UPDATE 1-REC expands in downstream U.S. solar market

(Recasts with quotes, details throughout)

By Wojciech Moskwa

OSLO, April 11 (Reuters) - Norwegian solar industry group Renewable Energy Corporation (REC.OL) has bought into U.S. peer Mainstream Energy to boost its presence in the promising market of selling clean solar energy directly to U.S. consumers.

REC said on Friday it bought a 20 percent stake in California-based, privately held Mainstream Energy LLC for $40 million. It also has options to take a majority in the group.

Already a leading maker of solar energy components and the silicon raw material used in them, REC seeks to gain a bigger foothold in the downstream business of selling solar modules or even solarpower-based electricity to households and businesses.

"We clearly see opportunities to cut costs throughout the value chain by having a more significant involvement in downstream," Chief Operating Officer John Andersen told Reuters.

In a statement, REC Chief Executive Erik Thorsen said: "(The deal reflected) the increasing importance of the U.S. market and our ambition to take a more active role in building robust and scalable market channels."

REC has production plants in the states of Washington and Montana.

Shares in REC were up 2.3 percent at 163.75 crowns at 0956 GMT, against a 1.3 percent gain on Oslo's key index .OSEBX.

Mainstream Energy is a leading U.S. photovoltaics (PV) systems integrator and distributor with expected 2008 sales revenues of about $160 million, REC said. Its home market of California takes 60 percent of the U.S. PV systems market.

"Incentive systems and renewable portfolio standards, both at federal and state level, combined with increasingly more competitive PV systems, are expected to result in continued market growth in the United States," REC said.

REC said the relatively more complex system of subsidies and incentives in the United States, compared to Europe, placed more value on local companies, such as Mainstream Energy, that have fine-tuned their solar products to local regulations.

"ABILITY TO GROW"

REC said the downstream part of the still developing solar business, which remains dependent on government subsidies, is fragmented and barriers to entry low.

"There are very few companies in downstream that reached a certain size ... And one of our main focuses has been to partner with someone who has the ability to grow," Andersen added.

Analysts said Mainstream Energy was a good fit for REC because it offered customers not only solar modules -- a market prone to oversupply -- but also the capability to provide power supply agreements to clients like a utility.

"This is good for REC," said Einar Kilde Evensen, analyst at DnB NOR Markets. "Selling power purchase agreements will give REC more flexibility ... on the downstream market exposed to low entry barriers and oversupply."

Evensen said REC was the only major solar company with security of supply all the way from silicon, the raw material for solar wafers that absorb the sun's energy, to systems for consumers.

REC shares have gained 37 percent over the last month on improving sentiment for equities but are still down 33 percent over the last half year due to delays in production ramp-ups and weaker-than-expected earnings.

REC said that under its agreement with Mainstream Energy's shareholders, it can raise its stake to a majority through options that can be exercised over the next three years. The specific terms in any subsequent transactions depend on the future performance of Mainstream Energy, it said. (Additional reporting by Aasa Christine Stoltz; Editing by Mike Elliott)