Suntech in US$678m take-or-pay deal for solar cell components

Eric NgUpdated on Jun 15, 2007

Suntech Power Holdings, the mainland's largest solar-cell maker by market value, has signed a 10-year contract to buy polysilicon for up to US$678 million to ensure supply for its rapid expansion.

Suntech, based in Wuxi, Jiangsu province, said it had signed the deal with United States-based Hoku Materials, a subsidiary of Nasdaq-listed Hoku Scientific, to buy a fixed amount of polysilicon each year at set prices from mid-2009 on a "take-or-pay" basis.

This means Suntech must take delivery of the undisclosed shipments even if they are not needed. The prices were not disclosed.

This form of long-term agreement usually allows the buyer to take advantage of lower spot market prices, at the risk of holding excess inventory.

"Securing a long-term supply of polysilicon from Hoku will enable us to continue to expand our manufacturing capacity and execute Suntech's strategic plan," Suntech chairman Shi Zhengrong said.

Global demand for polysilicon has outstripped supply since 2004, as high fossil fuel prices and incentives offered by governments to develop solar power drove up demand.

Morgan Stanley last year estimated the supply gap to persist until next year, with polysilicon prices to rise 35 per cent this year.

In July last year, Suntech signed a 10-year deal to buy US$5 billion to US$6 billion worth of the material from MEMC Electronic Materials of the US. Suntech also offered financial support to help MEMC expand output capacity.

Similarly, Suntech has agreed to pre-pay Hoku US$47 million even though Hoku's 2,000 tonnes a year plant in Idaho will not be completed until next year.

Suntech late last month raised its production output target for this year for the second time to 325 megawatts from 250MW.

The company also lifted its planned year-end production capacity to 480MW from 390MW. The company aims to raise capacity to 1,000MW by 2010.

The company exports 90 per cent of its output, as the domestic market is still in the early stages, with growth limited by high equipment costs.

However, this situation may change, as the central government has set an aggressive target to increase the solar generation capacity of the mainland from 80MW to 300MW by 2010 and further to 1,800MW by 2020.

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