VZCZCXRO7942
RR RUEHCN RUEHGH RUEHVC
DE RUEHIN #1272/01 1580308
ZNR UUUUU ZZH
R 070308Z JUN 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 5535
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 03 TAIPEI 001272 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR 
STATE FOR EAP/TC 
COMMERCE FOR 3132/USFCS/OIO/EAP/WZARIT 
COMMERCE FOR 4431/ITA/MAC/AP/OPB/TAIWAN/MCHOI 
TREASURY FOR OASIA/LMOGHTADER 
USTR FOR STRATFORD, ALTBACH 
 
E.O. 12958: N/A 
TAGS: EIND ECON ETRD ENRG SENV TW
SUBJECT: SOLAR CELL MANUFACTURING - NEW ENGINE FOR 
TAIWAN'S ECONOMY? 
 
 
¶1. (U) Summary: Taiwan's solar cell manufacturing 
industry will triple in capacity this year after nearly 
doubling in 2006.  Although manufacturing of solar cells 
is booming, Taiwan is less competitive in other segments 
of the industry's supply chain.  Taiwan's solar cell 
makers face two major constraints to growth: a shortage 
of polysilicon supply and demand that is dependent on 
government subsidies.  Nevertheless, the outlook for the 
industry is good, and some insiders believe it could be 
an important engine for Taiwan's future economic growth. 
End summary. 
 
Tripling Capacity in 2007 
------------------------- 
 
¶2. (SBU) Taiwan's solar cell manufacturing industry has 
grown at a remarkable pace.  According to the Industrial 
Technology Research Institute (ITRI), the total 
manufacturing capacity of Taiwan's solar cell makers as 
measured by the total megawatt (MW) capacity of cells 
produced was just 128.4 MW in 2005.  It increased to 
237.1 MW in 2006 and is projected to reach 743.6 MW for 
¶2007.  ITRI predicts the industry's capacity will top 
1,250 MW in 2008.  Lan Chung-wen, the General Director of 
ITRI's Photovoltaics Technology Center told us the value 
of Taiwan's solar cell output was NT$23 billion (US$700 
million) in 2006 but was projected to reach NT$80 billion 
(US$2.4 billion) by 2010. 
 
¶3. (SBU) Motech is Taiwan's largest solar cell 
manufacturer.  It was founded in 1981 and manufactures 
various kinds of power supply equipment.  It didn't start 
making solar cells until 2000.  By 2005, its capacity had 
reached 60 MW and has grown to 280 MW this year.  Jacy 
Chen, the Special Assistant to Motech's Chairman, told us 
the firm projects its capacity will reach 400 MW in 2008 
and 1000 MW (or 1 gigawatt - GW) in 2012.  He said the 
firm's revenue from solar cells had grown by 
approximately 100 percent each year since 2004.  During a 
January visit to Motech's manufacturing facility in the 
Southern Taiwan Science Park in Tainan, we were shown 
state-of-the-art facilities relying largely on automated 
equipment for the manufacturing process.  Today 95 
percent of Motech's revenue comes from solar cell sales. 
It is now the world's seventh largest solar cell 
manufacturer.  ITRI's Lan predicted it could become the 
fifth largest by the end of this year. 
 
¶4. (SBU) DelSolar is another fast-growing Taiwan solar 
cell manufacturer.  It is a unit of Delta electronics, 
another Taiwan power supply equipment maker.  DelSolar 
was founded less than three years ago starting with a 
team of approximately 15 photovoltaic researchers hired 
from ITRI.  Its capacity has doubled each year starting 
from 25 MW in 2005 and projected to reach 100 MW this 
year.  CEO R.C. Liang told us that the firm had total 
revenue of US$87 million in 2006. 
 
Taiwan's Midstream Advantage 
---------------------------- 
 
¶5. (SBU) Taiwan's strength in the solar energy industry 
lies in solar cell manufacturing -- the midstream segment 
of photovoltaic manufacturing.  Taiwan currently has 12 
solar cell makers, like Motech and DelSolar.  Taiwan 
firms are competitive in this market because the 
technology has some similarities with semiconductor and 
thin-film-transistor liquid crystal display (TFT-LCD) 
manufacturing.  It is technology intensive but with low 
barriers to entry.  According to Lan, a firm can set up a 
production line with an annual capacity of 30 MW for just 
US$10 million. 
 
