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Navigating the ups and downs of prices and supply: An interview with Hemlock Semiconductor Solar Product and Market Manager Greg Bausch

Greg Bausch
Greg Bausch

Greg joined Dow Corning in 1987 as a chemist and has spent his career working on new product and business development including roles in technology development, research and development (R&D) project leadership and economic evaluation. Greg was named to his current role in 2008, following his previous role leading solar product development efforts at Dow Corning Corporation.

His international experience includes three years in Shanghai, China within the Dow Corning Advanced Materials Business and Electronics Industry. Greg holds five U.S. patents and has authored numerous external publications focusing on silicone materials development and applications.


Solar Server: Can you talk broadly about the changes in the polysilicon industry over the last year, and how these have impacted Hemlock Semiconductor's solar business?

Greg Bausch: In the last year, clearly the entire industry saw a shift from what I would call under-supply to over-supply. Not just polysilicon, but other parts of the value chain also. So as that happens, markets change. We've gone from being a material in high demand to having to actively compete and sell the material. Which we're fine with, by the way.

We have always talked to our customers and had a model that said, we know under-supply doesn't last, and by the way under-supply isn't good for the industry. Because prices had been driven to a point where it wasn't helping the industry grow.

We've seen that change happen, prices are in different regions now. We continue to work closely with our customers and partners downstream, and we are finding success in the industry, in a strong way.


Solar Server: A number of industry analysts have noted that as spot prices have fallen, this has put a lot of pressure on long-term contracts. More customers are declining to renew long-term contracts or even buying their way out of existing contracts. Have you seen this trend among Hemlock Semiconductor's customers, and how has this affected your company's business?

Greg Bausch: Because we are private, not a lot of what we do with our customers is public. So we'll never talk about a specific customer relationship.

But in general, what is going on in the industry, is that prices have come down enormously along the whole value chain. And we have to work with our partners to help them with that, so that they can be competitive with their products. And that means, of course, being able to offer a fair product at a fair price, given the current market conditions.

Hemlock Semiconductor's polysilicon production facility in the U.S. state of Michigan; Image source: Hemlock Semiconductor
Hemlock Semiconductor's polysilicon production facility in the U.S. state of Michigan; Image source: Hemlock Semiconductor

Solar Server: To move over to the more technical aspect, can you talk about your methods for polysilicon production?

Greg Bausch: In terms of our production-scale quantities, we are all Siemens method, but again we are a Siemens method that has grown up over 51 years. So we don't only manufacture and sell it, but we've designed the technology we use to produce it. We started from a basic Siemens process, but we've modified it in many ways over time.

We believe we've got a cost-effective, energy-effective process to deliver polysilicon of high quality to the industry. And the quality part is important. Everyone talks about this industry as if it is purely commoditized. But that's not true.

There are very big differences in the quality out there, particularly from, say, established semiconductor manufacturers who have come into solar versus brand new manufacturers trying to employ the Siemens method.


Solar Server: Has your company considered using fluidized bed reactor technology or other alternative polysilicon production technologies?

Greg Bausch: Great question. Over the course of those 51 years, I would say that Hemlock Semiconductor has explored every possible way to make polysilicon that exists. We continue to have active research and development programs, and one of those in fluidized bed. We haven't commercialized it yet, obviously there's a reason for that, because on an investment basis, so far our modified Siemens still makes the best sense.

But we do have other technologies that we are looking at both externally and internally in terms of polysilicon production and supply.


Solar Server: While a large amount of polysilicon production capacity has been brought online in recent years, there are rumors that some of this new capacity may not represent the same quality of polysilicon that is produced by established industry players. Can you talk about issues of comparative quality in the polysilicon industry, and how this affects prices?

Greg Bausch: Clearly, the established producers have, over many years, defined how they can make high quality, and how they can make the right quality for the industry. And not only make it in one reactor batch or another, but do it consistently over many years, through maintenance cycles, up and down cycles. That's what's really important, is consistency of the quality level that we supply to the industry.

And if you look at the semiconductor industry, not that solar needs exactly the same quality level, but we need consistent quality that enables high efficiency, high yields across the rest of the value chain. Not all polysilicon is the same. Clearly the newer players, they are working their way up and trying to work their way up quickly, but there are still differences in the quality level out there.

Image source: Hemlock Semiconductor
Image source: Hemlock Semiconductor

Solar Server: So to go forward looking, what do you see in the polysilicon industry over the next few years? Where are we going?

