REC Silicon ASA

OSE:RECSI

Earnings Call Transcript 2019-Q4

[Tore Torvund, CEO & President]

Okay. That is time. So welcome to all of you concerning the fourth quarter for REC Silicon. And it will be then James May and myself, our CFO and myself. We're going to go through the numbers and the, let's say, strategy for the company given the situation as of today.The revenues this quarter came in at $31.8 million. It was an EBITDA loss of $3.0 million. And the cash balance as of end of last year was at USD 29.4 million. On the silicon gas side, which is the most important, let's say, product we sold in 2019, we came in at 857 metric ton, which was moved to our customers versus guidance of 830. Semiconductors polysilicon sales was at 303 metric ton, which was an increase compared to Q2 of 56%. On the other hand, the price went down on the mix, that is all different grades of polysilicon. It went down at 13%, while the semiconductor grade polysilicon was almost flat in terms of prices.The most important thing is that we were, let's say, as an industry, included in the Phase I agreement between the U.S. and China. So finally, there is an end to the trade war on polysilicon, and we might enter into the Chinese market without any duty. And that's a major achievement in this quarter.Concerning the ongoing sale of Butte, we are still in the process. There is several interested parties, which has been visiting our plant. And we then will make a decision concerning sales or not within the next month or 2. And we definitely will then inform you about what will be the outcome. We have said that we are not going to sell Butte if we don't get an acceptable bid and also the potential, let's say, companies, which has been shown an interest, has been told that.On the silicon gas side, basically, you can see that the quantity per quarter is almost identical, around 830 metric ton throughout the year. Given the weakness in the semiconductor market, I think this is a strong performance. And even though the price went down in the fourth quarter, we still see a very strong demand for silicon gas, and at the same time, we defend our, let's say, leadership within this area where we still have about 70% of the market. We don't see that that will change. What we see on the semiconductor is that in the end market, it is a strong rebound for the moment. And we start to see that that also will affect the volume we are going to move on the silicon gas side.Though there is an uncertainty, as we all know, about this virus in China, and we see that, particularly for our case, the logistics internally in China is becoming very difficult. It's very difficult to move material. And that means also container coming back to the U.S. from China, take more time, and that means that we might run out of capacity in terms of being able to move the material.What is the positive side we had? As you know, 10% duty on silane, which was moved into China on the 14th of February. China reduced that duty to 7.5%. So in addition to the PV sector, we also see now that basically the duty on our semiconductor grade into China is going downwards. And I think that's also a very positive sign from the Chinese side that they really welcome product from the U.S. This was not part of the Phase 1, so this was done from China itself without being part of the Phase 1 agreement.On the semiconductor side, we sold 713 metric tons. We are now focusing, as I told you, on the very high end. So we are not looking for volume. The maximum volume we might produce in Float Zone is about 1,000 metric tons, and that's what we aim for. We have been completely abandoning the lower-end semiconductor grade, and we're now focusing on the Float Zone where we only have 1 competitor on the global stage.So then I will let James take over and go through the numbers, and then I will come back to the more long-term issues thereafter.

[James A. May, Chief Financial Officer]

