Cost cuts to keep solar margins fat: REC
OSLO (Reuters) - Norway's Renewable Energy Corp (REC.OL), one of the world's biggest makers of solar energy equipment, said sharp cuts in production costs would for years keep margins fat in the fast-growing solar industry.
REC, a company worth $23 billion, plans to cut unit production costs in half by 2010, against 2005 levels, as it implements more efficient production technology and solar panels, which transform sunlight into electricity.
"The industry should be able to reduce prices substantially between now and 2010 to 2012 without distorting the margins picture in any dramatic way," Chief Executive Erik Thorsen told Reuters in an interview on Wednesday.
REC's shares have jumped by 150 percent over the past year as a shortage in global production of polysilicon, the input material for solar wafers, kept margins thick while growing public awareness of climate issues and subsidies boosted demand.
"To assume that this industry can sustain forever EBITDA (earnings before interest, taxes, depreciation and amortization) margins above 50 percent is probably a bit naive," he added.
"However, there will be players that will perform above average and hopefully REC will be one of them".
REC operates across the solar industry value chain from upstream production of polysilicon via wafers -- divisions that now earns most of REC's cash -- to the production of solar cells and modules in the so-called downstream segment.
"We would like to build as much (capacity) as we can downstream," Thorsen said, adding that REC was also interested in consolidating the still developing solar industry.
"If we will do any M&A it will probably be in the cells and modules part of the value chain," he said from REC's headquarters in a green suburb of the Norwegian capital.
1-GIGAWATT PLANT
REC's biggest planned capacity expansion will come through a new wafers, cells and modules plant whose output will have an annual production capacity of least 1-gigawatt of electricity.
Globally, about 2.5 gigawatt of solar equipment were produced and installed last year and Thorsen reiterated industry estimates of annual global solar growth of about 40 percent.
He said the plant, due to start up in 2010, will be located in either Europe or Asia and would require an investment of $2-3 billion. Final decisions are expected later this year.
REC is also looking to invest $1.5-2.5 billion in expanding production of polysilicon in a plant that could be located in Europe, Asia or North America, he added.
Thorsen said he expected delays in the ramp-up of global production of polysilicon, which would keep prices high.
"It seems 2008 will probably be the year with the biggest pressure on the silicon market and where the shortage of silicon will be felt most," he said.
Thorsen said prices of solar modules and cells will also come down in future years as solar energy costs become competitive against dirtier conventional energy sources.
