GCL-Poly Rolls On

Hong Kong-based polysilicon and wafer producer GCL-Poly Energy Holdings Ltd. announced in February its approval of approximately HK$17.7 billion (US$2.2 billion) worth of polysilicon and wafer facility investments in the People’s Republic of China (PRC) in 2011 and 2012.

The company, China’s largest polysilicon producer and one of the world’s leading wafer suppliers, plans to increase its wafer production capacity in Jiangsu province at its existing plants in Xuzhou, Wuxi, Suzhou and Changzhou.

“New wafer plants will also be set up in locations close to our customers in the PRC,” said the company. “The new polysilicon facilities will be located in the existing Xuzhou plant.”

At the end of 2010, the Group’s annual production capacities of polysilicon and

wafer were approximately 21,000 MT and 3,500 MW, respectively. “By the end of 2011, the production capacity of polysilicon will increase by not less than 25,000 MT and by the middle of 2012, the Group’s polysilicon production capacity will be up to 65,000 MT,” said the company. “The wafer production capacity will be ramped up to 6,500 MW by end of 2011.” The Group’s wafer production capacity achieved 3.5 GW at the end of November 2010. The company said the new investment would be funded completely by its internal resources and borrowings.

In addition to its solar production business, GCL-Poly also operates a host of power plants fired by gas, coal, sun, wind and biomass, including 18 cogeneration plants. In August, it was named by Fortune as one of the “Most Innovative Chinese Companies for 2010.”

After only beginning to produce wafers in-house in December 2009, the company swiftly moved through a series of acquisitions, technical improvements and investments to become the world’s largest wafer producer. Among its major deals was the acquisition of wafer producer Konca Solar in China.

Driving the new wave of investment is a series of long-term polysilicon products and wafer supply contracts signed during the second half of 2010 and early 2011, including the following:

• a RMB20.8-billion (US$3.1-billion) contract with Hareon;
• a 10-GW contract with JA Solar;
• a 2.5-GW contract with Solarfun Power
• an 815-MW contract with Indosolar Limited, a leading solar cell manufacturer in India;
• a 7.5-GW contract with Trina Solar
• a 5.2-GW contract with Canadian Solar;
• a 4.4-GW contract signed in February 2011 with Nanjing-based China Sunergy.

To date, GCL-Poly’s aggregate long-term wafer supply contracts for the period of 2011 to 2016 have exceeded 50 GW.

Take It From the Chair

GCL-Poly Chairman Zhu Gong Shan on March 17 shared results of the financial year ending on December 31, 2010: revenue of HK$18.47 billion (more than US$2.4 billion), representing a year-over-year increase of 274 percent, and net profit of HK$4.02 billion (more than $515 million).

Central to the company’s success has been its co-location strategy:

“Our wafer plants were set up in the vicinity of the factory sites of customers such as Trina Solar, Canadian Solar and Hareon in order to establish close sales cooperation with our customers,” said the chairman. “We have a mutual understanding to execute strategic co-location strategy with our customers including JA Solar and Goldpoly.”

The company in 2010 saw its polysilicon plant in Zhongneng complete a technical improvement project that increased annual production capacity to 21,000 MT. The plant also ramped up hydrochlorination capacity from 300,000 MT to 500,000 MT, which allowed full recycling of the by-products and reduced the cost of TCS (trichlorosilane) — an important raw material for polysilicon production.

“In addition, GCL Solar was able to reduce the cost of steam and electricity, as well as other overhead costs,” said the chairman’s statement. “As a result, polysilicon production costs were lowered to HK$175.1 (US$22.5) per kilogram by the end of December 2010, which is considered to be the lowest in the industry.”

Through technical upgrades and minimizing energy consumption, he said, “we are confident in lowering the polysilicon production cost to approximately US$20 per kilogram by the end of 2011 in order to ensure that our gross profit margins will continue to be higher than those of our industry peers. We will also continue to focus on the development of our wafer business in 2011. Apart from our current wafer production bases in Xuzhou, Wuxi, Changzhou and Suzhou, we will build new wafer facilities in Yangzhou, Taicang, Quanzhou and Henan such that our global competitiveness in the silicon materials business will be strengthened. We expect that by the end of 2011, our wafer production capacity will be ramped up to 6.5 GW and wafer output will reach 5.5 GW for the year 2011.”

GCL Solar’s wafer production costs are becoming more affordable in a hurry too, due to both technical improvements and the co-location strategy, which helped reduce logistics and overhead cost. “As a result, GCL Solar’s wafer average production costs (before eliminating the internal profit of polysilicon) were approximately HK$4.30 (US$0.57) per [watt] for the year ended 31 December 2010,” said the company.

Glimpses of the Future

The following excerpts from GCL-Poly’s thorough earnings and outlook guidance provide perspectives on where the company, China and the industry are headed:

• “The average selling prices of polysilicon, wafer, cell and module are expected to fall in the coming year. This will stimulate market demand and boost shipment volumes. As the difference between the cost of generating electricity from solar versus traditional means narrow, grid parity is becoming an achievable target. These lowered costs in turn will enable governments to reduce their subsidies to the solar industry.”
• “Income tax expense for the year ended 31 December 2010 stood at HK$1,159.3 million, representing an increase of 11.4 times as compared with HK$93.2 million for the year ended 31 December 2009. The increase was mainly due to the surge in the PRC Enterprise Income Tax and deferred tax provided for the undistributed profit, which resulted from a significant increase in profits generated from the solar business in the PRC and an increase in income tax paid by Jiangsu Zhongneng as its 100-percent tax exemption had expired.”
• “GCL-Poly Silicon Material Management Centre is highly effective in team building with many talents involved in operations and management. Through the establishment of supply chain systems, the management centre has set up centralised procurement so that we are able to lower both production and project costs continuously. The implementation of the product quality management system has led to the product quality upgrade. The in-house production of TCS has decreased the polysilicon raw material cost. The slurry recovery has lowered the wafer production cost.”
• “Whilst the market price of silicon material is increasing due to the supply shortage, we have foregone the short-term gains and did not increase the wafer price unduly. Hence, we are able to build up customers’ trust, promote GCL-Poly’s acceptance and image, establish order in the industry and stabilise business operating environment.”