Thank you. Good morning. As Tore indicated a moment ago, the total revenues for the fourth quarter were $31.8 million. This is a decrease of about $4.6 million compared to the prior quarter. Total decrease in revenues primarily a result of the shutdown of the FBR facility and sell-out of inventory.Total EBITDA for the quarter was a loss of $3 million compared to $5.6 million during the third quarter. Recall that during the third quarter, there were several one-off items, mainly $2.5 million primarily associated -- or other expenses primarily associated with the workforce reduction costs with the shutdown of the Moses Lake facility. And then in addition, in the third quarter, we experienced a production interruption at the Butte facility. If you consider these adjustments, the loss during the fourth quarter was about $1.8 million greater than it was during the third quarter. The additional loss is primarily due to lower average sales prices, and then we experienced higher electricity costs at the Butte facility for the quarter. In addition, we received about $600,000 insurance settlement for the business interruption claim with the equipment fire that we experienced during 2016. I'll talk a little bit more about the segments when we get to those slides. However, at this point, I'd like to acknowledge that during the quarter, we are reporting a loss of $23.8 million associated with our investment in the JV.First of all, this loss is a noncash loss, so it does not affect the liquidity of the company. Next, the loss is due to a change in the accounting method that we use to account for the investment. We're switching from the equity method to the fair market or fair value method. The loss consisted of 3 elements: First, the release of a deferred gain of $29.7 million. This was associated with the sale of technology to the JV for $198 million when it was originally formed. Then $9.9 million of currency losses that have occurred because of the strengthening of the dollar throughout the life of the investment, which was recognized in other comprehensive income. So it's a transfer in equity. And then lastly, an impairment loss of $43.6 million. For additional details, I'll let you read the fourth quarter report, and then I'd be happy to answer any questions that you have at the end of our presentation.Inside the Semiconductor Materials segment, the revenues were $30 million. That's broadly unchanged from the $29.7 million that we saw during the third quarter. In general, we saw increased volumes, but lower sales prices. Semiconductor sales volumes increased by over 50%, which included a large increase in the specific high-grade semiconductor polysilicon of about 34%. However, the average prices declined in total by 13%, but this is primarily product mix. The semiconductor grade, the high-quality material, was broadly unchanged from the prior quarter. So it's relatively stable.As Tore said, silicon gas volumes were 857 metric tons. That's higher than our guidance that we gave of 830. However, in this segment, the prices decreased by 8.2%. And again, this is because of mix. It's a decrease in the prices that we realized because of the tariffs in China, an increase of shipments of material to China into the PV sector and the lower and the basic flat panel displays. While the higher-end flat panel displays in the semiconductor segment outside of China, prices continue to be relatively stable.EBITDA in the Semiconductor Materials segment was $5.6 million, about $2.4 million lower than the EBITDA that we saw in the prior quarter. If you look at the EBITDA, it's primarily a result of the decrease in sales prices associated with the silicon gases. In addition, I've said that the electricity cost was higher. During the fourth quarter, we paid approximately $42 per megawatt hour while during the third quarter, it was $37 per megawatt hour. To give you an idea of the impact of this, it's about $800,000 because of that increase.In the Solar Materials segment, I indicated a few moments ago that the revenue declined primarily because of the shutdown of the FBR facility. Revenues in this segment were $1.7 million. At the end of the quarter, we had approximately 250 metric tons of remaining granular inventory. We expect small amounts of this to be sold in the future. However, we plan to use most of the remaining inventory for