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Value Chain Activity: Producing Polysilicon


Process metallurgical-grade silicon (quartz) to produce electronics-grade or slightly less pure solar-grade silicon. It is used to manufacture crystalline wafers for solar modules. Around a quarter of the cost of a crystalline module is just for polysilicon. After years of supply shortage, the industry has finally ramped up capacity to clear the supply bottleneck. Yet, demand for high-quality silicon means that some capacity shortages remain. According to renewableenergyworld, the industry's global revenues were $6.29bn in 2010.

Market Share

The market remains dominated by the established poly-silicon producers Hemlock, Wacker, REC, MEMC, Tokyama and LDK Solar that produce top-quality silicon. They are now increasingly challenged by GCL Solar and OCI, though questions about quality of the production remain. All top-7suppliers are large cap companies (market cap between €1bn -€4bn) with strong balance sheets (high interest cover up to 30 and low leverage). Apart from MEMC and REC, none of the top-7 is forward-integrated, and even they are only integrated into wafers. Due to significant costs of establishing a new production facility, there is no imminent risk of newcomers to the market.

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The smaller suppliers are much more diverse: There are conglomerates (JFE Steel) as well as highly specialised companies like Arise Technologies or Timminco. As there are many new rivals, even gross margins are often still negative. Smaller companies are often forward integrated into cells (Arise, ersol, Hanwha) or specialised solar-grade producers (Silfab, Timminco, RSI Silicon).

Industry Dynamics


High barriers to entry

There are high capital requirements of $500m - $1bn for building a plant, and long lead times to add capacity.

Need access to cheap energy, as the purification process requires a lot of energy. Polysilicon processing is estimated to be 85% of the energy input into the whole module. For instance, Wacker Chemie has own hydro power and co-generation unit for its plant.

There are synergies of operating a fully integrated chemical plant with cost advantage over pure-play silicon producers.

Most customers have long-term conctracts with existing suppliers, making it difficult for new entrants.

 

Upstream: Non-differentiated supply prices set by market

The input material is metallurgical grade silicon with around 98.5% purity. This is a commodity that is traded on international exchanges such as the London Metals Exchange. Costs in 2009 are around $1,700 per ton, down from $2,500 per ton in 2008.

Suppliers of metallurgical grade silicon tend not to forward integrate into polysilicon production.


 

Conclusion

With wafer- and cell manufacturers forward-integrating into polysilicon, new entrants, especially in the solar-grade segment (see list below of 10 firms) and aggressive plans for capacity build-up, the once sheltered oligopoly is seriously challenged. Competition is increasingly based on capacity. These drivers eat into once exceptional margins. However, after the massive drop in polysilicon prices, the cost advantage of solar-grade silicon is fading.

Competition based on capacity, dominated by only few companies

 
Competitors
The industry is dominated by 7 companies that supply around 90% of the total polysilicon market: Hemlock, Wacker Chemie, REC, MEMC, Tokuyama, LDK Solar and OCI Company

Product Differentiation
The purer the silicon the less material is required per kWp. Wacker claims that each gram per Watt in energy yield improvement supports a polysilicon price premium of around  50€/kg. However, solar applications do not require the same purity levels as electronic chips. Therefore, a number of companies such as Timminco specialise in solar-grade silicon, which can be produced more cheaply.

Cost Structure and Margins
Cost for the raw silicon is only 4% of the overall production cost. This is a very high fixed cost business. Thanks to the oligopoly and the notorious supply shortage average gross margins have been exceptionally high at 83%, although they have come down to 49% by May 2009.

Polysilicon
 

Low threat of substitution

The only alternative to polysilicon comes in the form of thin-film technologies. However, due to lower module efficiencies,thin-film might not always be a suitable alternative, especially when space is at a premium.

Switching costs, however, are very high, as manufacturing processes for crystalline and thin-film modules are very different.

In the electronics market, there is no substitute for high purity silicon.

 

  

Downstream: Governed by Oligopoly

Due to the supply shortage 2006 - 2008, 90% of the market is governed by fixed supply agreements lasting 6 - 10 years. To secure those contracts, buyers were asked for pre-payments. Less well capitalised companies paid by selling equity. For instance, DC Chemicals bought 15% of Evergreen Solar stock in exchange for 1GW of polysilicon. MEMC received a warrant worth of a 4.9% share in SunTech.

There are three categories of solar companies:

  • Well capitalised company that secured long-term contract before 2007/08. Will be largely unharmed by volatility in the spot market.
  • Firms with low contracted position coming into 2009 will benefit from low polysilicon spot prices. Most winners are newcomers from China and Taiwan.
  • Firms that entered into long-term contracts past 2006 with small players may find that they have to pay above current spot levels and will try to renegotiate contracts. In May 09, Q-Cells re-negotiated a contract with Timminco to lower volume and price, forcing Timminco to re-pay pre-payments to Q-Cells.

 

Polysilicon Supply & Demand

Supply & Demand

The market for polysilicon is shared between electronics and solar. In 2000, only 10% of polysilicon was used for solar cells, rising to over 50% in 2008. This trend will continue in the next decade.

With growing demand for solar, there will be more supply of solar-grade silicon (upgraded metallurgical silicon), though due to lack of experience, it is not yet fully known what the impact of the lack of purity is on the long-term performance of a solar module.

Even though new capacity is being built, the growing demand for solar electricity may still mean another supply shortage.

