SW CHINA MINERAL RESOURCES FUELING NASDAQ-LISTED COMPANY'S

C O N F I D E N T I A L SECTION 01 OF 03 CHENGDU 000211

SIPDIS

E.O. 12958: DECL: 9/30/2019
TAGS: ENRG ETRD EINV PGOV KNNP CH
SUBJECT: SW CHINA MINERAL RESOURCES FUELING NASDAQ-LISTED COMPANY'S
SOLAR CELL DEVELOPMENT

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CLASSIFIED BY: David E. Brown, Consul General, U.S. Consulate
General Chengdu.
REASON: 1.4 (d)

1. (C) Summary: Executives at NASDAQ-listed Sichuan Apollo
Solar Science and Technology Company (SASST) say that access to
Southwest China's mineral resources differentiates their company
from many competitors in the solar power industry. The company
aims to triple their output of high-purity materials used in the
production of second-generation solar cells by the end of 2012,
and seeks to build a stronger relationship with U.S.-based First
Solar. Second-generation cells are faster and less energy
intensive to produce, according to one Apollo executive, and
will eventually replace silicon-based, first-generation solar
cells. End Summary.



Mining Rights Key To Broad Network Of Partnerships

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2. (C) Chairman and General Manager of SASST, Chinese national
Hou Renyi, recently told Consul General that unlike many recent
entrants into the solar energy market, his company had three
mines near Ya'an, Sichuan Province that produce the raw
materials used in the production of second-generation solar
cells. Hou added that his company had prospecting rights in the
same area that could lead to the creation of additional mines.
While wholly foreign-owned enterprises are prohibited from
acquiring mining rights in China, Hou explained that his company
has been able to sidestep this barrier by setting up layers of
subsidiary companies. He said that the string of subsidiaries
enabled SASST to conform to National Development and Reform
Commission regulations and still gain access to mineral
resources. Hou sees these rights as key to his company's
continued growth and likened them to corn or flour, i.e. the
basic inputs used to make a wide range of products.




3. (SBU) SASST in its Sichuan facilities processes the materials
it mines into high-purity products, some of which have
contaminate levels lower than one part per ten million. The
company has patented six processes it uses to refine materials
like cadmium, tellurium, indium, and selenium, which Hou claims
differentiate his company from other refiners. About 65 percent
of the refined output is exported to the United States, although
SASST also exports to at least 13 other countries including
Germany, France, Russia, and South Africa. Customers include
roughly 32 companies as well as research institutions and
universities including Stanford and the University of California
at Berkeley. Within China, SASST has partnered with more than
50 research institutes and universities, including Chengdu
University of Technology, the China Academy of Engineering
Physics, the Shanghai Institute of Technical Physics, and the
National Key Laboratory for Surface Physics and Chemistry.



Where Does Apollo Fit With The Competition?

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4. (SBU) Hou did not give specific volumes of tellurium or other
high-purity minerals his company produced, but he cited
Canadian-based 5N Plus (5N) as a key competitor. He said that
his company had partnered with a Milwaukee-based company named
Williams, which had been unable to compete because of its
reliance on old technology. Hou even mentioned that Apollo was
purchasing stock in Arizona-based First Solar to strengthen ties
between the two companies. Apollo does not, however, appear to
be a unique or key supplier of any single mineral. Belgium and
Canada were the two largest suppliers of tellurium to the United
States last year; China accounted for only 13 percent, according
to the U.S. Geological Survey (USGS). China in 2008 was the
leading supplier of indium and gallium to the United States,
according to USGS estimates, but it is unclear what volume of
these minerals Apollo produces. Based on recent financial
performance, Apollo is far smaller than 5N or First Solar.
Apollo posted a USD 1.1 million net loss in the first half of
2009 year-on-year with total revenues of only USD 4 million. 5N
posted USD 17.3 million in net income for the first half of this
year on USD 57.5 million in revenue. In the second quarter 2009
alone, First Solar announced 180.6 million dollars in net income.



