Suntech terminates wafer agreement and thin film venture

01. July 2011 | Top News, Products, Markets & Trends, Industry & Suppliers | By:  Becky Stuart

Suntech has terminated a solar wafer supply agreement with MEMC. It will also discontinue investment in thin film subsidiary CSG Solar AG. Overall, the company will incur expenses of around USD$236 million.

Suntech facade in Wuxi HW, China

Suntech has terminated two of its photovoltaic ventures. Image: Suntech.

Citing the "rapid changes in the market for silicon wafers", Suntech says its agreement with MEMC, which was signed back in 2006, will end five years early. The cancelled agreement means Suntech will avoid the purchase of around 4.6 gigawatts of wafers between 2011 and 2016. The decision was said to be mutual.

Consequently, the Chinese photovoltaic module manufacturer will incur expenses of $212 million in the second quarter of this year.

This figure is comprised of $53 million worth of prepayments previously made to MEMC, $67 million to reportedly be paid in four equal installments between this July and next April, and a  non-cash accounting charge of $92 million. The last charge, says a Suntech statement, is a result of "the write-off of unamortized cost associated with warrants previously issued concurrently with the supply agreement in 2006."

The manufacturer adds that the move will allow it to "optimize its silicon sourcing strategy, including maximizing internal wafer production, and lead to estimated cost savings of over $400 million in the next five years."

Despite the massive expense, a "Quick take" released by industry analysts Cowen and Company says the outlook is not all doom and gloom, stating that around half of the charges are non-cash.

Meanwhile, they say that improved silicon and wafer sourcing should save the company around $400 million over the next five years and is "further evidence of tighter financial management under the new CFO, which should ultimately produce better, more predictable results."

Back in March, Suntech announced that David W. King will succeed Amy Zhang as Suntech's chief financial officer.

A spokesperson for the company additionally told pv magazine: "Suntech will save over $400 million in cost over the next five years. This will make our supply chain more flexible and ensure that we continue to have one of the most competitive cost structures in the industry. We plan to continue to collaborate with MEMC to procure wafers and supply panels."

Thin film plans abandoned

In other news, Suntech has announced it will no longer invest in its subsidiary, CSG Solar AG, an Australian company, which set up manufacturing in Germany, and which is focused on the research and development of crystalline silicon thin film technology.

The spokesperon continued: "Low efficiency and high cost of material and processing make the technology uncompetitive in the current market. Two and a half years after commercial scale production was discontinued and co-investor Q-Cells sold its share in the company, the CSG facility will now cease operating altogether.

"Even with the continued support by the Suntech Group, the competition in the PV industry meant that the CSG technology could not be taken into manufacturing again."

They said that some jobs at CSG in Sydney, Australia and Bittfeld-Wolfen, Germany will be transferred within Suntech, "for instance to Suntech Germany in Frankfurt, Suntech Germany in Munich, Suntech European Headquarters in Switzerland and also some to Suntech in Australia."

It is unclear how many jobs are at stake and if the company will revise its financial guidance based on today's announcements.

History repeated

This is the second time the manufacturer has abandoned thin film operations. Last August, it announced that it had stopped the manufacture of its amorphous silicon thin film solar panels.

Despite this, Suntech said during a press trip last October that it was still interested in thin film - in particular crystalline silicon on glass. Responding to questions about whether the company had plans to recommence thin film operations in the future, founder and CEO of Suntech, Shi Zhengrong said: "That’s why we acquired CSG Solar last year." He added it was a focus area, but there were issues with efficiency, which still needed to be resolved.

During the visit, Stuart Wenham, Suntech’s chief technology officer and scientist at the University of New South Wales (UNSW) in Australia explained that thin film was an important application for the company, especially when it comes to architecture.

"We can’t rely on glass manufacturers to develop this - architecture alone is not going to make it happen. It has to be companies like us. We are pioneers, we have the vision and we are putting in investment. We even lose money, but we want to develop this application and this market," he said.

However, he reiterated Shi’s sentiments when it came to efficiencies. "The time is not right for thin film. It really has to get up to round about 15 percent to compete with crystalline silicon."

At that point, Suntech said it had got its thin film crystalline silicon efficiencies up to about 10 percent through its work at CSG Solar.


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