Can increased polysilicon and silane capacity outside China compete with the existing Chinese supply chain?

Opinion Pieces




Can increased polysilicon and silane capacity outside China compete with the existing Chinese supply chain?

Global polysilicon production and capacity have ramped up significantly over the past few years to meet demand driven in part by solar photovoltaic (PV) and, more recently, lithium-ion battery manufacturers related to energy transition installation and storage targets.

China’s share of global polysilicon production is estimated to have reached 90% in 2023. However, some producers located outside China are restarting production to meet increased domestic demand. Notable examples include the restart of operations at REC Silicon’s Moses Lake fluidised bed reactor (FBR) facility in Washington, USA, and plans recently announced by Group14 to restart production at the Schmid Silicon silane production plant in Saxony, Germany.

Restart of idle capacity outside China

REC Silicon’s Moses Lake FBR facility did not operate for more than four years after the company was cut off from customers due to escalating trade disputes between China and the USA. The start-up process at the silane-based high-purity granular polysilicon production facility began in late October and early November 2023, and production restarted in November 2023. The Silane III unit is now back online, enabling the production of granular polysilicon. The first shipments are scheduled for the first quarter of 2024, and the plant is expected to reach full production capacity in the fourth quarter of 2024. All the prime high-purity granular polysilicon produced at the facility will be sold to Hanwha Qcells Georgia and will supply the company’s operations in Georgia to produce ingots, wafers, and solar cells for solar module production.

In November 2023, Group14 announced plans to restart operations at the recently acquired silane production plant in the Schwarze Pumpe industrial park, Germany. The plant’s former operator, Schmid Silicon, was owned by Schmid Group and was acquired by Group14 in July 2023. The plant has been idled since 2016 and will supply the precursor for energy storage applications such as solar panels and silicon batteries, creating manufacturing jobs with the possibility of bringing electric vehicle (EV) battery production to the region. Group14 intends to hire more than 65 employees at the plant by the end of 2024 and has already started the hiring process. In addition, the company is currently exploring opportunities for the construction of its third Battery Active Materials factory (BAM-3) in Germany. This move signals the start of Phase I of Group14’s expansion into Europe.

Opportunities and potential challenges

These operations will enable REC Silicon and Group14 to supply emerging domestic value chains, providing an alternative supply to imports of material from China. In addition, producers located outside China benefit from a higher-priced market because of the assurance that their raw materials do not originate from Xinjiang. However, several stumbling blocks may present themselves in the form of relatively high energy prices and production costs and the difficulties associated with an industry less established and integrated than that in China. For example, the CEO of raw materials company AMG, recently expressed concerns surrounding the future of Germany’s only silicon producer, RW Silicium, as escalating industrial electricity prices, coupled with falling silicon metal prices throughout 2023, rendered the production of silicon metal unprofitable. Operations at the plant may cease by March 2024 if a solution is not found, resulting in an increasing reliance on imports by German customers, potentially impacting Group14’s plans.

In the USA, Norwegian company Cenate is currently considering sites for the construction of the company’s first American battery components factory, which would produce silicon-containing anode materials for lithium-ion batteries. Sites considered include locations in Richland, Washington, and Butte, Montana, with a final decision expected in mid-2024. It is no coincidence that Cenate is considering locations in the proximity of silane production facilities, with the battery value chain linked to successful restarts of polysilicon facilities. While some companies may be looking to take advantage of the increasing number of and accessibility to incentivised US value chain agreements, others favour supply agreements with established polysilicon producers outside the USA. For example, US solar manufacturer CubicPV recently signed a US$1Bn polysilicon supply agreement with South Korean-owned polysilicon producer OCIM to support CubicPV’s proposed solar wafer manufacturing facility in the USA. The eight-year supply agreement stipulates the delivery of high-quality, low-carbon, US-compliant silicon from 2025 to 2033.

Potential to compete with China

Project Blue is closely tracking the revitalisation of polysilicon and silane production outside China as well as the establishment of long-term supply agreements with a preference for high-quality, low-carbon, US-compliant silicon. These will be crucial to support the build-out of a silicon-based battery anode value chain outside China and to help realise the Net Zero targets of Western OEMs. However, while polysilicon is considered a significant growth sector of silicon metal with major end-uses in lithium-ion battery materials, semiconductors, and solar components, challenges exist in the relatively less established polysilicon industry outside China.

The concentration of polysilicon production within China poses a significant supply chain risk, and China also already dominates the silicon metal production landscape with excess capacity in place to meet short-term market imbalances. Project Blue forecasts China’s ferroalloy infrastructure, which will go through a consolidation period together with its crude steel industry, to capture the majority of silicon metal growth — most of which is expected to come from the polysilicon value chain. Furthermore, polysilicon producers in China are known to import feedstock from US-compliant sources in order to avoid potential US bans on products containing domestic feedstock, making China a major player competing for international supply chains.

With China importing feedstock to supply domestic operations and a well-established global export market for polysilicon-containing components from China, it remains to be seen whether the rest of the world can support the development of a large-scale integrated polysilicon supply chain to compete with that of China. The association of silicon anode battery materials production with the polysilicon supply chain for semiconductors and solar PV may, however, be a supporting catalyst for ex-China silicon projects to advance within the geopolitical framework of several energy transition narratives.