clearcut example of a company prospering from silicon is MEMC Electronic Materials (NYSE: WFR). I mean, their ticker says it all: WFR, short for wafer—the silicon building block of a solar panel.

If you bought that stock two years ago, you'd now be up 80%. But had you bailed late last year, as the markets were just beginning to tank, you could've made 174%, as the stock topped out near $96 around Christmas time. Take a look:

You can see how WFR made its run parallel to the silicon supply crunch that began in 2005. This is essentially the same way oil exploration and service companies have risen along with associated oil supply concerns.

The second example of how silicon-related companies have skyrocketed comes from a relative newcomer.

Before mid-April, you'd have been hard-pressed to find someone who had even heard of ReneSola Ltd. (NYSE: SOL). The company IPOed in January and traded down until some promising news started surfacing during the fourth week of spring.

On April 15^th, the company announced two six-year wafer supply agreements for 105 MW each with Ningbo Solar Electric Power and Eoplly New Energy Technology, both solar cell manufacturers.

On April 17^th, the company increased its output and revenue guidance to 320 MW and $550 million, respectively. That day, another six-year, 105 MW agreement rolled in from Shenzhen Topray Solar, another cell manufacturer.

What's more, the company was busy expanding upstream in the silicon value chain as they ventured into polysilicon manufacturing. As we've seen time and time again, The Street loves vertically integrated solar energy companies.

Renesola leaped 113% in about one month's time, from mid-April to mid-May. It rests now at about $17, but I've seen 12-month estimates on this one as high as $40. Check it out:

But that could be nothing compared to. . .

The Next Round of Silicon-Induced Profits

Here's why.

For all of WFR's success, they are not the leading producer of silicon feedstock. Here are their recent output numbers and future estimates:

• 2006: 4,100 metric tons

• 2007: 4,875 metric tons

• 2008: 6,675 metric tons

• 2009: 8,000 metric tons

• 2010: 8,000 metric tons

That's enough to make it the world's fourth or fifth largest producer, depending on who you ask. I'd call it fifth, if you take into consideration the estimates through 2010.

And while WFR could see increased upside as the silicon crunch continues to play out, I'd be putting my money on the fourth largest producer, which has a chance to double in the next 12 months.

In case you're wondering, the largest producer, Hemlock, is privately held. The second-largest, Wacker Chemie (XETRA: WCH) has been volatile lately. And the third-largest, Tokuyama (TYO: 4043), is too diversified to invest in based solely on silicon merits.

But the fourth-largest producer is a gem in the making. Its silicon wafer division is sold out for 2008 and 2009, which translates into pretty firm revenue guidance. It also has an order book value of $6 billion.

What's more, this company's output numbers blow WFR's out of the water. They're anticipating production of 7,000 metric tons in 2008, ramping to 12,500 metric tons in 2009.

Plus, the company is also vertically integrated—it makes wafers and modules as well. Pending a decision to build a plant in Singapore, the company could reach a 2.3 gigawatt output of wafers in 2001, which is very impressive.

I'll be recommending this solar energy stock to members of Green Chip International early next week. But you have to be a member to get in on it.

In addition, I'll be recommending a German solar integrator along with it. Integrator, in the solar energy world, basically means installer.

And as such, the company is not tied to any one technology or feedstock. Specializing in both rooftop and utility scale installations, this company is more than well-positioned profit from a still robust German market (people are trying to get as many panels installed as they can before the subsidy reduction in 2009) and from a set-to-explode Mediterranean market.

In several locations surrounding the Mediterranean, solar has already reached grid parity—the point when solar-derived electricity is cost competitive with local peak utility rates. So installations in that area are about to skyrocket.

You can get in on both of these opportunities. Simply take a few minutes to read a little more about the service and become a member. Then, once I recommend the stocks, you'll get the detailed information right to your inbox.

These are easy profits, folks. Don't miss out.

Call it like you see it,

Nick

P.S. Green Chip International recommends renewable energy companies based outside the U.S. While some of them trade on domestic exchanges, others only trade in their native countries. Keep this in mind before you become a member.

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Nick Hodge: Please note that silicon is NOT a metal; but it must be enriched like uranium. Note also that Silex Systems, a small Australian Co., perfected an enrichment process using laser excitation, whereas all others before had failed. The process was validated by GE and a Japanese Co. GE will finance and bear all the development costs. The laser process is 18 times more efficient than the centrifuge method employed by Iran and N. Korea.

According to an article from Technology Review
'...only 15,000 tons of silicon were available for use in solar cells in 2005, by 2010, this number could grow to 123,000 tons.' http://www.technologyreview.com/Biztech/20702/
This boom in production could be great news for customers but not necessarily for the companies mentioned above.

According to an article from Technology Review
'...only 15,000 tons of silicon were available for use in solar cells in 2005, by 2010, this number could grow to 123,000 tons.' http://www.technologyreview.com/Biztech/20702/
This boom in production could be great news for customers but not necessarily for the companies mentioned above.