Suntech guides 2.2GW of shipments in 2011: manufacturing JV with Wuxi Government

Both Wuxi Industrial Development Group and Wuxi New District E&D Group would retain 30% stakes each. Suntech noted that it would provide process know-how, technology and production management to the JV and would enter into a tolling agreement with JV with quarterly review of price and volume.

Total capex for the JV was expected to be approximately US$450mm for 1.2GW of cell capacity. Suntech’s equity investment would in total be approximately US$150 million.

Suntech Chairman and CEO Dr. Zhengrong Shi stated, “This joint venture will provide access to cost-effective PV cell capacity utilizing Suntech's high performance technology and reliable manufacturing processes, with reasonable cash outlay. It will also enable us to meet the growing demand for Suntech's premium quality solar products.”

The JV enables Suntech to gain access to an exclusive and significant amount of cell capacity for a minimal investment. The Wuxi government gains access directly to the PV industry and supports industrialization and jobs within the region. The Wuxi government has used similar JV structures to gain access to the semiconductor industry.

Updates from the Analyst Day conference are to follow here.

Update 1.

Andrew Beebe, chief commercial officer, opened the main proceedings with a detailed review Suntech’s market regional market share position. According to Beebe, over 70% of sales in 2010 would come from Europe, but expects the German market to “shrink slightly” in 2011. Overall, he noted Suntech was diversifying its market base and expects 53% of increased shipments to come from Europe, 25% of shipments to China, Japan and the APMEA as a whole. In America’s, Suntech expects shipments to account for 22% of sales.

He also noted that the bankability factor now well understood in the marketplace also meant that Suntech would continue to encounter strong demand for its products, despite the potential for overcapacity in the industry next year. He noted that PV projects are increasingly financed based on strong bankability factors that only apply to a small handful of PV manufacturers, which protects against overcapacity volatility with manufacturers not having the highest bankability products and product offerings.

Update 2.

Steven Chan, Suntech’s president of Americas, noted that Suntech’s U.S. growth in sales exceeds the actual market growth rate. Chan estimated that the U.S. market would reach 1,114MW in 2010, with Suntech’s share 210MW plus 40MW in Canada. Its market share in 2011, however, would only increase 1% to 20%, compared to 2010. However, on a megawatt basis, this would almost double to 410MW in 2011 as the U.S. market reached 2,058MW. He also noted demand of 70MW and more coming from Canada and Latin America next year.

Chan said that 10.8GW of project pipelines had been approved in the U.S. but Suntech’s opportunities in the utility-scale market tended to be in the sub-20MW project market, since these suffer less from delays and studies and tend to be distributed deals, avoiding transmission connection problems.

Update 3.

In the next presentation, Jerry Stokes, Suntech’s European president, highlighted that despite feed-in tariff changes and a degree of uncertainty in some key markets such as Germany, overall there is still strong support for PV. Grid parity in Italy and rapidly closing gap in other European countries mean that Europe remains an important and growing market.

Stokes said that the European sector will move from a seller's market in 2010 to a buyer's market by 2012. This will mean that greater emphasis will be placed on VAR (value added reseller) business model against the project development market, though the emphasis of the change in terms of percentage shift would be gradual.

Claiming that Suntech had the strongest and most established VAR network across Europe means that the company would benefit from the shift, he said.

Stokes noted that 8 out of top 10 German VARs were already Suntech partners but also importantly that VARs now preferred a stream-lined procurement system, which reduced the number of bankable brands they used to between 4 and 7. Suntech’s European top 15 existing customers accounted for a 50% share of the total VAR market, according to Stokes. Suntech’s European top 15 existing customers also accounted for a 35% share of the total EPC market in the region.

Update 4.

Dr. Stuart Wenham, Suntech CTO, reiterated that its Pluto cell technology migration issues had been overcome and that production would remain at 6MW per month as demand overall for modules remained strong and shifting existing lines to the technology would only impact module output. Capacity for Pluto cells stood at 450MW and would account for approximately 10% of shipments in 2011. Migration would increase when overall demand eased.

Wenham also touted the Pluto cell efficiencies, claiming lab results, which use commercial grade materials only, had produced 22% cell efficiencies, which gives the company a high level of confidence when transferring the technology into production in the next two to three years. Scalability issues, often muted in the market, were not seen as a concern.