customer qualifications when we restart up FBR. And I'll let Tore talk more about the restart of FBR.The EBITDA loss for the Solar Materials segment was $3.8 million for the quarter. We continue to see reduced expenditures as we identify opportunities to save cost. Unfortunately, I guess you could say that we're becoming more efficient at not operating. Hopefully, that won't last for much longer. Bad joke. Due to our efforts to lower expenditures, we now expect that the EBITDA loss contribution for the Solar Materials segment to be about $4 million during each quarter as we go forward. It's about $1 million better than we indicated during our last earnings release.Within the Other and Eliminations segment, we saw net expenses of about $4.5 million. This compares to $7.7 million in the prior quarter. A few months ago, I indicated that during the third quarter, we had $2.5 million of other expenses. This is the segment that that occurred in. And then also this is where the insurance settlement comes in. So that offsets the expense during the fourth quarter. If you consider these one-off items, the expenses are broadly unchanged between quarters.In terms of cash flows, during our last earnings release, I indicated that we expected cash balances near $30 million. Note that a large portion of the decrease in cash during the current quarter is due to the timing of several large items: the interest on the bonds of $6.3 million, property tax payments of approximately $3 million and then a $1.5 million pension plan contributions. These items were all included and were the cause of the $30 million estimate that we gave during the last earnings release.Cash flow from operations was -- cash outflows from operations was $14.5 million for the quarter. That was the EBITDA loss of $3 million, interest payments of $7.8 million, the pension plan contribution of $1.5 million and a $2.5 million increase in working capital. The working capital increase is primarily due to an increase in the accounts payable, $6.7 million. An increase in receivables of about $3 million was offset by the decrease of $7.3 million in inventories. Then again, that's because of the sell-off of inventory or granular inventories.Outflows were offset by the gain of -- a gain of $600,000 due to currency exchange differences. And then outflows from investing activities were about $700,000, which was the result of capital expenditures of $800,000, an increase -- small increase in restricted cash. And then this was offset by the sale of farmland adjacent to our Moses Lake facility for $300,000. Cash outflows from financing activities were $1.6 million and were caused by the decrease in long-term lease liabilities under IFRS 16. Total, as Tore said, cash decreased by $16.8 million.In terms of our debt, there were no underlying changes to the debt during the quarter. The changes can be attributed to the payment of the long-term lease liabilities, the impact of a weaker U.S. dollar on the indemnity loan and the change in the cash balance. The weakening of the dollar also caused changes in the amounts of contingent liabilities owed by the company. The reassessment of tax in Norway increased from $28.2 million to $29.3 million and the indemnity loan increased from $22 million to $22.8 million.During the quarter, we received a claim of NOK 150 million from Nordea on the indemnity loan. This claim is based on the assumption that Nordea's losses will exceed NOK 150 million when the wafer -- REC wafer bankruptcy is concluded. However, this bankruptcy has not yet been concluded. Therefore, the amount of the loss suffered by Nordea cannot be calculated at this time. Accordingly, the company has responded by denying the claim. Therefore, the status and timing of the indemnity -- indemnification loan continue to be uncertain.There are no significant changes with respect to the status of the tax investigation here in Norway. We continue to believe that we have a strong case and that we will eventually prevail. We have not received any additional communication from the tax examiner, and we'll have an opportunity to comment should a draft ruling be issued. With respect to the property tax, our appeal hearing has not yet been scheduled, and we do not expect a hearing before the third quarter of this year.Now I'll turn it back over to Tore to talk about our markets.

