This year looked like it would be a … windfall... for renewable energy companies with the advent of the Biden Administration and its massively expensive clean energy push. Nevertheless, solar is getting left behind unexpectedly.
Year-to-date, solar module prices have risen 18 percent after consecutive years of falling into the mainstream’s grasp.
One element in the solar module equation is to blame: polysilicon.
Polysilicon (known more formally as polycrystalline silicon) is a high-purity form of silicon that is a fundamental ingredient in solar photovoltaic (PV) manufacturing. It serves as a feedstock for the production of today’s solar cells.
Polysilicon is witnessing a severe supply squeeze. This is great for suppliers but not so great for solar manufacturers.
In fewer than 12 months, polysilicon prices have jumped from only $6.19/kg up to as high as $25.88/kg. And it could travel further upwards over the next year and a half.
Last week in China, spot prices for monocrystalline grade polysilicon rose to RMB164 (US$25.40)/kg, PVTech reported.
For solar manufacturers, it doesn’t just mean higher prices for end products; it means potential project delays because the costs simply aren’t tenable.
First Solar (NASDAQ:FSLR) has shed 24% year-to-date and has risen more than twice its March 2020 low. Still, we remain unconvinced that the timing is right due to the polysilicon supply squeeze.
SunPower (NASDAQ:SPWR) is also down YTD, and honestly, most of these solar stocks were already trading at high multiples of earnings.
Boon for Polysilicon Providers
So, for the rest of this year, and possibly all of next, if you’re looking for a short- to medium-term winning bet, check out the polysilicon providers.
Daqo New Energy (NYSE:DQ) is up over 620% on these tailwinds. DQ saw a nice boost in revenues in Q1. Q2 revenues could—some think, anyway—even double as average selling prices for solar-grade polysilicon gained around 10% in early 2021. Now, we’re looking at far higher prices, making Daqo one to watch. But there’s one big caveat:
Daqo produced 20,185 million tonnes of polysilicon in Q1. Now it’s planning to use extra revenue to expand by adding 35,000 million tons of capacity in a new project that should ramp up by the second quarter of next year.
This new supply could start to lighten the cost load for solar manufacturers. But again, we’re halfway into 2022 by the time just this one Daqo project ramps up.
Germany-based Wacker Chemie AG, another key provider, has gained over 156% in the past 12 months. Wacker Chemie is the only non-China-based company that really makes the top 5 polysilicon producers right now.
Despite the inability to keep up with demand, Wacker Chemie says it’s not planning to increase production of solar-grade polysilicon. That means this is basically a Chinese game now.
Xinte Energy (HKG:1799), one of the Top 4 Chinese suppliers, is planning the world’s largest polysilicon production complex in Inner Mongolia, with planned production capacity of 200,000MT per year. It already has an 80,000MT facility in Xinjiang.
What Could Ruin It All?
Solar doesn’t just have a polysilicon supply problem …
It has a polysilicon reputation problem, too.
Again, these are all largely Chinese suppliers, many from the Xinjiang area, and many using coal to produce solar-grade polysilicon, which largely defeats the purpose of solar as one of our clean energy saviors.
That they are from Xinjiang, where more than 1 million Uyghurs have been forced into detention camps and used as slave labor, brings more trouble.
Some 45% of all the polysilicon the solar industry uses comes from this northwestern region of China. Some 35% comes from elsewhere in China, and around 20% comes from outside China.
Daqo and three other giants--GCL-Poly, East Hope Group, and Xinte Energy--managed to provide the world with 243,000 tonnes of polysilicon in 2020, or 36% of the global share.
They’re also the four targets of accusations of forced labor.
The scrutiny on Daqo has been high lately, leading the company to throw its doors open to media outlets for public tours to prove it’s not capitalizing on forced labor.
Daqo executives have denied there is any forced labor going on at their facilities and have ensured that an independent third-party audit of the plant would take place.
So while the numbers look good on DQ, there may be some undoing of this stock based on what happens next in Washington, D.C.
U.S. climate envoy John Kerry confirmed in a meeting with the House Foreign Affairs Committee recently that the Biden administration was considering sanctions against Xinjiang’s solar industry over human rights concerns, and if that shoe drops, solar will have yet another problem to deal with.
Charles Kennedy for Oilprice.com
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