The World

• “The total estimated installed capacity of solar farms around the world in 2010 was over 16 GW. By comparison with 2009’s installed capacity of 7.2 GW, this was a more than two-fold increase. Germany remains the world’s largest photovoltaic market, with an installed capacity exceeding 8 GW in 2010. In Italy, the photovoltaic market also grew very rapidly in 2010. Market analysts estimated the 2010 installed capacity of solar farms in Italy was in the range of 2.5–3.5 GW, and estimated to reach 4 GW in 2011. Other European markets such as Spain and Czech Republic also showed a satisfactory performance during the year.
• “Although the subsidy policies for solar energy in Germany and Spain will change in 2011, cost decreases across the entire photovoltaic value chain are expected to mitigate some of these adverse factors. We still expect very good prospects for the European market in 2011. Meanwhile, with the various states of the United States extending or launching subsidy and incentive policies, the United States will play a more important role in the global photovoltaic market in 2011. Apart from encouraging private investments in solar farms, the United States government also requires large utility companies to comply with renewable portfolio standards (RPS).
• “Other Asian and Middle East countries such as India, Japan, Korea, Saudi Arabia, Qatar and Israel have each launched national plans for developing solar power and that will provide new areas of growth for the global photovoltaic industry.
• “We believe that the new installed capacity of global solar power to exceed 20 GW in 2011.”

The States

• “In 2010, GCL Solar Energy Inc., a subsidiary of GCL-Poly, completed the construction of approximate 6 MW solar photovoltaic power projects in the United States and entered into the sales and leaseback transactions for these projects with Wells Fargo. In November 2010, GCL Solar Energy Inc. signed a joint programme with Wells Fargo through which Wells Fargo will provide over US$100 million by the end of 2011 to facilitate GCL Solar Energy Inc. in developing solar photovoltaic power projects across the United States.”
• “In November 2010, GCL Solar Energy Inc. formed a joint venture with SolarReserve, LLC. Its experienced management team has previously invested in renewable and conventional energy projects around the world. The joint venture will work to develop solar photovoltaic projects in the United States, and its project pipeline comprising a solar photovoltaic project-development pipeline of more than 1 GW.”
• “GCL Solar Energy Inc. has 4.8 MW projects currently under construction and has acquired 11.1 MW projects in the United States, for which we plan to start construction in the first quarter of 2011. All the projects are intended to be sold to Wells Fargo through the sales and leaseback transactions once they have met the commercial operation requirements in 2011.”
• In 2011, we expect that the United States will continue to offer excellent investment opportunities in photovoltaic systems, with attractive government support programmes such as the Federal Business Energy Investment Tax Credit (ITC) — which provides a 30% tax credit on the investment cost of photovoltaic systems, and the Modified Accelerated Cost-Recovery System (MACRS) — allowing accelerated depreciation of investments in photovoltaic systems. With over 1 GW of project development pipeline secured with SolarReserve, LLC, the tax equity investment partnership with Wells Fargo, and our strong local presence with extensive experience in engineering, procurement and construction and operation capabilities, we are well positioned to capture investment opportunities in photovoltaic systems in the United States.

China

• “The development prospects of new energy industry in China are promising. The photovoltaic industry in particular shows phenomenal potential with immense business opportunities. It is expected that from 2011 to 2015 the country’s total installed power capacity will reach 1.4 billion kW and new energy will account for 15%. The year 2011 marks the beginning of the country’s 12th Five-Year Plan. The economy of China will strike a balance between growth and anti-inflation. Local governments’ deployment of scarce resources including land, incentive policies and scarce bank financing will be skewed towards the strategic emerging industries.
• “China will start a new round of investment and construction in the new energy domain. Since the launch of the Golden Sun Demonstration Projects and Building Integrated Photovoltaic Demonstration Projects in December 2010, which have outlined the scale of the domestic photovoltaic targets in the future years. It is estimated that the annual domestic installed capacity after 2012 will be no less than 1 GW. We opine that China will make great effort in developing the photovoltaic industry in the future. The country will change from being a major photovoltaic material producer to a major user of solar energy.”
• “The PRC government has set out standards for capacity expansion in the energy-intensive and often highly polluting polysilicon industry. The qualified polysilicon manufacturers should maintain an annual production scale of at least 3,000 MT and their economical power consumption for recycling should be reduced to 60 kWh per kilogram of polysilicon by the end of 2011. In addition, plants are required to recycle at least 98.5 percent of waste hydrogen and fluorosilicone chemicals, which are highly acidic and polluting to the environment. Plants that cannot fulfil the requirements will need to overhaul their facilities or face closure. The industry will soon enter into a consolidation stage, with only the most powerful players able to sustain their presence in the solar industry.”