[Tore Torvund, CEO & President]

Okay. Thank you, James. Today, I will then talk again more about the solar market since we now anticipate that the company will reenter the market due to the fact that we have then a resolution to the trade war. In 2019, approximately 120 gigawatt of solar panels was installed on a global basis. If you look to the range for 2020, it range between 130 and 145 gigawatt. So there is an increase anticipated between 10 and 25 gigawatt from '19 to '20. In 2021, it will then increase towards the 150 to 160 gigawatt. It's also anticipated that this growth will continue to be more stable going forward because more and more of this installment is done without subsidies, so it's more market-driven. And more than 40 countries are projected to install more than 1 gigawatt in 2020. And also storage improvements make the installation of solar much more attractive than what it was in the past.The main driver for the increase in 2020 will be China. This is -- let's say, I was in China 3 weeks ago for the Board meeting in our partnership over in China. And we went through the market in China together with our Chinese colleagues. And this is a slide from that presentation. And as you will see, in China, they anticipate that the market will increase from 25 up to 45 in 2020. And as you see, from '17 to '19, basically, the market in China went down 50% due to the fact of this new policy, which was implemented back in 2018.When you look to the quarterly in installations, you will see that in the second half, we anticipate the market will be relatively strong in terms of installation, and that means also the demand for polysilicon to be used in the solar market will gradually then improve.Just to give you then a short update on the decision, which was communicated on the 15th of January, and which then tomorrow will take place. It was 1-month delay, so February 15, this then the Phase 1 agreement will be in force. This is the -- let's say, on the right-hand side, you will see the communication from the USTR, and you see that solar-grade polysilicon was then communicated to be part of what the Chinese has then agreed to purchase from the U.S. In total, there will be $120 billion of manufactured goods to be purchased by the Chinese in 2020, and it will be then $131 billion in 2021.And solar-grade is then mentioned, in particular. And also let's say, when we exported before the trade war, the value of solar-grade polysilicon into China was $1 billion. So if you come back to $1 billion, that will be only $1 billion out of $120 billion, which the Chinese has agreed to purchase from the U.S.Some of you have been worried about what happened 3, 4 days thereafter in China. The fact that they still said that the AD/CVD on polysilicon should be in place. We have been assured by the U.S. government that the decision by 15th of January override that one. And MOFCOM's reason to continue to have this duty, AD/CVD, is, in fact, because also in the U.S., the AD/CVD case are still in place on solar panels. So -- but this decision, which was communicated on the 15th of January, override what was then communicated from MOFCOM. And the U.S. government has then -- we had the meeting with the deputy ambassador in USTR, Ambassador Gerrish. And he has said that if we have any issues with exporting polysilicon to China, they will then help us out since they will have monthly meeting between USTR and MOFCOM to see that this Phase 1 agreement will be implemented. So we feel very confident that this agreement is placed, and we -- all companies in the U.S. are now preparing for entering China according to the Phase 1 agreement.Let me then look through what is the supply-demand is in the market. Again, back to what we went through when I was in China in January. According to my Chinese colleagues, they anticipate that the supply of polysilicon on a global basis is about 58 -- 580,000 metric ton. You will see the different companies that there is mainly now 5 important companies in China making polysilicon. All of them are using the Siemens Technology. And then you have basically 2 important companies outside of China. That's Wacker, which is a German and U.S. company. And you have the South Korean, OCI, which do have polysilicon production in South Korea and in Malaysia.Last Tuesday or this Tuesday, in fact, OCI in South Korea decided and communicated that they will shut down their capacity in South Korea. And that means that they will be taking off capacity, approximately 50,000 metric ton will be taken off as of April this year out of this. So instead of 580,000, the supply will be 540,000 metric ton of polysilicon.If you look to China, where China has located their plants, you might also see the community -- I don't know if this translation is correct. But according to the top line there, after the crazy expansion of polysilicon industry in 2018, 2019, that's according to the Chinese view, that should indicate that the crazy expansion will not continue, hopefully. What has happened in 2018, 2019, is that basically all the capacity has been moved out into Xinjiang province, close to Tibet and to -- in Mongolia, where basically they have access to cheap coal-fired power as such. All the smaller capacity has now been shut down because of the price level where we also have in China. Most of those are operating, I'll say, with cash cost, which is higher than what is the market price. And we have indicated which one has been already shut down and which one -- which might be of uncertain. If you combine all this with the numbers, the total capacity in China is 390,000 metric ton. If you then include the non-Chinese, and that's basically now when you take out the capacity in South Korea from OCI, you have only Germany and the U.S., together with Malaysia, about 100,000 metric ton. And that means that the total capacity for solar is about 490,000 metric ton. In addition to this, we have a semiconductor-grade capacity mainly outside of China, which is about 40 metric ton. So let's say, all in all, there is 530,000 metric ton of polysilicon capacity available.There is not anticipated that any new capacity will be, let's say, invested