CEO of LDK Solar (赛维 LDK) in China says that if it is possible to lower the cost of polysilicon purchase, it will be possible to resolve the high cost of using solar panel to generate electricity. It should be possible to reduce the dollar per watt from 4 to below 1 dollar.
Polysilicon takes up to about 70% of the cost to manufacture a solar panel. In order to keep up with the profit margin, the leading solar panel manufacturers in China are moving upstream into polysilicon material related projects. A lot of other solar panel manufacturers outside of China are also rushing into the same area in order to have a piece of the cake in the most lucrative part in the solar panel industry.
According to data, currently there are about 33 projects in China in building on the solar panel related projects with total investments of about 100 billion yuan. Local governments are most happy to bring in such projects and then get it listed as quick as possible on stock markets outside of China.
Some industry experts are already sounding the alarm bell that polysilicon may face the danger of excess production capacity in the near future. If the 33 polysilicon projects that are currently building are able to fulfill full production capacity , they can manufacture up to 140,000 tonnes. In 2010, the estimated global demand for polysilicon is about 80,000 tonnes.
The Ecomomic Figures
Polysilicon manufacturing costs at more high tech plants outside of China is about 30 US dollar per kilogram. Because of technology barrier, capital limitations and the quick development of the end of the manufacturing chain, there is severe shortage of polysilicon in recent years. In China, ready stocks can sell for about 500 US dollars and about 95% is imported.
Such high profits are being eyed after by the China manufacturers.
As Asia's largest polysilicon manufacturing enterprise, LDK Solar's 70%-80% polysilicon material mostly came from the recycling of polysilicon from semi-conductor plants outside of China, waste materials from semi-conductor plants and also other silicon based side materials. The waste materials are much cheaper compared to the direct material purchase price. Those quantity that cannot be met by recycling are purchased from polysilicon manufacturing plants outside of China. But now, even waste materials from semi-conductor plant are getting scarce.
August 2007, LDK Solar invested 13 billion yuan to kick start the upstream manufacturing project of polysilicon with yearly manufacturing capacity of 16,000 tonnes. It is estimated that by the end of 2008, production capacity is to reach 6,000 tonnes and by 2009 will see the full completion of the project.
About 2 months ago, LDK Solar completed its IPO listing in US, the largest new energy IPO in China. Currently, the 16,000 tonnes silicon project has become the largest polysilicon plant globally.
The reason for the 13 billion yuan big investment was that LDK Solar believes that a more economical way of manufacturing polysilicon is to have large scale manufacturing capacity. During the manufacturing of poly-silicon, there is a side product namely Silicon Tetrachloride, a poisonous gas. If this gas cannot be re-cycled, it can harm and pollute the environment. If the polysilicon manufacturing plant can build an enclosed re-cycling system to convert the Silicon Tetrachloride to Trichlorosilane, not only can it can re-cycle the gas for re-usage, stop environmental pollution and lower production consumption, it can help create economical value and lower costs.
Investment in this area is pretty high and there is a high re-cycling technology barrier. Those small plants with capacity of about a few hundred tonnes and with investment amount of only about 100 to 200 million yuan are unable to get into it.
LDS Solar's will take the industrial grade silicon and do extraction/purification. This step needs high technology support, consumes the most energy and have high pollution and re-cycling index. This step also greatly impacts the profit margin. Currently, China plants costs are at about 100 US dollars.
In the past 20 years, the market value of polysilicon per kilogram is about 60 US dollars. Analysts in the industry think that the 400 to 500 US dollars per kilogram is too lucrative and costly. Once when the price goes back to the norm, it will be the time when the industry faces re-shuffling.
LDK Solar's CEO says that in order to reach a viable ecnonomic model, the manufacturing capacity of polysilicon projects should reach 10,000 tonnes. LDK Solar hopes to maintain the cost per kilogram at 20 to 25 US dollars. With the lowering in price of raw materials, then the profit margin at the next steps for silicon wafer production can be increased.
After reaching 16,000 tonnes production capacity, it will all be used fully for LDK Solar's internal silicon wafer production. Currently a lot of the industry players are facing shortage of materials and thus cutting their manufacturing lines and so the production capacity is not fully utilized.
According to LDK Solar's 2008 2Q results, gross margin is about 112.3 million US dollars, gross profit margin is about 25.4%. If LDK Solar were to meet expected production capacity next year, it can reach about 40%-50%.
Capacity Risks
In 2006, when polysilicon was in high demand, a lot of the PV enterprise players chosed to sign long term supply contracts with the global big silicon suppliers. The secured long term contracts may resolve the supply situation but will also face risks when price drops.
In the same year, Suntech (尚德) in WuXi China signed a 5 to 6 billion US dollar polysilicon 10 year contract with the big global suppier MEMC and also signed a 678 million US dollar contract with HoKu in US.
To lower the production cost of a solar panel, other then the raw silicon wafer cost, the other ways are to increase the efficiency of the electricity conversion process and decrease the silicon wafer thickness. But now, the more established industry players are looking upstream to the manufacturing of the raw silicon material.
Industrial leaders are moving upstream in order to open up the industrial chain. Other then LDK Solar's 16,000 tonnes polysilicon project, Suntech invested Asia Silicon (亚洲硅业) have a 6,000 tonnes polysilicon project in oder to have a more secured supply. TianWei BaoBian (天威保变) invested XinGuang Silicon Technology (新光硅业) is also preparing to built two 3,000 tonnes polysilicon projects in ChengDu (成都) XinJin (新津) and LeShan (乐山) in order to link up with the downstream solar panel manufacturing chain.
The high lucrative has attracted a lot of other industrial players in order to have a piece of the sweet cake in the PV industry. Glass industry leader China Southern Glass (南玻集团) has invested a few billions to build a 5,000 tonnes polysilicon project. A subsidiary of DAQO Group (大全集团), originally named Jiangsu Changjiang electronic group, which is in the electrical industry, has plan for a 10,000 tonnes polysilicon project. From the garment industry there is JiangSu Sunshine (江苏阳光) investing in a 4,500 tonnes polysilicon project and so on.
In the past 3 months, Intel, IBM, HP, GE, Bosch, BP, Samsung, Hyundai, LG and UMC are all going into or expanding their investment in the solar energy industry.
Industry experts see that although there are a lot of polysilicon projects ongoing on or starting up, in the short term, the production capacity cannot be fully realized. In 2007, China's polysilicon yearly production capacity was only about 1,100 tonnes and the demand at the same year was about 12,000 tonnes. In 2008, polysilicon supply shortfall situation still exists. Industry players who have the supply chain advantage will be able to avert the market risk.
Chinese Renewable Energy Society secretary-general says that the support for PV industry development comes from various countries government's energy related policies. Germany, US and Japan's are the most effective. Legislations, energy purchase rebates, rate cuts and investment subsidies have helped with the development of the PV industry. Currently in China there are no such policies yet. China's PV industry have to find its own survival space in this unbalanced demand-supply situation outside of China, which is quite reactive.
LDK CEO thinks that after 5 years time, the industry can supply about 100 GW, 3 times demand. Thus till 2012, supply for polysilicon will go way beyond demand.
However, LDK Solar believes that if the problems of funding, technology and market share are resolved, it is still worth a try because large scale of manufacturing can help lower costs. Only if the upstream polysilicon costs can be lowered to the same level as those manufacturers outside of China, then China PV products can be more competitive.
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