2011-02-16 11:01

A worker operates an assembly line for photovoltaic (PV) cells. Polysilicon is a key ingredient in PV cells. [Photo / Bloomberg]

BEIJING - China's recent move to raise the threshold of polysilicon production may cut estimated capacity by half and spur industry consolidation.

Under the new entry standards, co-announced on Jan 24 by the National Development and Reform Commission, the Ministry of Industry and Information Technology, and the Ministry of Environmental Protection, approvals for new polysilicon plants have been suspended and strict environmental criteria for expansion at existing facilities were issued.

Key prerequisites in scale and energy efficiency include a minimum annual production capacity of 3,000 tons and energy consumption will have to decrease to 60 kilowatt-hours a kg of polysilicon from 80 kWh a kg by the end of this year.

To encourage resource reclamation, the standards also require plants to recycle at least 98.5 percent of waste hydrogen and fluorosilicone chemicals.

Until the government releases further updates, new polysilicon plants will not be approved, while projects that use advanced technology and are environmentally friendly and energy efficient will still be encouraged, according to the statement.

Existing projects are required to upgrade their facilities in order to meet the new requirements or face shutdown.

Financing from banks will be prohibited to projects that cannot meet the new regulations, the statement said.

"Only one-fourth of domestic producers are able to meet the requirements," according to one source participating in setting the standards.

"About 80 percent of domestic polysilicon producers are small enterprises with a production capacity of a few hundreds tons annually," said Jiang Qian, chief analyst at China Investment Consulting. "They may fail to meet the new requirements in production scale and energy consumption and could face shutdown within a year," Jiang said.

"The majority of China's planned capacity would drop through," said the source.

China's polysilicon production reached 170,000 tons by the end of 2009, with a total investment of 100 billion yuan ($15 billion), according to the China Jianyin Investment Securities.

Since then, the energy-intensive and pollution-prone polysilicon production industry is considered to have reached overcapacity.

However, China's imports of polysilicon have increased year-on-year.

China is expected to import more than 45,000 tons of the material in 2010, compared with 20,000 tons in 2009.

Domestic output is estimated to have been 40,000 tons in 2010 but the demand stood at 80,000 tons with imports filling the gap.

Major international polysilicon producers, including Hemlock, Wacker, REC, MEMC, Tokuyama, Mitsubishi, and Sumitomo, supplied over 90 percent of the global polysilicon production, leaving small producers, most of which are based in China, competing for the remaining market share.

"China is raising standards to concentrate the industry and to ensure quality and sustainable growth," said Bernhard Hartmann, managing director of AT Kearney in China.