¶6. (SBU) Taiwan is less competitive in the upstream and 
downstream segments of the manufacturing process.  Solar 
cell makers use polysilicon wafers to manufacture the 
cells.  Taiwan has three wafer manufacturers and no 
producers of raw polysilicon.  Downstream, solar cell 
makers sell their output to solar cell module assemblers 
that turn the basic cell into the final product.  Taiwan 
 
TAIPEI 00001272  002 OF 003 
 
 
has only 4 module assemblers.  ITRI's Lan explained that 
that module makers must be certified by international 
laboratories, most of which are located in Europe and 
North America.  Only one of Taiwan's module assemblers 
has international certification.  In addition, the module 
manufacturing process is more labor intensive.  Because 
of these factors, Taiwan exports approximately 90 percent 
of its solar cells to module makers in China, Europe and 
elsewhere. 
 
Constraints to Growth - Supply... 
--------------------------------- 
 
¶7. (SBU) Growth of the solar cell manufacturing industry 
faces two major constraints.  On the supply side, the 
industry is currently facing a global polysilicon 
shortage.  DelSolar's Liang noted that polysilicon prices 
have risen six-fold in the last few years since the 
shortage began.  He said that polysilicon currently 
accounts for nearly 40 percent of DelSolar's production 
costs.  Motech's Chen explained that polysilicon 
manufacturers expanded rapidly during the dot-com boom of 
the late 1990s, causing excess supply prior to 2005.  In 
response, the polysilicon producers stopped expansion. 
Because it takes some time to get a new polysilicon 
production line up and running, they have not yet been 
able to address the shortage that emerged in 2006 with 
rapid growth in the solar cell industry.  ITRI's Lan 
pointed out that the polysilicon industry is controlled 
by an oligopoly of six firms based in Germany, Japan, and 
the United States.  He surmised that with the shortage 
driving up prices they have been slow to expand 
production.  Senior Vice President Charlie Han of 
NexPower, another solar cell maker, estimated that 
polysilicon producers currently have profit margins of 
nearly 70 percent. 
 
¶8. (SBU) Liang speculated that with output expansion 
underway, the polysilicon shortage should be less severe 
within two to three years.  Lan also cited reports that 
the shortage would begin to disappear in 2009.  However, 
he expressed skepticism that the situation would improve 
that quickly.  In the meantime, Taiwan firms have taken 
other steps to ensure a steady supply.  DelSolar and 
Motech have both signed long-term agreement with 
polysilicon suppliers.  Motech has gone a step further by 
purchasing a 10 percent stake in AE Polysilicon, a 
Pennsylvania-based polysilicon producer. 
 
...and Demand 
------------- 
 
¶9. (SBU) Solar cell makers face another major constraint 
on the demand side.  Electricity generated by solar cells 
is still much more expensive than power from fossil 
fuels.  According to ITRI, it can cost 10 times the price 
of retail electricity prices and the market only exists 
because of government subsidies.  Lan highlighted Germany 
as one of the primary markets thanks to government 
programs, including 20-year low interest loans.  Motech's 
Chen argued that because subsidies play such an essential 
role in the market, governments are more inclined to 
protect domestic producers from imports.  This places 
Taiwan firms at a disadvantage, he said, because Taiwan 
has no significant subsidy programs and a negligible 
domestic solar cell market.  In the meantime, Motech is 
addressing this problem by forming partnerships with 
module makers in subsidized markets. 
 
¶10. (SBU) Lan commented that solar energy costs have 
fallen by dramatically over the last 20 years and will 
continue to fall.  However, he does not believe they will 
fall enough in the short to medium term to make solar 
cells competitive with fossil fuels without subsidies. 
Relief of the polysilicon shortage will help, but there 
are limits to how far the technology can be improved. 
The maximum theoretical conversion rate for the kinds of 
solar cells currently produced by most Taiwan firms is 
only about 25 percent.  Taiwan's most advanced cells in 
production have a conversion rate of 17 percent.  Taiwan 
 
TAIPEI 00001272  003 OF 003 
 
 
firms have only modest expectations of being able to 
improve the efficiency of their solar cells.  Motech 
hopes to reach a conversion rate of 20 percent in the 
near future.  DelSolar is targeting a conversion rate of 
19 percent by 2009. 
 
Comment - The Next Trillion NT$ Industry? 
----------------------------------------- 
 
¶11. (U) In recent months, the solar cell manufacturing 
industry has attracted a lot of attention from investors 
in Taiwan.  As concerns about global warming grow and oil 
prices increase, solar energy will become a more 
attractive alternative.  Taiwan manufacturing firms have 
an impressive track record at bringing down the 
manufacturing costs for high-tech components.  More than 
one industry executive we spoke with expressed optimism 
that the solar cell industry could become a key driver 
for Taiwan's economy, even going as far as saying it 
could become another NT$1 Trillion (US$30 billion) 
industry like semiconductors and flat-panel displays. 
The constraints the industry faces are formidable. 
However, solar cell manufacturing is an industry that 
bears watching in the months and years ahead. 
YOUNG