US-Russia group heats up $1.4bn silicon for solar energy project

24 Mar '10
Oleg Kouzbit, Online News Managing Editor

A $1.4bn poly- and monocrystalline silicon production project is being put together in the Rostov region by the U.S.’ SM IFG and the RF’s VEB Bank. With global demand for solar energy soaring, there’s already a shortage of silicon. But with solar accounting for less 2% of the domestic market and well-established international producers rapidly expanding, such a huge investment is raising more than a few eyebrows.

US Washington, DC-based investment and project management firm SM Industrial Financial Group (SM IFG) is reportedly planning to build a $1.4bn poly- and monocrystalline silicon production complex in the Rostov region to capitalize on the global demand for solar energy.

According to investment consultancy VEB-Plan cooperating with the Americans, the prospective factory will feed solar batteries both within and beyond Russia and is expected to become a major supplier of silicon to leaders in solar energy development, such as Krasnodar’s Solar Wind, Ryazan’s Somekh, Podolsk Chemicals & Metals outside Moscow, Taiwan’s Jun Wei International Corporation or the U.K.’s Marketing & Technology Future.

Cash + bonds + credit = $1.2bn sales?

The complex will be funded from a variety of sources: the U.S. partner is only putting up $20m; VEB Bank will weigh with $360m for project infrastructure, leaving $1+bn to come from the international debt markets with the RF acting as surety.

The project will have no other strategic investor outside SM IFG, said VEB-Plan’s Sergei Nekhaev, adding that the U.S. investor would assume all the inception phase risks.

SM IFG reportedly has hopes to finalize the legal issues and break ground on the new factory by Q4 2010. The firm has chosen a 140-hectare land site east of the small miner’s town of Gukovo and expects to buy it later this year. Production is scheduled to begin by the end of 2012 when the complex develops a capacity of making $1.2bn worth of products a year.

Global demand spurs investment

The biggest competitors for the prospective Rostov venture are American, German, Japanese and Italian producers of poly- and monocrystalline silicon. Last year about 80,000 tons of polycrystalline silicon were reportedly produced, or an estimated 80% of global demand.

Kommersant quotes World Semiconductors Trade Statistics as underlining the uniqueness of the new project, which will be Russia’s largest silicon venture. Although later this spring a Tomsk subsidiary of Singapore’s Ze Poly Pte is also expected to launch a silicon plant, it will have a much smaller capacity.

Bold move or big gamble?

However, with the current share of solar energy less than 2% of Russia’s overall energy market some experts question both the scale and the expected three-to-five year payback period.

Marchmont tried to contact consultancy VEB-Plan for a first-hand rationalization, but the project partner was unavailable for comment.

Since the domestic market can’t swallow $1.2bn worth of silicon, analysts feel that only an aggressive international marketing strategy would be viable.

According to Solar Wind’s Marat Zaks, to make the endeavor profitable, a market must be able to generate a total of at least 1GW of solar energy a year. Not only is this unrealistic in today’s Russia, he underscored, but it would be a stretch even in better-developed international markets, given fierce competition from existing majors.

Another question is why such a hi-tech facility, which normally requires very skilled personnel and a solid research base, will be built in an economically depressed rural area of Russia’s South with little or no qualified staff other than coal miners?

Proponents of the project paint the picture in different colors. With the alternative energy resources card being vigorously played by global decision-makers, setting up a powerful production site at the very doorstep of European markets will make Russian silicon cheaper and easier to get.

Finally, with the level of solar radiation in Russia significantly higher than in many other Northern Hemisphere countries, Russia’s own internal solar energy sector is ripe for development.
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