in until you have basically cash cost long term, which is around $15 to $16 a kg, while even in China you need that to be able to make money on making polysilicon.If you put this together and if you believe that you have 140 gigawatt in 2020, you use 3.5 gram per watt to make polysilicon panels. Basically, you will see that the quantity needed for meeting the 140 gigawatt is exactly what is the supply of polysilicon, which exists in 2020. And thereafter, if there's going to be continued increase in installation of solar panels, there will be shortage of polysilicon within a year or 2 from now. And as I said, there is no -- not believe that anybody will start to invest in new capacity until you see a long term price of some $16 a kg.There have also been a lot of discussion about mono compared to the multigrade capacity. Let's say, what we see in the marketplace, it is not what is mono or what is multi, it is what is the cheapest solar panel dollar per watt. And we see, still in 2019, 40% of the capacity came out on multigrade solar panels. That is anticipated in 2021 to be a little bit lower than 30%. It will definitely be going towards mono. But we see that for the time being, there is a lot of capacity, which still goes into mono, and we have now also discussed with all the potential customers. And they are still running about 30 to 35 gigawatt of multi capacity, both inside and outside of China.And let's say, if you look to the price, this is the price development of polysilicon, you will see the very sharp decline in polysilicon prices, which occurred in May 2018 when the market in China, just overnight, was disappeared. Today, a mono, what they call mono is about $9 a kg, multi is about $7 a kg. What we sell out of our Yulin plant today, which is of quality, which is, say, we have a lot of different qualities. But this quality, which I have put in here, is somewhat, let's say, there is a little bit more metals than what we make out in Moses Lake, but still we get almost close to mono price for our polysilicon. So those of you who think that we are making multi polysilicon, that's not correct. We believe that we will get easily the same price as mono when we now enter into the Chinese market.So what is the cost of starting up Moses Lake? First, let me talk about the technology, the FBR compared to Siemens. Let's say, REC, we have now a lot of insight what's going on in China, since I'm in China -- at least I've been in China almost every 6 weeks for the last 4 years. So we have very good database for what is the price and the cost structure in China compared to our cost structure we have in the U.S.In terms of energy consumption, as you know, Siemens use way more power than what we do on the FBR side. Typical for Siemens production in China, 40% of the cost is due to power and a very high consumption of power. In Moses Lake, 6% of the cost is associated with power.Production, let's say, in Siemens. Reactor needs to be turned around once a week. You have a tremendous amount of reactors and you have to turn them around every week. Our reactors now in Moses Lake and which also we see now in Yulin, can be run more than a year. We have been running more than 400 days, and we easily see that we can turn -- we can only need to turn them around every second year.The quality, there is some of the production, which will be multi. There is some of the production, which will be mono, as the same as in Siemens. When you make Siemens rod, you have to process them, you have to crush them to make them be useful for the customers. What we make out on FBR can readily be used directly for the customers, so we don't have any added cost in reprocessing. And typically, in Moses Lake, we run by 200 people. While Siemens -- where Siemens plant of the same size needs about 600 people due to the fact that it is way more labor-intensive because they do have to do all these turnarounds. So that's why basically that, as a technology, FBR is way more efficient than the Siemens. And remember, REC is the only one using the FBR technology.In terms of cash cost, we have demonstrated when we -- back in Q1 of 2018, when we were able to run 60%, we were down to $9.40. Now we anticipate that when we are at full capacity, the cash cost will be between $7.50 and $8.50. So we are, let's say, our cash cost, which is lower than what is the price of polysilicon in the market as of today.So what do we intend to do? Let's say, first, we now ship material to China, or at least we intend to do that if China opens up again. We have some material, particularly from Butte because some of the fallout from our Float Zone is sold as either EG or as PV-grade material. We intend to ship that to China, the same will Wacker do, the same will Hemlock do, to see if there will be any issues about the trade war resolution. So we will get a very early sign if there is any indications that the Phase 1 will not work according to the intent.At the same time, we already have sent people to talk to customers. We had a lot of customers before we were shut out of the Chinese market. Now we go back and discuss with them. So we can have at least an indication that if they are willing to take our material. Then we will make a decision for start-up. It will be based upon, one, do we have access to China? Second, what is the ASP in the marketplace? And definitely, we need capital to restart, as you see from our financials.When we have done this, we will then recruit our new organization. And we then start with 1 silane unit. And 2 months thereafter, we will be back in full capacity.In terms of how do we intend to get necessary working capital, we need $20 million just for start-up preparations. In addition, we need working capital. We have not made any final estimate of what -- how much we need in working capital.Sources of this capital, there is basically 2 ways to do it. Divestment of Butte. If we decide to divest Butte, it will be at a level where the company will be debt-free and, in addition, have necessary funding to start-up. The alternative will then be to ask for new equity. And we intend to, let's say, next time, I will meet with you, which is May, we'll