Nitol: Russia's Emerging Solar Power Star
Jul 14 - Business Week
Dmitry Kotenko admits that when he and a group of friends decided to found
their own business in 1998, they had no idea what exactly the new business
would do. They knew only that they wanted their business to be New,
Innovative, and Technological. Hence the name: Nitol.
Ten years later, Nitol has not only a techie-sounding name but also a
dynamic business to match. Now called Nitol Solar, the company is Russia's
largest producer of polysilicon, the basic raw material used to make solar
panels that turn sunlight into electricity. Nitol stands out as an
all-too-rare commodity in Russia: a technologically savvy company that has
grown in the space of a few years from tiny startup to billion-dollar
success story. It's a model that Russia's leaders say they are eager to
promote as the country casts around for new ways to achieve economic
competitiveness in the 21st century.
Lately, nothing seems to have captured the imagination of politicians more
forcefully than alternative energy. In an interview with CNBC host and
BusinessWeek columnist Maria Bartiromo on June 4, President Dmitry Medvedev
emphasized the importance for Russia of "cutting-edge technologies,"
especially in "green economy, energy saving, and energy efficiency." It's a
theme both he and Prime Minister Vladimir Putin increasingly have emphasized
in recent months.
Solar energy in particular is emerging as an area where Russia has high
hopes of carving out an international niche. The Russian Nanotechnology
Corp. [Rusnano], a state company with ambitious goals for promoting
high-tech exports, has identified solar energy as one of its priorities. In
its biggest deal to date, in June, Rusnano partnered with Renova, a leading
Russian industrial conglomerate, and Oerlikon (OERL.MU), a Swiss engineering
firm, to announce plans for a $630 million solar cell plant in the central
Russian town of Novocheboksarsk. It's just one of a dozen solar-related
projects currently being mulled or expanded by Russian companies.
In Search of an Industry Nitol Solar's story illustrates why there is such
excitement about the sector's potential. Kotenko, 38, a former student at
the prestigious Baumann Technical Institute in Moscow, had ditched science
in the 1990s for the more lucrative world of business. But after garnering
managerial experience in the banking and metallurgical businesses, he had a
hankering to bring this knowhow to bear back in the scientific field. "I
wanted to find something new and extremely interesting. Above all, it had to
be competitive," he says. Just what, though, wasn't immediately clear.
The answer came rather by chance some five years later, when Nitol, at that
time a chemical trading company, had an opportunity to acquire an old
chemical factory at a knockdown price. Located near the remote Siberian city
of Irkutsk, the 70-year-old plant didn't seem to have much future. Kotenko
says the plant, located hundreds of miles away from any significant markets,
"was in terrible shape."
But it did have one thing going for it: A small unit at the plant produced a
chemical called trichlorosilane that's used in the industrial processes and
is also a key ingredient in polysilicon for solar panels. Kotenko and his
partners realized that if the plant were to have a commercial future, it
would have to refocus away from mass-produced industrial chemicals and
toward the higher value-added solar industry. They set about educating
themselves about the renewables business from scratch. "We realized it was
like another world," Kotenko says.
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.
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