A COMPUTER CHIP MAKER MOVES HIS SILICON TO SOLAR

People in the solar energy business are still very concerned about the silicon supply. At Solar Power 2007, S.J. Liu of Taiwan’s Neo Solar Power mentioned his company had just signed a $500 million contract locking in their supply of silicon. He was talking about the LDK deal reported here last week (CHINESE SOLAR CO BEATS SILICON SHORTAGE) and mentioned below. It makes business sense from Neo Solar's point of view and suggests their top thinkers are not worried about reversals in the solar market. Suppliers like LDK, on the other hand, are locking themselves into current prices with these contracts. They will either have to use their windfall to build new capacity or risk serious setbacks against emerging competition as prices rise. But since it is hard to see the demand falling off very much for solar panels or computer chips, building new capacity makes a lot of sense, too.

Rise of the Solar Energy Industry Lights a Fire Under Wafer Maker
Kevin Harlin, September 21, 2007 (Investor’s Business Daily via Yahoo Finance)

WHO
MEMC Electronic Materials (Nabeel Gareeb, CEO); LDK Solar; industry observer Paul Leming of Soleil-Princeton Tech; John Hardy, an analyst who covers the solar sector for American Technology Research;

Silicon is vital to the traditional solar cell, building block of the solar panel. (click to enlarge)

WHAT
As a result of the worldwide polysilicon shortage, MEMC – which had done the bulk of its business making silicon wafers for computer chips – is presently obtaining the bulk of its growth from supplying solar cell makers.

WHEN
The average contract price of silicon has doubled since 2004.
MEMC made its 1st contract polysilicon sale to SunTech Power Holdings in January. It will soon start shipments to Gintech Energy. The 2 contracts are worth $7 to $9 billion dollars over 10 years.

WHERE
MEMC is based in St. Peters, Mo. It has a plant in Pasadena, Texas.
LDK is based in China.

WHY
- LDK, which has specialized in making the silicon wafers (that become cells that become panels), just began construction on a new plant to produce silicon.
- MEMC expects polysilicon production for solar cells to soon account for 1/3 or more of sales. It will focus on a grade of polysilicon which can be transferred to computer chips if anything happens in the solar market. MEMC says it will increase polysilicon production 35% in 2007 to 6000 metric tons, then to 8000 by the end of 2008 and 15,000 by the end of 2010. Like LDK’s earlier predictions of output (CHINESE SOLAR CO BEATS SILICON SHORTAGE), these numbers have been met with skepticism. MEMC’s Texas plant just last month had a shutdown severely damaging output for 3rd quarter 2007.
- Polysilicon is a complex chemical process and new players may not readily master it.

click to enlarge

QUOTES
- Paul Leming, veteran silicon industry observer: "[MEMC is] operating in as extreme a shortage environment as I've ever seen as an analyst…They've executed impeccably, flawlessly. They have executed phenomenally well…We have no idea how big solar demand is today…We just don't know because we haven't been able to serve the market."
- John Hardy, analyst, American Technology Research: "While there is a significant amount of poly planned to come online over the next two years, a great portion of this is from relatively new entrants, which is causing some skepticism as to whether or not the true production will actually increase as much as people are hoping…"