probably have answer to all these questions.So that is basically what we are working on, and I feel very confident that there will be a positive decision that REC will be back in the solar market by -- with a decision in May. And by the year-end, we will be fully ramped back in full capacity. Very shortly on the Yulin, you know all about it. Basically, in 2019, the production was about 47 metric ton of silane. We are now qualifying unit for silane in China. We then go after the PV market. And as I have already told, the maximum capacity out of this unit for silane in China will -- in the PV market will be 300 metric ton. We made 6,000 metric ton of FBR. And as James said, let's say, we are not making money. Let's say, the cash cost in this unit is higher than what is the market price. And we have then decided to stay focused now to qualify to the very high-end market, mono, but also to qualify into the semiconductor market with this unit until the market in China recover.And we, as the first company in China, we also have produced now very high-end polysilicon, Float Zone. The first Float Zone rods has also been made out of Yulin. It is a very strong focus in China on our performance, and everybody is very pleased with the quality we are able to make out of the FBR and on the Siemens based upon silane in China.Very shortly on batteries. I see there is a lot of discussion about batteries in -- and REC. Definitely, I now have -- this is more or less just showing the advances -- or the advantages by using silicon into batteries. I think I showed you last time, a test, which has been done in the U.S. by EPA, showing that Tesla, which is the only known company using batteries with some silicon into the anode, Tesla has, by far, the most efficient batteries.And I also -- you see also on the left-hand side, test done here in Norway, which shows that Tesla, all the different Tesla models, is way more efficient in terms of range and power than the alternatives, which do not have access to the batteries developed by Panasonic/Tesla and which use silicon.So there is no doubt that, let's say, batteries with silicon is way more efficient. And then you all know that there is certain difficulties to get it stable. And we are working with a lot of companies in the U.S., which then claim that they have the resolution to it. As I have said many times, I am not an expert on batteries, but what we see is that there is a lot of interest to talk to us because they need access to silane if they are going to do a ramp-up to deliver it into the EV market.Just to give you some insight how things should be. First of all, silane is very costly to move, to transport. Let's say, when we transport it to Asia, we do it using modules or containers, which are very expensive, which are very difficult to manage because it is -- it needs to be safe, but that add a lot of cost. So silane is not easy to move. Polysilicon is easy to move, the anode material will be easy to move, very low transportation costs. That's why if you are going to use to make an anode material, which contains silicon, this facility, this fabrication needs to be -- to happen adjacent to where you make this item. And that's why some of these companies has been surrounding REC Moses Lake to see if there is sufficient space to build that kind of facility.So basically, what you see, we make the silane. We have, let's say, 25,000 metric ton of silane. If you use 15,000 metric ton of silane, if you assume that you increase the anode capacity by 4x you put together with that 45,000 metric ton of graphite, that means you have 25% silicon in the anode. That will be approximately 3 million EVs, the capacity we can make by doing this. And according to those who are looking into this, these cars will then have 40% longer range than existing batteries as of today.On the other hand, this is certain that this is still an R&D effort. There is no one making this kind of anodes as of today. And everybody, at least most of you know that it is often a relatively long time period from an R&D. And there is a lot of people and companies saying that we have found the solution to it, but it will take time from -- this has been proven until it will be into industrial scale.And that's why, in REC, let's say, first, we have to start to make polysilicon for the solar market. And then gradually, we can phase in if this is going to happen, production of anode mass for the batteries. It's not that we can wait until this will be on an industrial scale. This will take 2, 3 years until it will be in the best situation.As I said, we have had -- we have several companies. There is about 30 different companies on the West Coast of the U.S. working on the same issue. This is one of the most hottest topic now in California, in State of Washington. This -- everybody says that this is the future for the electric. On the other hand, which of those companies will be successful? All of them working about silicon, not all of them working with silane. And who of those -- which of those companies which will be successful? I don't know. I don't know. But it will take time. So let's say, first, we have to come back into the solar market. Thereafter, this is an option, an opportunity for the company, which is we are pursuing. We are talking to them. We have put forward that they can do the pilot if they want to do it in our facility. Surely, they have to pay for doing that as well.So to conclude, the short-term business plan for REC Silicon. Potential restart of the Moses Lake. Most likely, I will give you the answer to this next time I will be here in May. We -- if we decide to do that, we will then need to fund the start-up. If we decide not to do it, we will not need any funding, according to our forecast in 2020. So the funding will be dependent upon start-up of REC.We have continued the dialogue with all these silicon anode battery companies, and I will definitely give you a heads up if something happens there. And very important though to continue to operate a stable and profitable Butte facility has to be a very, let's say, important task for the company as well.Thank you, and we are open for any questions.