Greg Bausch: Our focus is on continuing to work closely with customers to help this industry grow as a whole. Solar is too important to only focus on ourselves, or only on specific pieces. It is really how do we get high-quality, high-efficiency systems in the field, at the right cost structure. Because that is what is going to drive the industry forward.

And as that happens, we think that crystalline silicon technology is well positioned to grow with the industry. And as that happens, we will out grow the current situation that we are in the middle of which is the over-supply issue. I don't think we'll ever go back to significant under-supply.

That's good. Most healthy industries always have a little more supply than demand. That's what makes market forces work. We see that as a positive thing. But really, end-demand growing is what will get us there over time. As we get there, we think the quality and reliability consistency of our supply will help us get through to that.


Solar Server: Do you expect some of your smaller competitors to be eliminated over the next few years?

Greg Bausch: Sure. I think it's a normal cycle for cost-competitive technology to survive, and for non cost-competitive technology to not survive. If people haven't figured out how to make and supply polysilicon in a difficult market, and make some profit while they are doing that, I'm not sure how they come through this.
And that's normal - again we see that happening across all parts of this value chain. I think what we need to be able to do is to talk about how the industry is maturing, and that is a positive for the industry.


Solar Server: I have noted that in past quarter Hemlock Semiconductor had some very good EBITDA margins. How is your EBITDA faring with the recent price declines?

Greg Bausch: It is tough for everyone right now. There is no doubt that everyone is struggling for volume, to sell their volume and to compete right now. We feel very strongly about our business case to come through this, and to come through it strongly, and to be a key supplier for the future.

Clearly, those margins aren't what they were previously. We always like to make sure that we say that Hemlock Semiconductor, in our contract model, we never were escalating prices to EBITDA margins that were insanely high, either. We've always been trying to help the industry succeed with fair pricing given the market conditions, and not really taken too much advantage of what was under-supply. Rather, we wanted to secure long-term agreements and keep working with people to make this industry work.

That's our focus. We don't want to be in this for a year and get out. We've been in it for 51 years, and we want to be in it 51 years from now, and really help the industry become bigger than it is today.


Solar Server: Anything we didn't cover?

Greg Bausch: There are a couple of things about Hemlock Semiconductor specifically. One is our relationship with Dow Corning as a majority shareholder - we are a joint venture and Dow Corning is the majority shareholder. That position ties us into a world-leading Silicon materials provider - not just polysilicon, but silicon-based materials overall.

Which means that our basic raw materials coming into Hemlock Semiconductor are reasonably well-secured in terms of the supply chain. That's a good thing in this type of situation. I think the industry overall, the important thing is, let's make sure we focus on the end, let's make sure we are helping the industry grow.

It's too important to make sure that happens.

It's too important to the future of this country and every other country. And there's a lot of good news stories that aren't getting out there.

Hemlock Semiconductor is one of them. Over the last six years, we have invested USD 4.5 billion, over the last six years we've come from around 500 jobs to over 2,000 jobs. And as we've done that, we've had a lot of construction workers on site over the expansion time as well. So during that expansion time, we employed up to 3,000 construction workers.

There's a great job story in there, just looking at Hemlock Semiconductor as an example. Those ones don't get out there as much as the negative job stories. Losing 100 jobs because somebody's shutting down because they aren't as competitive.

That happens, but net, the solar industry has grown jobs immensely in this country.


Editor's note: This interview was conducted shortly before the Chinese Ministry of Commerce (MOFCOM) announced that it would investigate potential dumping of U.S. polysilicon. Dow Corning President and CEO Robert Hansen provided a statement about this investigation, which can be found on the Hemlock Semiconductor website:

"On behalf of Dow Corning Corporation and Hemlock Semiconductor Group, I am disappointed that the United States and China have yet to negotiate a sustainable, mutually beneficial settlement to the global trade issues that have arisen in the solar industry. This review is part of a broader trade conflict extending far beyond the polysilicon and solar industries, as an escalating number of trade disputes have been initiated throughout the globe in the last 12 months. This issue is serious and could impact Hemlock Semiconductor’s ability to sell material to China – its largest market – if the Chinese government assesses duties against U.S. manufactured polysilicon sold into China."

The rest of the statement is available here: http://www.hscpoly.com/content/hsc_comp/Hansen_Response_CN_MOFCOMM.aspx

Interview conducted on July 8th, 2012