Hong Kong's power plant operator GCL-Poly Energy Holdings will invest about $200 million to build a solar wafer plant in the Chinese city of Xuzhou, banking on a recovery in polysilicon prices and robust demand from China.

The company is expanding its business even as many solar energy firms have suspended or scaled back expansion plans in the global economic downturn and a slump in polysilicon prices.

In June, GCL-Poly, which holds stakes in various energy projects in China's Jiangsu and Zhejiang provinces, paid $3.4 billion for a Jiangsu province solar parts maker, sending shares of the firm soaring 31 percent since the announcement. [ID:nHKG124144]

GCL-Poly's new plant in China's Jiangsu province will have a capacity of 2 gigawatts, Chief Financial Officer Samuel Tong told a media briefing on Thursday.

Prices of polysilicon, the key raw material for solar modules, have fallen to about $65 a kilogram from its peak of $400 a kg in 2008 due to a glut.

But prices of polysilicon are likely to recover, Tong said. This year, prices will definitely bottom out. Instead, they will increase because of demand from China.

In China, the world's top greenhouse gas polluter, the government's newly announced Golden Sun Project targets 500 MW to a maximum of 680 MW of solar projects to be deployed through 2011, with the government subsidising between 50 percent and 70 percent of the projects.

GCL-Poly --- which competes with German chemicals group Wacker Chemie (WCHG.DE: Quote, Profile, Research, Stock Buzz) and Hemlock Semiconductor Corp --- aims to cut production costs to $30 per kg from $36 per kg by the end of 2010, by recycling their materials and producing its own electricity, Tong said.

The firm has secured contracts to supply its customers including top Chinese solar cell makers Suntech Power Holdings (STP.N: Quote, Profile, Research, Stock Buzz) and JA Solar Holdings JAS0.O with a total of 15,400 megawatt of solar wafers and 33,000 tonnes of polysilicon by 2015.

GCL-Poly said on Tuesday it would sell HK$3.68 billion (US$475 million) worth of new shares at a discount, raising capital for repayment of secured notes and bank borrowings. [ID:nHKG354063].

Excluding the proceeds from the share placement, our existing cash resources will be able to handle the investments in the next 12 months, Tong said.

The company will look for more investment opportunities in solar energy, but will continue to remain focused on its core power generation business, said vice-president Barton Yu.