David Natan, CEO of Suni Energies, discusses the role TCS plays in the manufacturing of solar panels and how his company is well position to cater to companies looking to outsource their TCS production.
|Ben Lack:||What is TCS and what role does it play in the manufacturing of solar panels?|
|David Natan:||Trichlorosilane or TCS for short is a raw material used to produce polysilicon. Without TCS, you cannot produce polysilicon. Polysilicon is used in 75% of the solar panels produced in the world today. To produce TCS, you take industrial grade sand, heated to very high temperatures until it liquefies. You then combine it with hydrogen and chlorine until it decomposes to pure silicon and then use this to make polysilicon. TCS is really the product that Silicon Valley as we know it was built on 20 years ago because ultra pure polysilicon is a great conductor of electricity. This form of TCS or ultra pure TCS is called industrial grade TCS used in semi-conductors, there’s a little TCS in every cellphone, every TV, every video game.What we focus on is a little less purity called solar grade TCS. Same product just a little less purity, industrial grade has more decimal points to the right of the 9, so it’s 99.99 with 6 decimal points. TCS is the same product for the solar industry is with two decimal points. Even though the product is relatively the same from manufacturer to manufacturer, it really isn’t the same because you could have two batches of TCS 99.99% pure. That one hundredth or one thousandth of a percent contains 50 other elements such as boron and iron. Those elements have a key impact on various solar companies and technologies and the panels that they are using. So, even though TCS is somewhat similar in a lot of ways it isn’t and you have to produce the purity with the by-products that can be accepted by various companies.|
|Ben Lack:||Is there such a way that TCS can become more impactful in the production of solar panels. Solar panels prices are dropping all the time. Can TCS keep lowering and lowering of this?|
|David Natan:||Right now, polysilicon based technology represents 75% of the market place. Thin film represents 25%. In basic terms, polysilicon based technology converts 17% of sunlight into power. Thin film converts about 12%. The overall panel costs for the thin film are less than the panel cost for the polysilicon base. So, there’s a battle going on between the thin film and the poly base. We are naturally biased because we are in the poly-arena. But, we also believe that we are in the right arena because we believe that thin film is flawed somewhat because the product necessary to produce thin film is called cadmium telluride, which is highly toxic and is very rare depending on which solar report you read and various industry reports there’s only 4 to 5 year supply has to be mined out of the ground, it’s toxic. So if the supply of that element or product becomes more scarce, the price of thin film technology will increase. The other thing is, thin film technology is kind of capped at 12% efficiency, whereas the poly-based technology is moving up from 17 to a goal of 20. There have been some big advancements in the laboratory of moving poly-based technology for efficiency of conversion, there’s been some at 18, 18 and a half. If poly-based technology reaches 20%, it would be highly advantageous over the thin film manufacturers.|
|Ben Lack:||Has TCS become a commodity or is there still enough in the space to get the kinds of margins that you guys are looking for?|
|David Natan:||It’s a commodity and it isn’t, I’ll explain, I’ll elaborate. The question that you had earlier, “what’s happened to TCS?” This year, the price of polysilicon has come down between 30-35%. The price of TCS, which is the critical raw material, has only come down 5 to 10%.The purity of the product makes a difference. We believe we are very well positioned in China as a low cost producer because as I mentioned, the critical element is sand or industrial grade sand. That represents 60% of the raw material costs or the costs of the overall product. Labor is only 15%. Light, heat, power and depreciation make up the difference. The purity, as I mentioned earlier, is very important because it has to meet the specs of the poly companies.Ideally, when somebody manufactures TCS, TCS should be manufactured in a plant directly next door to the poly plant, or within the poly plant because you can recycle it, use it in the same process. We are a standalone TCS facility. What’s happening is, companies rather than building new capacity of TCS internally, because capital is scarce in the solar industry, they are outsourcing the product. Historically, our product had been sold within China. Right now, we are selling to 2 of the top 5 poly companies in the world. We are starting to see a lot of outsource opportunities because China is the low cost producer. Why build extra capacity in your own plant, when you can outsource it from China at a reasonable price and that’s what we are starting to see.
