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Play Solar at the Source for SunSi Energies Inc. (OTC-BB: SSIE)

SunSi Energies Inc. (OTC-BB: SSIE), a development-stage company focused on becoming the de facto supplier of trichlorosilane (or TCS) to solar module manufacturers like ReneSola Ltd. (NYSE: SOL) and JA Solar Holdings Co., Ltd (Nasdaq: JASO), could see significant upside over the coming years.

SunSi Energies Inc. (OTC-BB: SSIE) is a development-stage company engaged in the acquisition of trichlorosilane (TCS) production facilities in China. While the substance – a raw material used in photovoltaic solar modules – is used throughout the solar industry, the company would become the only TCS pure play listed on a stock exchange, offering investors exposure to the top of the value chain.

On August 30, 2010, the company set its plans in motion with a Letter of Intent to acquire Wendeng He Xie Silicon Co., a trichlorosilane producer located in Weihai City, China with annual production capacity of 20,000 metric tons. Upon closing of the agreement, the firm will acquire a 60% equity interest and the facility’s capacity will be expanded to 60,000 metric tons per year.

Raw Materials Dominate Solar Value Chain

While solar power began as a strong force supported by government subsidies, some countries have begun to pull back on their funding due to the economic crisis as module prices also continue to fall. As a result, some solar manufacturers and installers are facing pressure on their profit margins. So, where do the greatest opportunities now lie in the still-expanding solar industry’s supply chain?

As with commodities, the raw material suppliers often have the greatest pricing power in the industry. For instance, rising oil prices boost the profits of drillers, but can squeeze the profits of those further down the supply chain, such as refineries. The same is true for solar, where raw materials like trichlorosilane are often sold at higher margins than products further down the supply chain.

Do you have an example of the margins seen in a TCS facility that we can put here and compare to a module manufacturer that is public?

SunSi’s Plans Bet on Higher Solar Demand

While the solar picture may be bleak in the near-term, many analysts are confident in demand recovery over the longer term. Last week, UBS raised its solar demand forecast for 2010 and 2011 by almost a third, while IMS Research noted that Chinese module companies as a whole performed well. As a whole, analysts expect solar demand to maintain a 20-30% compounded annual growth rate through 2020.

SunSi Energies is positioning itself for this growth in solar demand by increasing its TCS capacity from a target of 40,000 metric tons per year in 2010 to more than 125,000 metric tons of annual capacity within the next three years. The higher capacity will enable the company to generate greater sales levels and improve its margins via economies of scale to capitalize on the tremendous market opportunity.

Capitalize on Solar with SunSi Energy

SunSi Energies is at the beginning of its growth phase, having just submitted a Letter of Intent to acquire its first trichlorosilane (TCS) production facility. With plans to increase this 20,000 metric ton capacity to 125,000 metric tons over the next three years, the company is well-positioned to profit from one of the highest margin segments of the solar supply chain. Investors looking to take advantage of this opportunity may want to take a closer look at SunSi Energies, Inc. (OTC-BB: SSIE).

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