On a cloudy day for solar players, Suntech Power (NYSE:STP) shone some light on a new source of wafer supply. The quantities involved, if they come to fruition, are pretty massive.
Suntech's agreement with Shunda Holdings provides for some 7 gigawatts of wafers from now through 2020. That edges out even the huge deal cut by LDK Solar (NYSE:LDK) and Q-Cells back in December, and equates to seven years' supply at Suntech's targeted year-end cell production capacity. It's worth pointing out that Shunda is already an established solar player, supplying wafers to module shops like Suntech and JA Solar (NASDAQ:JASO). That doesn't mean the company's big move into polysilicon production will be a cinch, but Shunda is a better bet than the various new entrants with zero industry expertise.
As with polysilicon suppliers Nitol and Hoku Scientific (NASDAQ:HOKU), Suntech made an equity investment in Shunda in order to bind the two firms in a closer union. This "virtual integration" model distinguishes Suntech from Trina Solar (NYSE:TSL), which sought to produce its own poly (and then pulled the plug). The approach is proving quite flexible, and minimizes distractions from Suntech's core competencies of cell and module development.
It would be nice to know how big a Shunda slice Suntech is securing with its nearly $100 million move. That would give us a better idea of Shunda's market heft relative to wafer rivals LDK and ReneSola (NYSE:SOL). The supply agreement's delivery schedule is also a bit hazy, though it looks like those 7 gigawatts may be fairly back-end weighted, given that the deal is adding only 50 megawatts to Suntech's silicon slate in 2009. While a few details remain unclear, today's news definitely adds support to Suntech's heavyweight status.
Related Foolishness:
- I'm hoping Suntech can lose its new shadow.
- Some recent quarterly reports had me seeing double in solar.
- JA's manufacturing some predictable solar profits.
