Status of the polysilicon industry and development recommendations

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I. Overview of the International Polysilicon Industry At present, crystalline silicon materials (including polysilicon and monocrystalline silicon) are the primary materials used in photovoltaic applications, accounting for over 90% of the market share; they will also remain the main materials for solar cells for a long time to come. For a long time, the production technology for polysilicon materials has been in the hands of 10 factories belonging to 7 companies in countries such as the United States, Japan, and Germany, resulting in a situation of technical blockade and market monopoly. The demand for polysilicon mainly comes from semiconductors and solar cells; it is divided into electronic-grade and solar-grade depending on the purity requirements. Of this, about 55% is used for electronic-grade polysilicon, while 45% is used for solar-grade polysilicon. With the rapid development of the photovoltaic industry, the demand for polysilicon in solar cells is growing at a faster pace than that for semiconductor-grade polysilicon; it is expected that by 2008, the demand for solar-grade polysilicon will exceed that for electronic-grade polysilicon. In 1994, the total global production of solar cells was only 69 MW, while by 2004 it had reached nearly 1200 MW, representing a 17-fold increase in just 10 years. Experts predict that the solar photovoltaic industry will surpass nuclear power to become one of the most important primary energy sources in the first half of the 21st century. The production volumes and proportions of solar cells worldwide are shown in Table 1. http://www1.eccn.com/mkt/image/zt063143-1.jpg It is reported that the U.S. Department of Energy plans to achieve a total installed capacity of 4600 MW by 2010, Japan aims to reach 5000 MW by that time, and the EU plans to reach 6900 MW. It is estimated that the world’s total installed capacity will be at least 18,000 MW by 2010. Based on the above speculative analysis, the amount of polysilicon used for solar cells by 2010 will be at least 30,000 tons; Table 2 presents projections for the global polysilicon industry for solar energy. According to foreign analysis reports, the world’s polysilicon production in 2005 was 28,750 tons, of which 20,250 tons were of semiconductor grade and 8,500 tons were of solar grade. The demand for semiconductor-grade polysilicon was around 19,000 tons, resulting in a slight surplus ； The demand for solar-grade polysilicon is 15,000 tons, and supply falls short of this demand; since 2006, there has been a shortage in the demand for both solar-grade and semiconductor-grade polysilicon, with the gap in supply being even greater for solar-grade polysilicon. http://www1.eccn.com/mkt/image/zt063143-2.jpg According to a report by Japanese Rare Metals Impurities dated November 24, 2005, there is a tight demand for polycrystalline silicon in the global semiconductor and solar industries, primarily due to the rapid expansion of the solar market, especially in Europe. It is expected that the imbalance in polycrystalline silicon supply will worsen in 2006 and 2007. The difference between semiconductor-grade and solar-grade polycrystalline silicon in terms of price will gradually diminish or even disappear. In 2005, the world’s production of solar cells was approximately 1 GW; assuming that 12 tons of polycrystalline silicon are required per 1 MW of solar cell capacity, the total amount of polycrystalline silicon needed was 12,000 tons. The average annual growth rate of global solar cell production from 2005 to 2010 was 25%, and by 2010, the total annual demand for polycrystalline silicon used in solar cells worldwide would exceed 63,000 tons. The main producers of polysilicon in the world include Tokuyama, Mitsubishi, and Sumitomo in Japan, Hemlock, Asimi, SGS, and MEMC in the United States, and Wacker in Germany. The annual production capacity of most of these companies exceeds 1,000 tons; among them, Tokuyama, Hemlock, and Wacker have the largest production scales, with an annual capacity of 3,000–5,000 tons each. The main technical characteristics of international polysilicon are as follows: (1) Multiple production processes coexist, and the situation of technological blockades and monopolies in industrialization will remain unchanged. Since the primary and auxiliary raw materials used in various polysilicon production plants vary, the production processes and technologies also differ ； Consequently, there are also differences in aspects such as the technical and economic indicators of polysilicon products, product quality standards, applications, product testing methods, and process safety; each method has its own technical characteristics and trade secrets. Generally speaking, the main traditional processes for polysilicon production internationally include the modified Siemens process, the silane process, and the fluidized bed process. The production capacity of polysilicon manufactured using the improved Siemens process accounts for about 80% of the world’s total capacity, and the situation of technological monopoly and blockade in this sector is not likely to change in the short term. (2) Research on next-generation low-cost polysilicon process technologies is more active than ever. In addition to traditional processes (compatible with electronic-grade and solar-grade materials) and technological upgrades, several new process technologies have emerged for the production of solar-grade polysilicon, the main one being the low-cost modified Siemens process ； The metallurgical method is used to extract high-purity silicon from metallic silicon ； Direct production of high-purity SiO2 ； Vapor-to-liquid deposition (VLD: Vaper to liquid deposition) ； Reduction or thermal decomposition process ； Chlorine-free process technology, low-temperature preparation of solar-grade silicon from Al-Si alloys ； molten salt electrolysis, etc. II. Overview of the domestic polysilicon industry: The growth of integrated circuits in China, as well as the development of silicon wafer production and solar cell industries, have **driven the growth of polysilicon materials. Based on the fact that 11–12 tons of polysilicon are required to produce 1 MW of polysilicon solar cells, in 2004 China’s production of polysilicon and monocrystalline solar cells was 48.45 MW, which meant a demand for around 678 tons of polysilicon. However, the actual production capacity was around 70 MW, resulting in a shortage of more than 250 tons of polysilicon. By the end of 2005, China’s solar cell production capacity had reached 300 MW, with an actual output of around 110 MW; approximately 1,400 tons of polysilicon were required for this. It