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Renewable Energy Corporation ASA (OSL:REC) Sandvika, September 24, 2008: REC has decided to change the scope of the new expansion project ("Plant IV") initially announced in April 2007. The decision was mainly driven by the favorable market conditions for silane gas and the internal need for silicon based on the final scope of the Singapore Phase I expansion. Additional silane volume will enable REC to potentially double the allocation to the merchant market by adding around 2,300 MT annually, while still securing all internal and external polysilicon commitments.
Over the last number of quarters, the improved attractiveness of the silane gas market has become more evident. From a market primarily driven by the demand from integrated circuits and flat panel displays, the market share of photovoltaics has increased fast and is expected to set the pace for future growth. In this segment, silane gas has historically mainly been used in the production of traditional wafer-based solar cells, but will in the future increasingly be influenced by the development in crystalline based thin-film market (i.e. amorphous- and tandem micro crystalline/amorphous-silicon). Further confirmation of this development was made in June 2008 when REC secured long-term agreements for the supply of silane gas to major gas distributors worth close to USD 1 billion (~NOK 5.5 billion), average sales price under these contracts was around 15% higher than current.
"This scope change makes a lot of sense - not only from a pure financial perspective, but also ensures improved product hedging as well as positions REC to potentially take advantage of future opportunities within thin-film, all while supporting a fast growth of REC's silicon wafer based technology platform", says Erik Thorsen, President & CEO of REC.
The scope change will allow an additional 2,300 MT availability of silane gas per annum that can be allocated to the fast growing merchant market for silane gas. On the other hand, this change will reduce the polysilicon production from approximately 6,000 MT in the original investment case to approximately 4,000 MT per annum. The 2,000 MT reductions is justified based on the final scope of the Singapore Phase I expansion announced in June 2008.
"We are today, and will remain for the foreseeable future, the largest producer of silane gas in the world. This decision will additionally enable us to maintain our position as the leading marketer to the merchant market of silane gas", says Erik Thorsen further.
The new scope and expected cost increases in the project has triggered additional investments of close to USD 200 million, which includes additional silane loading bays, additional intermediate storage tanks for liquid silane and general utilities. An additional necessary investment decision to comply with new and stricter environmental requirements will add investments of 50 MUSD. A project reserve of 30 MUSD is included in the total amount.
As previously communicated, in conjunction with the first and second quarter release, most cost elements related to procurement and construction of Plant IV are expected to face similar price escalations as for the ongoing expansion project ("Plant III"). In total, including scope changes, cost escalations, investments to comply with new environmental regulations and a project reserve, total investments will end at approximately USD 750 million compared with the original budget of USD 485 million. This is only somewhat higher than what is already expected based on the cost escalations announced earlier this year.
The estimated net present value of Plant IV has improved by around 20 percent despite the higher levels of investments. The main contributor to this development has been the improved third-party prices realized in later periods compared to the original business case, especially on silane gas. As the revised scope still will fully support all expansions further downstream in REC Wafer and REC Solar with the necessary raw materials, the improved returns would therefore also positively affect the REC Group overall. The additional investment will be covered by existing available financing.
For more information, please contact; Erik Thorsen, President & CEO; +47 907 56 685 Jon Andre Løkke, SVP & IRO; +47 907 44 949
About REC REC is uniquely positioned as one of the most integrated companies in the solar energy industry. REC Silicon and REC Wafer are the world's largest producers of polysilicon and wafers for solar applications. REC Solar produces solar cells and solar modules and engage in project development activities in selected segments of the PV market. REC Group had revenues in 2007 of NOK 6,642 million and an operating profit of NOK 2,588 million. Please also see www.recgroup.com.