[Andreas Bertheussen, Equity Research Analyst]

Andreas Bertheussen, Kepler Cheuvreux. Two questions if I may. So first of all, on the potential access to China. Can you -- do you know if this will be a process-and-trade scheme, kind of what we saw in 2014? Any probability of this deal or the part of the deal being U.S. buying Chinese modules without tariffs containing U.S. polysilicon? Have you heard anything about those types of rumors?

[Tore Torvund, CEO & President]

We've heard a lot about rumors. But let's say, the way the Chinese would like to organize the purchase is that we don't know. On the other hand, it would be likely that they decide to do it as a process and trade. Let's say, that's what they did back in 2014. So that's a well-known scheme. So that might be, but I have not, in fact, had meetings with MOFCOM thereafter. I intend to do that next time I go to China. But that's probably what is going to happen.Concerning the idea that, let's say, to get into the U.S. with Chinese-made panels and if they use our polysilicon, our U.S.-produced polysilicon, and by doing that they could get access to China -- or to the U.S. without the duty, which now is probably 60% to 70%. It's definitely an idea which is very attractive in China. When we talk to some of the customers, they say, "If you can do that, no problem, we will take whatever you send us." USTR has said that that might be something of interest to look into. But that's where we are.On the other hand, you might say that the U.S. economy is such a huge economy. I'd say it is the second largest market for solar panels, and it's easy to see that there will be someone in the U.S., which will really fight against it. Probably the installers, those who are buying these solar panels, would love to have that opportunity because that will reduce the price of panels, which, again, will increase the market. Those who might be against it is those who have invested in making modules in the U.S. or those who got exemption from the 201, 301 in the U.S. When we map it, it shouldn't be that powerful lobbying against it. So let's say, we are definitely pursuing that as an alternative to further boost the demand for our polysilicon.

[Andreas Bertheussen, Equity Research Analyst]

And then second question, just can you indicate the percentage of FBR prime as part of kind of full 100% utilization production in Moses Lake?

[Tore Torvund, CEO & President]

Yes. In fact, I have took out that one. But you might say that when you start up our reactors, it takes some time to get down to the very high-quality polysilicon. But if that takes, let's say, 25 days and the run is 2 years, because when you are down there, you produce the high quality until the end of the run. And that means the longer your reactors are running, the higher percentage will be. So it's 1 -- let's say, 25 days to get down there. If you run for 2 years, you can make the calculation yourself.

[Andreas Bertheussen, Equity Research Analyst]

Maybe around 80% prime?

[Tore Torvund, CEO & President]

At least.

[Unknown Analyst]

[indiscernible] Markets. Could you elaborate a bit on your electricity contracts, how things -- has there been any change on that side? And how do you see that more? I mean you, of course, are optimistic on the carbon footprint, et cetera, but good to know a bit more about the economics.

[Tore Torvund, CEO & President]

Yes. Let's say, there is 2 systems in. Let's say, our contracts in Moses Lake. It's a fixed price contract. We get -- we use power from a hydroelectric power station. And this is public-owned, so we have a fixed price on the power, relatively attractive terms in Moses Lake.In Butte, we are exposed to the commercial market. We have entered into a 6 months contracts, which go from mid-January to this summer. So you will not see that difference in the next 2 quarters out of it.

[Unknown Analyst]

[indiscernible]

[Tore Torvund, CEO & President]

You have to have a mic.

[Unknown Analyst]

As I know with the battery manufacturer, they have 2 ways. They have to -- the direction of making those anodes, one is to use those tiny particles, you mentioned the nanoparticles and then there's the silane direction. Have you been in contact with those manufacturer that aim for the FBR nanoparticles?

[Tore Torvund, CEO & President]

I've heard that there has been some rumors about that. Let's say, what we know, we have not any contracts. We delivered, let's say, some volume, and that's very limited volume back in 2014. Since then, we have not delivered anything.

[Unknown Analyst]

Yes. I think that is because I think they have -- the silane direction is the high-tech direction because they use silane to make very specific structures of silicon. But there are ways like Tesla does, they just include existing smaller particles of silicon into their batteries and it seem to be improving somewhat. But the FBR particles are so much better than the Siemens because they have porosity, and that is something that you cannot achieve with anything other than your product. So I think -- and that is the shorter way than the 3 or 4 years. I think that would be coming quite...

[Tore Torvund, CEO & President]

Okay. That's good. I have not heard about it. But let's say, we don't -- we have some companies, which has asked for meetings with us. They have been to our plant. They have looked into it. But that's mainly companies who would like to make -- let's say, use the silane on site. Then we deliver silane in modules. But we don't have full knowledge about who's using our silane because we send it through distributors in the U.S. And who they have, let's say, contact with, we have not pursued. Not a smaller one. We always go to those who buy silane in large volumes we know about. But how much silane is used from smaller R&D companies? We are not tracking. But also remember that if they purchase silane, they can make this granular themselves if they have the reactors.

