Dr Tobias Ohler, CFO of Wacker Chemie AG in Germany explains how the company holds its own against China in polysilicon, used in solar panels.
From The International Association of Financial Executives Institutes (IAFEI) latest quarterly newsletter:
Dr Ohler, has the business with polysilicon for solar panels still got a future in the Wacker Chemical Group?
Absolutely. The global resolve to get the climate issue under control will lead to further strong growth in the solar market. We are well positioned with three production sites and we are the quality leader. In addition, we still have sufficient potential for further cost reduction.
In 2019, you plan for an impairment on polysilicon production facilities to the order of 750 million Euro, which you expect will lead to an equally high net loss for the group. This is more than a quarter of equity and almost a quarter of property, plant and equipment: a hard blow.
We have to regularly examine with impairment tests whether the cash flows are sufficient to cover the asset values. We will have to make this significant write-down in our 2019 financial statements because we have lowered our price expectation for polysilicon. This will also reduce the group's equity ratio to around 30%.
At the end of 2018 it was still 44%.
The significantly higher pension provisions stemming from the lower discount rates also play a role in this decline. However, one must also consider the classic financial debt. We continue to see ourselves well positioned in this respect. When we disregard the effect of the new IFRS requirements governing the accounting of leases karma our financial debt remains at the level of Ebitda. This is respectable in a difficult year in which we have continued to invest.
You explain the problems of your polysilicon business by the fact that the sharply falling prices are not recovering due to the high over capacities of Chinese producers. And what has gone wrong in your company?
Nothing, it's just external causes. Prices have more than halved since the beginning of 2018 and capacities in China have more than doubled over the last four years. The global solar market is growing but Cchina has not contributed to this growth in 2019. China dominates the value chain with around 90% of solar wafer capacity but in photovoltaic installations, China has less than a quarter of the total market in 2019. In other words, it is predominantly an export business for China.
Isn't it risky to expect the Chinese market to remain strong? Not least because of the considerable influence of government subsidy policies there.
It is after all the largest market and the largest energy consumer in the world, which has its hands full trying to get its environmental problems under control. China has to expand its solar energy. Therefore one must reckon with this country.
China’s significantly lower electricity prices for the energy-intensive production of polysilicon are another problem for Wacker.
This is why we are fighting in Germany for an electricity price based on that of our competitors. Subsidized Chinese competitors are paying less than half as much for electricity as we do, and in some cases even less. We advocate an industrial electricity price and place this prominently. Politicians listen to us but do nothing yet.
Do you contact Berlin and Brussels?
Exactly. We need an electricity price under €40 per megawatt-hour full-stop presently it is around €60. We can't compensate for this through efficiency measures are we only. By the way, this affects not only us but also all energy-intensive industries in Germany.
You are trying to convince the politicians also by pointing out the environmental aspect.
With our poliysilicon, thanks to photovoltaic power generation, we can save over its entire life cycle 20 times the carbon dioxide emitted during its production. This is a very powerful lever for climate protection. Our manufacturing process is twice as efficient as the Chinese one. The three million tonnes of CO2 generated annually in our polysilicon production would double if our volumes were to migrate to China.
What quantity can one imagine by that?
Three million tonnes correspond to the amount of CO2 that around 300,000 Germans emit each year. That’s roughly the population of the German city of Bonn. And thanks to the solar panels produced with our polysilicon, the emission of 60 million tonnes of CO2 is avoided. If we could not competitively operate the world's most efficient polysilicon production in Germany that would be a disservice to global climate protection.
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