REC Silicon Annual Report 2019

REC Silicon Annual Report 2019 4 Letter from the CEO LETTER FROM THE CEO Silicon (Si) is the second most abundant element on Earth, behind only oxygen. REC Silicon purifies raw silicon through a complicated chemical process resulting in 99.99999999999% pure silicon gas (SiH4) and polysilicon (Si) for the semiconductor and solar industries. These materials are key components in various semiconductor products that continuously transform our daily lives and are key to the rapidly growing solar energy industry, which competes with traditional coal and natural gas generated electricity. Silicon gas may also be a key component to more efficient batteries that are expected to transform energy storage capabilities, which will lead to significant changes to many industries such as the conversion from internal combustion engines to electric powered vehicles in the automotive industry. Our Butte facility manufactures polysilicon and silicon gases for the semiconductor industry. The semiconductor market experienced some softness in 2019. Inventory adjustments and slower demand in the end market resulted in lower sales of semiconductor polysilicon and silicon gases than the previous year, but a recovery in demand is expected in 2020. REC Silicon continues to focus on its unique technology to make the highest quality semiconductor polysilicon and supply the semiconductor market with about 70 percent of the global demand for silicon gases. Based off our silane process, REC Silicon has successfully developed silicon gas precursors and derivatives which complement our offering of silane. As with the entire solar value chain, 2019 was a very turbulent year for the polysilicon industry. In China, which is the manufacturing hub of PV solar panels, solar installations declined for the third consecutive year. A reduced domestic PVmarket in China was counterbalanced, however, with increased exports to India, Europe and other markets. The global demand for 2019 ended at ~120 GW, an increase of ~16 percent compared to the previous year. Despite the increased installations, several new polysilicon plants in Xinjiang and Inner Mongolia provinces generated an oversupply of polysilicon resulting in prices below the cash cost for many of the existing polysilicon producers. These low prices have led to consolidations and shut downs of non-competitive capacity, which should lead to a more balanced market in 2020 and gradually provide the basis for increased prices for polysilicon. Difficult solar market conditions were exasperated by REC Silicon’s lack of access to the Chinese market, a consequence of the trade dispute between the US and China. REC Silicon found itself in the impossible position of having no access to the Chinese wafer customers which represent more than 90 percent of the global polysilicon market. The lack of access to China ultimately culminated into the decision to completely cease production at the Moses Lake facility in May 2019 followed by a layoff of most of the workforce in July 2019. It was therefore highly appreciated when on January 15, 2020, the governments of the US and China entered into the Phase 1 trade deal which included AD/CVD free import of US polysilicon into China. The impact of such a deal is the long-awaited reopening of the Chinese market for REC Silicon after more than five years of surviving with the burden of an extra import duty of 57 percent. The Phase 1 trade deal provides for polysilicon sales for the next two years with the expectation from the US government that the agreement will continue into the foreseeable future. Lower cost and higher efficiency solar panels together with energy storage improvements have resulted in solar energy becoming increasingly competitive with conventional energy sources without “RECSilicon continues to focus on its unique technology tomake the highest quality semiconductor polysilicon and supply the semiconductormarket.”