Hoku Materials, Inc just announced that it has signed a new 10-year polysilicon supply agreement with Shanghai Alex New Energy Company, Ltd. Under the contract, Hoku will resell a portion of the polysilicon production capacity it recaptured after amending a contract with Jiangxi Jinko Solar Company. Alex New Energy had been planning to buy Hoku polysilcon indirectly from Jinko, but will now buy directly from Hoku instead.

Hoku has amended the contract with Jinko as follows: the volume of polysilicon Hoku will sell to Jinko has been reduced along with Jinko’s prepayment obligation, which has been reduced to $20 million.

Hoku will ship polysilicon to Alex New Energy at set prices over a 10-year period, starting in 2010. From the company press release, here are more details about Hoku’s contracts with Alex New Energy and Jinko, along with comments from Hoku’s leadership team:

According to the terms of the new agreements with Alex and Jinko, up to an aggregate combined total of approximately $238 million may be payable to Hoku during the ten-year period, subject to product deliveries and other conditions. The take-or-pay contracts both provide for the delivery of predetermined volumes of polysilicon each year, with combined prepayments for product in an aggregate amount of $40 million, of which $22 million has been paid to date; $15 million from Jinko and $7 million from Alex. Hoku has granted both Jinko and Alex a security interest in its polysilicon assets to secure Hoku’s obligation to repay each company’s prepayments as a credit against product shipments over time. Table 1 below summarizes the key terms of Hoku’s agreements with Jinko and Alex.

Alex, through its PV module manufacturing subsidiary, has also agreed to provide Hoku with discounted original equipment manufacturing (OEM) services for up to a certain amount of PV modules per year for each of the ten years of the contract term. The OEM manufacturing service will be at Hoku’s sole option and will be priced at Alex’s most preferred rate. Together with Hoku’s wafer OEM option from Jinko, this OEM option from Alex effectively provides Hoku with a low-cost, near-term strategy for vertical integration.

"Alex New Energy is an innovative, diversified company and an emerging leader in the solar industry," said Dustin Shindo, chairman and chief executive officer of Hoku Scientific. "Hoku is very pleased to have established this long-term relationship in a manner that will benefit all three companies — Hoku, Jinko and Alex. We are also enthusiastic about the opportunity to expand our new partnership further through OEM module manufacturing. Over time, we believe this could provide significant competitive advantage to Hoku Solar, our PV systems integration subsidiary. Hoku continues to see these types of reciprocal relationships as an excellent way to strengthen our long-term business while adding value for our customers and partners."