What is polysilicon, what is its role in solar panels and are there any social and governance concerns around its production? Here is a primer.
Polysilicon, a high-purity form of silicon, is a key raw material in the solar photovoltaic (PV) supply chain. To produce solar modules, polysilicon is melted at high temperatures to form ingots, which are then sliced into wafers and processed into solar cells and solar modules.
Source: National Renewable Energy Laboratory, 2021
How polysilicon is manufactured
Three are three main technologies to produce polysilicon.
The ‘modified Siemens process’ is currently the dominant technology in China. Trichlorosilane (TCS) is produced using two readily available metallurgical-grade silicon (of 95-99% purity) and liquid chlorine.
After being purified through distillation, the TCS is vaporised and mixed with hydrogen gas. In a deposition reactor, silicon slim rods are heated up to 1 100C and the passing of the gas mixture results in high-purity silicon being deposited on the surface of the rods. This process continues until a certain diameter (typically 150-200mm) is achieved.
Fluidised bed reactor process (FBR) and the upgraded metallurgical-grade silicon process (UMG) are the other two technologies.
- FBR uses significantly less electricity with a higher conversion rate by using silicon seed particles instead of silicon rods. It is a less mature technology and only a few polysilicon producers currently use it in some of their plants. [1]
- UMG uses physical methods to extract impurities directly from the silicon metal instead of chemical processes, which reduces energy usage. [2] However, silicon produced using UMG does not have as high purity as the other two methods do and therefore is not widely used.
Recent market trends in the polysilicon industry
The polysilicon industry has increasingly consolidated, with the top-five companies accounting for 73% of global production in 2020 compared to 60% in 2017, according to BNEF. This is mainly due to a number of companies shutting down capacities in recent years after a period of overcapacity. These companies could not compete with low-cost producers that have greater scale and efficiencies in a low-price environment.
In addition, China imposed tariffs on polysilicon imports. This benefited local producers who already had a cost advantage compared to international peers. China accounted for 77% of global polysilicon production in 2020. Manufacturing takes place mostly in Xinjiang, Yunnan or Sichuan where electricity is cheaper lower and the raw material is close by.
After supply chain disruptions led to higher polysilicon prices in Q3 2020, prices have risen significantly further since the start of 2021 due to market tightness.
In anticipation of strong demand – solar installation is forecast to increase by 15% a year for the next three years (according to BNEF) – downstream wafer companies boosted capacity by 45% in 2020.
This growing demand from wafer companies that use polysilicon to make wafers has created a supply-demand imbalance. One producer expects supply to remain tight until the middle of 2022, when new capacity is expected to come on stream.
What about labour practices in China?
In June 2021, US Customs and Border Protection issued a ‘withhold release order’ targeting a major supplier of metallurgical silicon powder over allegations that it used forced labour. [3] Enforcement will likely be through downstream companies which this supplier sells to. This could detail cargoes into the US until the supply chain source is clear.
However, since the US accounts for less than 2% of mainland China’s solar PV exports (average in the last three years), we believe local companies can leverage manufacturing plants outside of Xinjiang, where this major supplier is located, to serve the US market.
Separately, the US blacklisted other Chinese companies that it said were involved in human rights violations in Xinjiang. At least some of the companies listed by the Commerce Department are major manufacturers of monocrystalline silicon and polysilicon that are used in solar panel production.
A potential market impact could be a further tightening of the polysilicon market, especially if a premium emerges for polysilicon sourced outside of Xinjiang, which is a low-cost producing region due to its low electricity costs. This could cause polysilicon prices to rise and hold at higher levels. Costs for module manufacturers could increase as they have to demonstrate their supply chain audit trail.
[1] REC Silicon, 2021 https://www.recsilicon.com/technology/rec-silicons-fluidized-bed-reactor-process/
[2] Source: Bernreuter Research, 2021 https://www.bernreuter.com/polysilicon/production-processes/
[3] From the CBP statement: “This Withhold Release Order demonstrates we continue to protect human rights and international labor standards and promote a more fair and competitive global marketplace by fulfilling the Biden-Harris Administration’s commitment to ending forced labor.”
