Update: REC to idle more Norway PV capacity as it looks east

REC says it will do "what is necessary" in Norway to develop in Singapore

REC says it will do "what is necessary" in Norway to develop in Singapore

PV group Renewable Energy Corporation (REC) saw its losses widen dramatically in the second quarter, and confirms it will lay-off even more Norwegian workers than previously announced.

REC blames its quarterly operating loss of NKr6.26bn ($1.13bn) on “sudden and significant reductions in prices and demand” across the PV industry since the beginning of 2011, leading to a series of impairment charges and write-downs.

It reported an operating deficit of NKr146m during the same period in 2010.

Chief executive Ole Enger confirmed that REC will add to its list of idled Norwegian factories by sending home 200 workers at its multicrystalline wafer plant in Glomfjord “in the near future”.

In May the Oslo-based company announced it would impose “temporary” layoffs on 300 workers at its wafer facility in Herøya and 200 more at its cell plant in Narvik.

Including Glomfjord, that means REC is in the process of mothballing nearly half its Norwegian production capacity. Enger says he needs to see a “strong rebound” in PV prices before he even considers restarting production.

Analysts have suggested that REC’s emphasis on the industry-wide inventory glut could simply be a way of disguising its desire to phase-out production at its older, higher-cost Norwegian factories in favour of the new facility it opened in Singapore in late 2010.

Enger concedes that Norway is not the priority, adding: “We will do what is necessary in Norway to protect, and be able to further develop strongly, in silicon and Singapore".

REC’s earnings are an ominous start to the solar sector’s forthcoming round of financial reporting.

A number of PV manufacturers including Daqo New Energy and Renesola have sounded warnings in recent weeks about their upcoming financial results, blaming the fall in German and Italian demand for the severe price pressure that is suffocating the industry.

REC says the average selling prices for its modules and wafers fell 21% and 14% respectively during the second quarter, while polysilicon prices ticked downwards by 3% – having plummeted much more sharply earlier in the year.

REC is among the world’s most vertically-integrated PV manufacturers. Despite the temporary layoffs, it expects its 2011 production to reach 240MW of wafers, 700MW of modules (down from its previous estimate of 750MW), and 19,000 tonnes of polysilicon at its plants in the US states of Montana and Washington.

Despite its recent losses, Enger insists he has never been happier with REC from an operational viewpoint, claiming all the company needs to reverse its fortunes is a rebound in market conditions.

Over the last nine months REC reduced its polysilicon production costs by 35%, while the cost of producing modules in Singapore declined by 29% to €1.06 ($1.49) per watt.

Orkla, the largest shareholder in REC, says it would still consider divesting its stake but remains hamstrung by the PV group’s low share price.

Throughout 2010, Orkla, a diversified Norwegian conglomerate, was known to be shopping around its 40% stake of REC, with the intention of exiting the solar sector and streamlining its holdings.

One of the biggest stumbling blocks for such a sale, however, was REC’s poor share price.

The pressure on Orkla to find a buyer – or a way to prop up REC’s shares – was relieved in January when it sold its subsidiary Elkem to China’s Bluestar for $2bn.

The sale of Elkem, which owns a 6,000-tonne PV-grade polysilicon factory in Kristiansand, Norway, was seen as giving Orkla a longer time horizon for a potential REC sale.

Orkla chief executive Björn Wiggen concedes the company is still interested in ridding itself of REC, but its shares – which have lost nearly 50% in the last 12 months and more than 90% in the past three years – are preventing it from doing so.

“We would look for exit opportunities if the price was right – which it is not at the moment,” says Wiggen.

On 13 July REC’s share price plunged to an all-time low of NKr8.25.

However, after publishing its earnings shares soared more than 12.5% to NKr9.34 on Enger's positive second-half outlook.

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