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).

What do LDK Solar Co., Ltd. (LDK), ReneSola Ltd. (SOL) and JA Solar Holdings Co., Ltd. (JASO) have in common? They all utilize Trichlorosilane (TCS) as a key ingredient in the manufacture of photovoltaic solar modules, also produced by companies such as SunSi Energies Inc. (SSIE).

Trichlorosilane is a chemical compound that contains silicon, hydrogen and chlorine, which at high temperatures decomposes to produce silicon, and purified trichlorosilane. It is the principal source of ultrapure silicon that is used in both the stable semiconductor industry and the emerging solar industry.

While the chemical is primarily produced by large chemical companies like The Dow Chemical Company (DOW) and E.l. du Pont de Nemours & Company (DD), SunSi Energies Inc. (SSIE) aims to consolidate the supply being produced in one of the world’s largest consuming countries – China.

SunSi Energies has already established a Hong Kong-based subsidiary, SunSi Energies Hong Kong Inc., which will source Chinese TCS production facilities. In fact, the firm has already acquired 90% of Zibo Baokai Commerce and Trade Co. (“Baokai”). Baokai owns the exclusive distribution rights within China of the TCS produced by Zibo Baoyun Chemical plant (ZBC).

This acquisition will allow SunSi to begin generating revenues, pending the completion of other Joint Venture transactions with TCS producers, and to strengthen SunSi’s presence within the growing Chinese market, particularly with large Chinese polysilicon producers.

Over the next three years, SunSi Energy plans to acquire facilities and expand to a manufacturing capacity of over 125,000 metric tons per year. While most of the sales will initially be to Chinese companies, the firm plans to expand its sales efforts into higher-margin markets like Europe.

With margins of between 20% and 40%, TCS is significantly more profitable than other products along the solar value chain. And while the commodity has fallen moderately in 2009, the economic rebound in 2010 has helped prices recover significantly from their lows.

Many experts anticipate the solar industry will rebound in 2010 and 2011, despite the economic downturn. Solarbuzz, a highly-respected industry source, projected that the industry would more than double over the 2007 levels by 2012, with a growth rate of over 135%.

Investors looking to play this trend may want to look beyond the traditional solar companies and into a “pure play” further up the value chain – SSIE Valued at just $85.67 million, this stock has the potential to capitalize on the continued move towards alternative energy in the U.S. and abroad.