Two weeks ago, we announced our first ordered shipment outside of China to the largest poly company in Russia. They make some of their own TCS but they’re outsourcing it because it’s a better use of capital for them. So we believe that we are very well positioned, both within China and outside China. Also, the Chinese government for the last two years has publically announced they are going to provide $454 Billion worth of subsidies to the alternative energy arena, a lot of which is going to the solar. So the Chinese solar companies are leading the world right now because of the subsidy.
|Ben Lack:||Do you see that becoming the low cost provider is good for business? I guess you have to have the facilities in order to be able to really take advantage of the economies of scale. That’s a large capital investment to be able to facilitate that. How do you handle that?|
|David Natan:||Let me describe what we are doing in our Wendeng facility. Our Wendeng facility we acquired in March; we acquired a 60% interest. At that time it had 20,000 metric tons of capacity and they were in the process of building the first module to expand to 30,000. We recently announced last week that we had completed the first module, the 30,000. The construction is completed and after we go through QC and other testing, we should be fully operational by mid to late October. That plant was built with foresight and had the infrastructure in place with the eye toward expanding it to a larger facility. Our goal is to ultimately get it to 75,000 metric tons. That extra 45,000 metric tons of capacity will cost a total of $15 million approximately, which will be shared 10 million by us, who’s the 60% owner and $5 million approximately by the minority holder. That $15 million to build the extra 45,000 metric tons of capacity, we believe, is far less than it would cost to green field new production to go through the permitting, licensing, the environmental issues anywhere in the world other than China.It is far easier to expand existing capacity that’s already been approved, the environmental issues are approved, everything has been done already. So that the capital to build it somewhere else would be far more expensive and then not to mention the staffing and personnel and costs to try to green field a new facility would require, we believe, 2 to 3 years worth of time. You have to go through all the issues of environmental regulatory issues and we believe we are ahead of the curve by having a structure in place. With infrastructure and it’s already built and to be efficient and as you mentioned, as more capacity comes online, your leverage, personnel, you don’t need much in the way of personnel, so your leverage overheads, incremental capacity coming online is potentially very profitable to us.|
|Ben Lack:||How much TCS actually gets put into a solar panel? When you say 45,000 metric tons? What does that mean from a solar panel standpoint?|
|David Natan:||You need 6.25 metric tons of TCS to make 1 metric ton of polysilicon.|
|Ben Lack:||There are some stipulations that the advantage of manufacturing in China is that you really get a low cost advantage. In many cases there have been stories that have come up that companies trying to do low cost in China have not necessarily been able to produce a high quality product. What do you say to people when they have this scepticism that going to China doesn’t necessarily mean that you’re producing a high quality product? How do you show your customers and the folks that are looking at your company that the TCS that you’re making is some of the best in the world, if not the best in the world?|
|David Natan:||I’m glad you asked that question. Making TCS is not a trivial matter. You could have two plants with exactly the same equipment and if you don’t have the right processes for example, it might be a little bit of an over simplification. But, if you have identical equipment in two plants and you run one process in an oven for 15 minutes and you run the same process for 30 minutes in another plant, it impacts the quality of the TCS. Both in our distribution agreement with the underlying plant called ZBC and in Wendeng, we believe we have two of the finest engineers in China, if not the world. Mr. Fahe who is the head of our technology team has over 35 years experience building six plants within China and that the proof’s really in the pudding.Our TCS is being purchased by, as I mentioned earlier, two of the largest polysilicon companies in the world. If we meet their guidelines, we can meet anyone’s guidelines. As you said, there are companies that have tried to build a TCS facility state of the art. We know of one of those facilities where the facility was built but they couldn’t produce the TCS at the low cost that we do because their processes were done incorrectly. The process and the team is important. We have the technology and the team in place with our TCS. It’s already met the very difficult standards of a very discerning buyer and that’s why we were pleased that the order that we shipped to the Russian company, Nitol, happened very quickly. We are in discussions a couple of companies from the United States, two from Asia and one from Europe, to outsource a portion or all of their TCS production. So, we feel that the fact that we have already delivered very high quality TCS, we will just continue to produce that and have the same team in place. So, we have two of the best TCS experts in summary, we believe, in the world. If you don’t have those experts, you could have state of the art equipment and not be able to produce it at the right price or the right cost or the right purity.|
|Ben Lack:||Why are you doing what you’re doing and why have you chosen to spend your time in this industry?|
|David Natan:||I think that it’s an opportunity to take advantage of the growing trend and there may be cycles, up and down, in the solar industry. But, I think this product is an essential product; we make the product very well. I see an excellent opportunity for profit building and to return shareholder value and our management team is committed to producing shareholder value. If we follow the story of SunSi, literally take no salary, we’re fully committed with the shareholders that we value and I think that we are well positioned in a market where there’s excellent demand and we have a good product.|