Nitol: Russia's Emerging Solar Power Star

(page 2 of 2)

The move proved to be highly fortuitous, coming just as the solar industry was taking off worldwide. From 2003 to 2008, solar electricity production increased tenfold worldwide, while global sales for solar power equipment soared to $37.1 billion in 2008—more than double the figure a year earlier, according to consultancy SolarBuzz. The growth has been driven by higher prices for traditional fossil fuels as well as increasing subsidies from governments keen to diversify energy sources. A recent forecast by the European Photovoltaic Industry Assn., a leading industry body, predicts that global solar energy generation will at least double by 2013, and could quadruple with further government support.

Finding Financing

Nitol has sought to cash in on this growth by greatly expanding the Irkutsk factory's output of trichlorosilane and by branching into the production of polysilicon, the next stage up the value chain. Once full capacity is reached around the middle of next year, annual sales are forecast at some $300 million. The company already has invested $700 million to build modern production facilities. That's no small achievement, coming at a time when the global financial crisis has starved Russian companies of finance.

Nitol hasn't entirely escaped the effects of the global cash crunch. It was forced to cancel a planned initial public offering last year on the London Stock Exchange. Instead, other investors stepped in, notably Suntech Power Holdings (STP), a leading Chinese solar cell manufacturer, which acquired a minority stake in Nitol last year, and Rusnano, which provided $140 million in credits and $94 million in guarantees. It helps that Nitol already has managed to sign $1.66 billion in long-term (five- to seven-year) contracts with some of the biggest players in the industry, which have provided $100 million in prepayment financing.

One of Nitol's largest customers is Massachusetts-based Evergreen Solar (ESLR), a leading U.S. maker of solar products. Richard G. Chleboski, Evergreen's vice-president for global expansion, says Nitol "seemed like credible people" with a sound business strategy. It also helped that the company's Irkutsk factory had long experience with making trichlorosilane, the "toughest part" of the manufacturing process. Although the Russians' existing technology was old, it provided a good foundation. "With Russia generally, there are some very good scientists and people experienced in materials research," Chleboski adds.

Although most of the cutting-edge technology these days is of foreign origin, Russians have played a significant role in the past, developing pioneering solar technologies that were used by the Soviet space program. Another key advantage is Russia's low energy prices, made possible by plentiful supplies of cheap gas. That's a big plus, because large amounts of electricity are required to make polysilicon. Kotenko says that manufacturing costs for polysilicon in Russia are around $30 to $40 per kilogram, well below the current market price of around $80 a kilo.

The Technology Edge

Labor is relatively cheap, too, but in this respect Russia faces stiff competition from China, which is also shaping up as a major supplier for the solar industry. "Strategically we see China as the biggest competitor," says Kotenko. "But we would like to be on a higher level because of our technology."

Russia faces other challenges, though, if it aims to become a major player. The biggest problem, Kotenko says, is the lack of any coherent government policy to encourage the use of solar energy domestically. Although Russia has plentiful supplies of cheap fossil fuels, he argues that the potential for solar electricity production shouldn't be underestimated. Despite its reputation for wintry weather, many parts of Russia are actually as sunny as the South of France or Italy. (Irkutsk, for instance, has some 300 days of sun per year.) And far from being a drawback, cold weather actually enhances the efficiency of solar panels.

Prodded by Medvedev and Putin, the Russian government may at last be beginning to see the light. Under a strategy drawn up in January, the share of alternative energy generation in Russia is set to rise to 4.5% by 2020, up from less than 1% today. That, plus growing export orders, could mean a sunny future for Nitol and the rest of Russia's nascent solar industry.

Bush is BusinessWeek's Moscow bureau chief.

Business Exchange

Track and share business topics across the Web.