Bullish Outlook: Government Supporting Solar Industry Growth


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5. (SBU) Hou, who owns 40 percent of SASST shares, said that his
company currently produces 1,000 tons of high-purity products
annually, and he expects this to increase to 3,000 tons by the
end of 2012. SASST produces the materials that are used in the
two main categories of second generation solar cells based on 1)
cadmium telluride (CdTe) and 2) copper, indium, gallium, sulfur
(CIGS). Hou primarily discussed CdTe solar cells, but said that
his company also supplied products to CIGS producers in Taiwan
and Germany. He felt confident that first-generation solar cell
production was in its waning days. In countries like Germany,
newer solar technology will soon supplant silicon cells.
Government subsidies are the only reason why the silicon solar
industry in Germany is still afloat, according to Hou. The cost
to produce a silicon solar cell in China is roughly half the
cost to produce it in Germany. Even in the production of
second-generation cells, China maintains a significant
competitive advantage because of low labor costs; a SASST worker
makes between USD 22-29 per day. (Note: SASST currently employs
400 employees, 140 of whom are miners. End Note.)




6. (SBU) Hou said that this year the Chinese central government
provided about USD 1.2 billion to foster the growth of
alternative energies broadly. Next year the figure will jump to
about USD 2.9 billion, with potential additional support coming
from local governments. The Chengdu city government in
September published a brief explanation of their plan to support
the development of alternative energy. This plan specifically
includes support for thin-film CdTe and CIGS solar technology,
although the plan does not say what kind of financial support
will be provided. Hou mentioned that the Chengdu government has
designated SASST as part of a key, "dragon head" industry and
provided the company with a three-year tax holiday, which ended
in 2008. (Note: The Ministry of Science and Technology (MOST)
is promoting the expansion of solar power under the "Golden Sun"
project, which aims to add up to 500 megawatts of new solar
power over the next few years; solar industry websites suggest
that this project may be included in the first draft of China's
renewable energy stimulus plan. End Note.)



Second Generation Production Efficiency Advantages, Create Less
Pollution to Create

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7. (C) CG asked Hou about the energy input needed to produce
CdTe or CIGS solar cells as compared to first-generation silicon
solar cells. Hou said that a recent "South China Morning Post
article" on this topic was half right. He agreed that producing
poly silicon solar cells probably required more fossil fuel
inputs and generated more pollution than would be saved by using
the solar cell, but he added that this was not true of CdTe
solar cells. He said that producing one ton of poly silicon
generated 12 tons of waste; it requires 500 watts of energy to
produce a single kilogram of poly silicon. The newer generation
of products do not suffer from the same inefficiency, according
to Hou, although he did not provide specific figures for how
much energy it took to produce second-generation solar cells.



Pushing For U.S. Partner Firm To Relocate To Chengdu

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8. (C) Hou discussed further his company's relationship with
First Solar. He said that National People's Congress Standing
Committee Chairman Wu Bangguo recently visited First Solar and
signed an agreement to build a production facility in China's
Inner Mongolia Autonomous Region. Hou hoped that First Solar
could be encouraged to open its production facility in Chengdu
rather than Inner Mongolia as this would reduce SASST's cost for
shipping raw materials and would drive down the cost of a
finished solar cell. (Note: First Solar's press release in
March said that the company had 23 manufacturing facilities in
three countries: the United States, Germany, and Malaysia. End
Note.)



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9. (C) COMMENT: Hou may have access to information about First
Solar's development plans that has yet to be publicly announced,
or he may be unclear on the nature of First Solar's recent
agreement. Beijing Emboff heard during a recent trip with MOST
Minister Wan Gang that First Solar plans to build a solar power
plant in Inner Mongolia. There was no mention of plans to build
a manufacturing facility, however. First Solar issued a press
release in September that discusses Wu's visit, but it does not
reference an agreement to build a new facility in China.
Several Inner Mongolian officials have close ties to Minster Wan
and State Councilor Liu Yandong, who are key leaders in the
formulation of solar-related policies. Wan and Liu appear to be
trying to promote solar technologies in Inner Mongolia, which
could negatively impact the prospects for First Solar locating
any planned facilities in Chengdu. END COMMENT.
BROWN