Solar Grade Silicon (UMSi)
In 2008, our solar grade silicon operations were focused on three interrelated objectives:
- Increasing production and shipments of UMSi to meet our customer commitments;
- Improving the purity of our material to increase its value proposition for our customers; and
- Expanding our production facility to address market demand.
We made strong progress in each of these areas.
In our first full year of operation, we shipped 1,045 metric tons (mt) of UMSi to our customers, the majority of which was delivered under long-term supply contracts. Shipment volume increased appreciably in each successive quarter, quadrupling from the first to the fourth quarter, the result of both the scale-up of our operations and improvements in the efficiency of our process throughout the course of the year.
The successful build-out of our solar grade silicon operations in 2008 contributed $65 million in gross revenue and more than $30 million in gross profit4 to the Company’s financial results for the year. It represented in excess of 24% of our consolidated revenue.
Since introducing our UMSi product in late 2007, we have signed long-term supply contracts with seven leading ingot, wafer and cell manufacturers.
As we gain experience with our production process, we are continually applying new learning and refining our methodologies to improve both our product and our efficiency. During 2008, we made strong progress in increasing the purity of our material, achieving average boron and phosphorous levels of 0.8 and 3.0 parts per million (ppm), respectively, and achieving levels as low as 0.5 ppm and 1.5 ppm. Material of this purity has enabled customers to manufacture cells exclusively using Timminco UMSi, as opposed to blending it with polysilicon.
In support of customer commitments and growing market demand for solar grade silicon, early in 2008 we made the strategic decision to significantly expand our production capacity from our initial three-line operation. By year end, we commissioned an additional three lines and added one more in the first quarter of 2009. Our ability to rapidly and inexpensively add new capacity is an advantage in the solar grade silicon industry. We have realized our existing capacity with an investment of approximately $100 million.
To date, our priorities have been output levels and quality – scaling up production as rapidly as possible and ensuring that our material meets or exceeds our customers’ specifications. We are now increasingly focused on lowering the cost of producing our material. Our proprietary purification process has cost advantages stemming from low raw material costs and significantly lower requirements for electricity, the largest input. Our average cost of production for 2008 was $32 per kilogram, declining to $30 per kilogram in the fourth quarter, while absorbing start up costs relating to three additional lines. In December, during which we achieved our highest monthly production volume to date, we achieved a cost of $26 per kilogram.
Subject to production volumes, we expect to appreciably lower our per-unit costs in 2009 through growth in output and improvements in efficiency. We are confident that the low-cost structure of our process will provide us with an advantage in the solar grade silicon market.
Another area of strategic focus is on driving the value proposition of our UMSi for our customers. A critical stage in the manufacturing of solar cells is the production of ingots from solar grade silicon. Since we first began shipping our solar grade silicon, we have been working closely with our customers to support their knowledge and capabilities for the production of ingots using our material. To this end, we installed ingoting capabilities at our UMSi facility toward the end of 2008 for research and development, as well as quality control purposes. We have made strong progress to date in the optimization of the ingot making process using our material. Our continued efforts in this area will enable our customers to improve the yields they are achieving with our material, thereby lowering their overall cost of production, as well as increase the efficiency levels of the solar cells they are manufacturing with our material. Some of our customers have achieved cell efficiency levels of more than 16%, comparable to those achieved with polysilicon. Working with the Engineering Systems Division of AMG Advanced Metallurgical Group, a leading manufacturer of the furnaces used for ingoting, we are continuing to develop new processes and methodologies that increase the usefulness of our material for our customers.
The successful build-out of our solar grade silicon operations in 2008 has positioned Timminco to capitalize on the anticipated growth of the solar industry over the long term. The industry, however, is currently being challenged by weakness in the global economy and restrictive credit conditions, which have adversely impacted the demand for solar power installations and caused a build up of inventory throughout the supply chain. As a result, during the first quarter of 2009, we experienced a decline in orders for UMSi. With little visibility into the timing for the recovery of the solar market, we have adjusted our business accordingly, lowering our UMSi production to levels that are in-line with customer orders. Concurrently, we have deferred further expansion of our capacity until the market recovers. During this period, we will continue to focus on increasing the value proposition of our material to support our long-term success as the solar industry recovers.
3 Refer to the Endnotes
