In one of the largest deals ever forsolar-grade silicon, Chinese solar titan Suntech Power Holdings said Thursday it struck a deal with Asia Silicon to buy up to $1.5 billion worth during a seven-year period.
Financial details are sparse and the company wouldn't say how much silicon it expects to get from the agreement, or how many solar cells it would be able to make as a result.
Suntech (NYSE: STP) said only that Asia Silicon will start delivering the goods in the second half of 2008 and that the contract outlines silicon amounts to be delivered yearly, and sets prices to decrease each year.
The deal will result in the lowest prices Suntech has negotiated for silicon so far, the company said.
Suntech spokesperson Sanjay Hurry said the company will pay more than $40 per kilogram for the silicon it buys in the first half of the deal, and less than $40 per kilogram for the silicon it buys in the second half.
If the average price of the deal turns out to be $40 per kilogram, that would mean Suntech has access to up to 37.5 million kilograms, or 37,500 metric tons, of silicon from this deal.
In a statement, Suntech CEO Zhengrong Shi said the deal pushes the company closer to making solar power competitive with conventional electricity without incentives or government subsidies.
Silicon inventories have been a defining factor in the solar industry as manufacturers deal with a worldwide silicon shortage.
New entrants, including many Chinese solar companies, have struggled with high prices (see Could China Steal the Solar Throne?).
Wall Street was happy with Suntech's silicon purchase, sending company shares soaring $7.73 to $54.67 per share.
But as investors lick their lips, some analysts say they are concerned about the quality of silicon coming out of China (see New Details Surface as LDK's Stock Continues to Plunge and China Sunergy Snags Silicon).
Jeff Osborne, a Thomas Weisel Partners analyst, is among the skeptics.
At the Dow Jones Alternative Energy Innovations conference in Redwood City, Calif., earlier this week, Osborne shared a snippet of a conversation he had.
"One company that will remain nameless said, 'Hey Jeff, making polysilicon is half art and half science, and no one in China has an artist.'"
But Lazard Capital Markets Analyst Sanjay Shrestha disagrees. He thinks some Chinese silicon makers will be successful.
"Polysilicon production is a difficult thing to do, but it's not rocket science either," he said.
Suntech's latest silicon supplier, Asia Silicon, is building a silicon-production plant in Qinghai, China. The plant is expected to have the capacity to manufacture 2,000 metric tons of silicon by next summer and more than 6,000 tons by the end of 2010.
Asia Silicon said its plant will use top-quality production equipment and processes to make high-purity silicon.