Polysilicon Cost Trends

Polysilicon Average Cost Trends

As the cost of raw silicon makes up only 4% of the total silicon production costs, the price drop in raw silicon did not change the cost structure at all.

However, due to the drop in demand, the average margins have come under pressure, increasing the pressure on cost. Companies with access of cheap energy will therefore have an absolute cost advantage.

In comparison, medium-term estimates for solar-grade producer Timminco are $20/kg for production cost at a gross margin of 25%, reflecting the discounted price for solar-grade over high-purity polysilicon.
Polysilicon Price

Polysilicon Spot Price

Following a collapse in demand for solar electricity at the same time as new polysilicon capacity has come online, the spot price for polysilicon has collapsed from a $450 per kg peak in August 2008 to below $100 in June 2009. However, contract prices have always been well below the spot market. According to a CSFB report, average polysilicon contract price in 2009 is well South of $60 per kg.

It is expected that demand will resume in the second half of 2009. However, due to larger capacity, the price of polysilicon will probably not hit the $100 mark for some time to come.

 

Companies

Name Corporate Ownership Vertically integrated? Country Comments
Top-7 Companies
Hemlock Joint Venture between Dow Corning (63.25%), ShinEtsu (24.5%), Mitsubishi Materials (12.25%) Only polysilicon, but part of Dow Corning Chemicals USA Plan to increase capacity to 36,000Mt production by 2010 (and 10-fold in 10 years)
Wacker Chemie AG Part of chemicals company Germany Produce wafers thru subsidiary Siltronics
REC ASA Yes, into wafers, cells and modules Norway 2008: Capacity: 225MW for cells, 150MW for modules. Plan: 780MW for cells, 740MW for modules. Silicon produciton in USA
Tokuyama Part of chemicals company Japan Increase production capacity from 5,200 to 8,200 in spring 2009
MEMC Yes, into wafers USA
Mitsubishi Materials Mitsubishi Part of chemicals company Japan
Osaka Titanium Technologies formerly known as Sumitomo Titanium Specialises in silicon and titanium products Japan Produces polysilicon and by-products as well as titanium products.
Other high-purity polysilicon manufacturers
GCL Solar Energy Yes, into wafers China In 2008 1,500Mt poly-Si capacity using modified Siemens process. Planning for 10-times!
KCC Corporation Part of chemicals company South Korea Planning to have poly-Si production by 2010
Nitol Solar Yes, into wafers. Solar pure-play Russia Plan to build 3,800Mt production facility in 2009. Will produce high-purity polysilicon. Comes from chemical industry.
OCI Company (formerly DC Chemical) Part of chemicals company South Korea Producer of high-purity 9N polysilicon. Capacity: 5,000t (2008) to rise to 26,000t (2010). Based on Siemens process.
Siliken Part of chemicals company Spain With Siliken Chemicals, Electronics and Modules produce poly-Si, modules, inverters. Module production 92MW
Vector Japan Co Yes, into wafers Japan Mainly a wafer business, but also supplier of poly-silicon.
Solar-grade silicon manufacturers
Arise Technologies Corp Cell manufacturer, planning to integrate into polysilicon Canada Producer of cells. Plan to produce solar-grade si (7N plus) using patented process by 2009. 20MW 2009, 90MW 2010
Elkem Solar Orkla owns a control stake in Elkem Energy No Norway Developing solar-grade silicon. In testing and verification. Plan to have 6,000Mt capacity. This is a re-focus of what once was an aluminium producer.
Globe Metallurgical Yes, forward-integrating into polysilicon from metallurgical-grade si. USA Sell metallurgical-grade silicon. Will offer solar-grade silicon soon. Also sell by-products
Jaco Solarsi Ltd with $10m equity investment from HSBC Venture Fund No China Producer of solar-grade (upgraded metallurgical si). Capacity 1000Mt (2008). One of the largest solar-grade suppliers.
JFE Steel JFE Holding Polysilicon is one part of a wide portfolio of materials. Japan Main business is steel. In solar: Produces solar-grade silicon with 400t annual capacity.Produce silicon wafers targeted at solar batteries - 180MW capacity.
Jiangxi Trinity Material Yes, into wafers, cells and modules China Founded in 2008, produces both electronic-grade and solar-grade silicon.
RSI Silicon Products LLC No USA Will provide solar-grade Si - at 33% of product cost. Begin production in 1000mt plant in 2009
Silfab No Italy Produces solar grade silicon. Plan to produce 2,500Mt in 2009, 500t in 2010
SolarValue AG - Germany Develop solar-grade silicon process. After technical difficulties in 2009, pursues new technology. Want to cover whole value chain in future.
Timminco No Canada Solar grade silicon producer with proprietary silicon purification process. Supply contract with Q-Cells
Re-cycling of silicon
ersol Solar Bosch Group (Now: Bosch Solar) Yes, into wafers, cells and modules Germany Specialises in re-cycling of silicon. Wafers are made from polysilicon. Thin-film tech is a-Si. 
Renesola Ltd Yes, into wafers China Specialises in re-cycling of waste  silicon into solar-grade silicon. Plans to move into polysilicon production from 2009 with 3,000t capacity.

Downloads: Download comprehensive list of polysilicon producers including financial ratios, revenues and other information.

References:All company details were taken from company websites, Reuters as well as Factiva and Amadeus databases.

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