Solarworld might face bankruptcy

Solarworld which has been the main instigator of protectionist policies by USA and Europe against the import of Chinese made solar products, is facing a death inducing lawsuit from a polysilicon supplier. What is ironic is that this action may be due to the fact that the polysilicon supplier Hemlock, is going ahead with this lawsuit because it finds itself in dire straits due to the protectionist policy of USA. Solarworld had campaigned vigorously with the USA government to impose large anti-dumping duties against the imports of China made solar cells and panels. This had resulted in the Chinese government imposing a tit for tat anti-dumping duty against the import of polysilicon from USA. Note China imports large amounts of polysilicon from Western companies like Wacker, REC and Hemlock. While a deal with Europe has allowed Wacker to keep exporting large amounts of poly to China, Hemlock and REC have almost shut down their poly plants due to massive duties imposed by China. These companies have been running heavy losses due to this trade action.

Hemlock has filed a lawsuit claiming $770 million from Solarworld, based on a “take or pay” long term polysilicon supply contract signed with Solarworld. This contract originates back to the 2008 period when it was the industry norm, due to a major poly supply shortage. Most of these contracts were renegotiated by suppliers, as customers could not afford to pay the high prices mentioned in the contract since poly prices crashed from $400/kg to around $15/kg now. But some suppliers such as SunEdison strategically chose to go to the courts to enforce these contracts against some customers. Many of them have won large awards through the courts. Hemlock probably does not see a great future for Solarworld and wants to extract a large pound of flesh using this contract. Given the past experience, courts have generally ruled in favor of the poly supplier, as these contracts are legally sound and customer do not have much wiggle room.

Solarworld which has recovered somewhat in the past couple of years thanks to the import duties, would face a certain shutdown as a $770 million payment will not be covered even by selling all its assets. As it is, Solarworld is a niche player in the global solar market and confined to the western markets with a less than 2% global marketshare. The company had gone almost bankrupt before getting rescued by a Qatari fund. It seems déjà vu again for Solarworld.