[Unknown Analyst]

But they are not able to make into the large scale that you are able to make with those FBR. I think they have given up to try to -- for the electric vehicle, the industry, they've given up to try to make those high-tech solution because they have no technology to do it. But they have ended up with a 3 technology and FBR is one of them. And then there's this chemical deposition, vapor deposition and then this free space reactor. And those are the 3 main alternatives to make nanoparticles in large scale, and you are one of them.

[Tore Torvund, CEO & President]

Yes. That's good. That's good.

[Daniel Stenslet, Research Analyst]

Daniel Stenslet, Arctic Securities. In order to be successful at monetizing on the battery option at the future points, do you consider the main risk to be on the commercial side, the competition structuring the business model, et cetera, or the technical side?

[Tore Torvund, CEO & President]

Let's say, I am not working within the battery technology. At this company, we can supply silicon in different form factors. We can supply silane, which is pure silicon gas. We can make it in solid form, which is our FBR. We can do it through Siemens. Let's say, it seems to me that, let's say, the next generation of batteries will be containing silicon anodes because what I'm told is that on the cathode side where the lithium is, that's -- they have been working on that for the last 10 years, and it is tiny increase in capacity, which has been observed. That's why for the last 5 to 10 years, they are now focusing on the other side of the battery, which is the anode side.And what is known is that silicon can increase the capacity tremendously. The problem with silicon is that it expand 300% when it accommodates the electrons. And that's the problem, how can you basically have an anode with the expand and, let's say, go back and forth without losing integrity. And that's what they all are working on. How can they be able to take this expansion without destroying the anode. And then you have someone who says that, okay, you have probably an IP over there, patent over there, showing that -- okay, all these companies try to find a way to accommodate that expansion. To me, it seems likely that it will be sold from a technical point of view.Commercially, this is definitely very attractive, because if I can get a contract on silane where I can use all my silane and charge them a decent price, and a decent price is less probably than what is the cost of the graphite, I will make a ton of money. And the good thing is that, at least in the U.S., we are the only one who makes silane. No one else makes silane in the U.S. No one makes it in Europe. There is one who makes it in China, and that's our JV. It's because all the other companies are working with TCS, which is a different gas. And then you might say, definitely, other companies can make silane, but then they have to make investments, while we have already 2 plants in the U.S. and 1 in China, which is ready to supply this silane. And we have a lot of silane. Let's say, only in Moses Lake, as I said, we can support 3 million electric vehicles. That is approximately twice or as many electric vehicles that is out in the market as of today. And Tesla have -- they sold, I think, last year, 300,000. So it's 10x what is the capacity of Tesla we can do without investment.

[Daniel Stenslet, Research Analyst]

But I guess it's a possible scenario that you will need or that the technical solution will, for instance, entail 10% silane instead of 25% or 5% instead of 25%.

[Tore Torvund, CEO & President]

Sure. But the idea will then be, if we are running a profitable PV market, I have 25,000. If I then put in 2,000 for the batteries and then when it grow, I can put 3,000, 4,000, 5,000. And that's why I'm saying I can't sit and wait, but it is something which we add on. It's exactly what we did in Butte. But in Butte, 20 years ago, we didn't sell silane. And then we have built the market ourselves to selling more than half of our capacity in Butte out in the marketplace.

[Unknown Analyst]

Do you have internet access on that -- on the computer, obviously it's...

[Tore Torvund, CEO & President]

This guy has access.

[Unknown Analyst]

I'll just take a question from global first. You mentioned in your presentation that Tongwei has a capacity of 80,000 tons. They have communicated a goal of expanding their capacity to 290,000 tons by 2023. Is that kind of included in the projections that you presented?

[Tore Torvund, CEO & President]

No. And they communicated that this week. That's a typical way to communicate in some countries.

[Unknown Analyst]

Okay. I think we can take the wrong choice.

[Tore Torvund, CEO & President]

Okay. If there is no more questions, thank you so much for being here. And then hopefully, I'll see you again in May for more information.