The Suntech CTO also noted that lab results normally take two years to migrate to pilot-line production and approximately a further year to volume production. However, he said that efforts were being made to reduce that migration cycle.

Although it is known that Pluto cells are using high-purity P-Type wafers, Wenham also discussed using low-cost polysilicon (multicrystalline) wafers for the Pluto cell technology. He noted that low-cost silicon (LCS) of below US$20/kg was producing production cells with average efficiencies of 17%. This was a unique characteristic of the Pluto cell technology, which features the emitter close to the wafer surface. This distinguished Pluto cells from those of SunPower, which could only employ high-cost monocrystalline wafers with their back-contact cell technology.

As for module power output, Wenham said that using commercial-grade P-Type monocrystalline wafers with the company's Pluto technology had achieved open circuit voltages (Voc) of 640 mV in production, something others said couldn’t be achieved.

He also highlighted the Voc roadmap of achieving 680 mV, which would shortly be verified by Fraunhofer ISE.

Because of the increased use of automation required for Pluto processes, which include copper plating instead of conventional screen printing, manufacturing headcount per megawatt of production was going down considerably. He noted that it took a 4.1 headcount to produce 1MW in 2008 but this would be down to 1.49 in 2011.

A new module and interlocking frame technology was also detailed, which the company claims will reduce overall BOS costs by 10%. The modules actually cost more (5-7%) to produce due in part to thicker and stronger frames, but the labour and frame component costs would each reduce costs by 25%. The ‘Reliathon’ system also eliminated vertical stabilizers and the mounting substructure.

Final update 5.

Suntech Chairman and CEO Dr. Zhengrong Shi gave the penultimate presentation before CFO, Amy Zhang went through the financial performance expectations, which were outlined above. Dr Shi reiterated the justifications behind the recent wafer capacity expansions via the Rietech acquisition of 375MW of wafer capacity from Glory Silicon.

Key to the timing of the acquisition was the fact that equipment to increase capacity to 800MW in the end of 2011 had already been ordered, which eliminated concerns over typically long lead times. The expected CapEx of the expansion was said to be US$200 million.

Suntech would also benefit from greater collaboration on R&D and quality improvement programmes going forward, similar to what other but fully integrated PV manufacturers had experienced. Polysilicon supply deals have been secured with the likes of Hemlock and Wacker to meet the increase wafer capacity so the deal was very much a factor of expedience and cost savings.

Dr Shi noted that he had calculated an expected US$100million to US$200mm in wafer cost savings in the first year of integration, depending on spot market wafer and polysilicon prices.

More importantly, wafer cost savings would equate to module costs declining quicker than previously expected. Average module cost/watt stood at US$1.40 in the third quarter but would decline to US$1.10/W in 1Q11. The target is to achieve US$0.85/W figure by year end 2013.

With regards to the earlier announced solar cell JV, Dr Shi reiterated that the deal was the best use of capital while limiting any risks. The aggressive capacity ramp of the JV meant that Suntech would not be adding any further internal capacity in 2011. The Suntech founder reiterated that should demand continue to outstrip module supply the Phase 2 expansion would go ahead next year.

He finished his presentation discussing the Global Solar Fund (GSF) business which was an investment fund that was established in February 2008, in Luxembourg to develop and invest in solar projects.

Interestingly, Dr Shi noted that €300million had been committed to the fund as of May 2009, with Suntech committed to investing €258million. He personally had invested 10% of the balance.

GSF had 240MW of fully permitted projects since 2009 in its project pipeline of which 150MW were currently under construction. According to Dr Shi, 10MW of the pipeline had completed construction in 3Q10. A further 80MW would be completed in 4Q10 with remainder to be completed in 2011. Suntech was currently assessing additional project development opportunities in Europe, according to Dr Shi.

Additional financial aspects for 2011 were given by Amy Zhang. Capital expenditures next year are expected to be in the region of US$250-270million. Approximately US$200million is being allocated for internal wafering capacity expansions as outlined by Dr Shi.

In the Q&A session, Zhang noted that only US$20 million of CapEx would be allocated to Pluto cell technology in 2011.