Suntech shelters from polysilicon squeeze

Photovoltaic (PV) solar cell manufacturer Suntech Power Holdings has closed a $100m (£54m) deal with polysilicon vendor Nitol Solar as part of a long-term polysilicon supply arrangement that will see Nitol supply Suntech with the material from 2009 to 2015.

Polysilicon prices have been climbing for the past few years following a worldwide shortage, with average contract prices reportedly rising another 11 per cent this year.

"It is a question of supply and demand," said Jarrod Erpelding, spokesman for Dow Corning subsidiary Hemlock Semiconductor, which produces polysilicon. Solar companies, growing because of concerns over energy security and fuel prices, are competing for the material with traditional semiconductor vendors, according to Erpelding, and ramping up production can be difficult. "It is a very complex and capital-intensive process," he explained.

The agreement with Nitol is not the first polysilicon deal for Suntech. It signed a 10-year, $6bn (£3.3bn) agreement with MEMC in 2006 for wafer supply, and another decade-long, $678m (£367m) deal with Hoku in 2007.

Other solar companies are cutting similar deals to avoid the polysilicon shortage hindering growth. Chinese firm JA Solar signed a supply agreement with M.SETEK in January to take 458 metric tons of the material this year.

Suntech Power floated in 2005 and made revenue of $1.34bn (£726m) last year. The company increased its revenue forecast this week and forecast lower polysilicon costs next year, causing shares to rebound after a dip earlier in the year.