is projected that by 2010, solar cell production will reach 300 MW, demanding a conservative estimate of around 4,200 tons of polysilicon. Therefore, the production of solar cells will **drive an increase in the demand for polysilicon, as shown in Table 3. http://www1.eccn.com/mkt/image/zt063143-3.jpg In 2005, the operation rate of enterprises producing monocrystalline silicon for solar cells in China was between 20% and 30%, while that of enterprises producing monocrystalline silicon for semiconductors was between 80% and 90%. None of these enterprises were able to operate at full capacity, and the main reason for this was insufficient supply of polycrystalline silicon. It is expected that the output of polysilicon manufacturers after capacity expansion will still not be sufficient to meet the rapid growth demand. China’s polysilicon industry began to develop in the mid-1950s and 1960s, with over 20 manufacturing plants operating at that time. Due to the difficulties associated with production technology, small scale of production, outdated processes, severe environmental pollution, high energy consumption, and high costs, the vast majority of these enterprises suffered losses and thus ceased operations or shifted to other types of production. By 1996, only four companies remained: Emei Semiconductor Materials Factory, Luoyang Monocrystalline Silicon Factory, Tianyuan Chemical Factory, and Lingguang Industrial Company. The total output of these companies that year was 102.2 tons, and both their production capacity and technology were significantly inferior to those of foreign companies. After 1995, Lingguang Industrial Company and Chongqing Tianyuan Chemical Plant ceased operations one after another. Currently, the main polysilicon producers in China include Luoyang Zhongsi High-Tech Company, Sichuan Emei Semiconductor Factory, and Sichuan Xinguang Silicon Industry Company. By the end of 2005, Luoyang Zhongsi High-Tech Company’s 300-ton production line was in operation, while the construction of a second phase featuring a 1,000-ton polysilicon production line also began at that time. Henan Province plans to expand this facility to a capacity of 3,000 tons, thereby creating the largest silicon industry base in the country. Sichuan Emei Semiconductor Materials Factory is one of the earliest enterprises in China to possess polycrystalline silicon production technology. The 220-ton polycrystalline silicon production line, expanded with investment from solar cell manufacturers in 2005, is set to go into operation in the first half of 2006. The 1000-ton polycrystalline silicon production line planned by Sichuan Xinguang Silicon Industry Company is under accelerated construction and is expected to be operational by the end of 2006. In addition, there are plans to build production lines in Yunnan, Yangzhou, Shanghai, Heihe, Jinzhou, Qinghai, Inner Mongolia, Yichang, Guangxi, Chongqing, Liaoning, Handan, Baoding, Zhejiang, and other regions as well. III. Main issues in the industry’s development Compared with international advanced levels, the gaps in industrialization faced by domestic polysilicon producers are mainly reflected in the following aspects: 1. Low production capacity, with a prominent supply-demand imbalance. In 2005, the operating rate of single-crystalline silicon manufacturers in China for solar energy applications was between 20% and 30%, while that of manufacturers using it for semiconductor applications was between 80% and 90%; full-capacity production was not possible. Polycrystalline silicon technology and the related market remained in the hands of a few manufacturers in the United States, Japan, and Germany, which severely hindered the development of China’s industry. 2. The production scale is small; the currently recognized minimum economic scale is 1,000 tons per year, with the optimal economic scale being 2,500 tons per year. However, China’s polysilicon manufacturers are still far from reaching these scales at present. 3. The processing equipment is outdated, resulting in high consumption of materials and electricity for similar products, as well as numerous issues related to waste generation. Compared to international standards, domestic polysilicon production has more than double the energy and material consumption, making the product costs uncompetitive. 4. The reliability, advancement, maturity of the thousand-ton-class process and equipment technologies, as well as the compatibility among various subsystems, all require verification through actual production operations, and further improvement is needed. 5. Domestic polysilicon manufacturers lack strong technological innovation capabilities, with insufficient investment in basic research; in particular, their ability to develop and manufacture custom equipment is poor. 6. Local governments and enterprises investing in polysilicon projects pose the risk of low-level redundant construction. IV. Strategies and Recommendations for the Development of the Industry 1. The market conditions necessary for the development and expansion of China’s polysilicon industry are now basically in place, and the time is ripe. **Relevant departments should increase their support for research and development in polysilicon technology, as well as for technological innovation, process improvement, and project development, so as to take advantage of this favorable opportunity to foster the growth of China’s polysilicon industry. 2. Support the implementation of improved common technologies based on the Siemens process, accelerate the development of key technologies for the industrial production of polysilicon in quantities of a thousand tons or more, and establish an industrial production line for polysilicon that encompasses material production processes, equipment, automatic control systems, as well as recycling mechanisms; the performance of such materials shall be close to that of similar international products ； Establish a polycrystalline silicon production system that is energy-efficient, low-consumption, environmentally friendly, circular, and economical, in order to enhance the competitiveness of our polycrystalline silicon on the international stage. 3. Relying on universities and research institutions, strengthen fundamental and forward-looking research on next-generation low-cost process technologies, establish a knowledge and technological innovation system for the research and development of low-cost solar energy and polysilicon, and acquire production processes and technologies with independent intellectual property rights. 4. **The competent authorities should strengthen macro-control and industry regulation to prevent repeated investment in low-quality projects, ensuring the orderly and sustainable development of the industry.