REC Survival story

We at Greenworldinvestor have speculated numerous times that most solar companies based in Europe such as Solarworld will cease to exist. We even thought that REC would have a tough time in surviving, given the massive losses in 2011 and 2012 with the massive debt. However, REC looks all set to survive as the company is sharply cutting costs. The company has also restructured its business by hiving off polysilicon production into a separate business. The company has also reduced debt through talks with bond holders.

Even though REC is still not out of the woods with an EBITDA margin of less than 10% on a revenue base of $175 million per quarter, the company is taking steps to remain competitive. The company is cutting costs at a sharp rate to reach parity with the Chinese cost leaders who have a 25% advantage on costs.

REC has closed almost all of its expensive European manufacturing operations and is now concentrating all its production at the integrated wafer to module facility in Singapore. The company is running this 1 GW capacity at full steam having shipped almost 225 MW of solar panels in the quarter. REC has been helped by a general industry upturn, which has aided it in finding high ASP markets in Japan and Europe.

REC benefits in the European market

REC is benefiting from a decrease in competition in the European solar panel market, which has reached a price and volume quota deal with China. This has decreased the price competition, as lower cost Chinese players have to set a higher ASP. There are not many solar module manufacturers left in Europe and REC is benefiting from this.

The company’s balance sheet is still not that great, but in a sign of better times the company plans to increase its module capacity by 30% in 2014 by spending $70 million. The solar PV industry has seen a 25% growth in 2013 and may see similar growth in 2014 as well. The industry is growing rapidly as solar proliferates around the world, thanks to lower costs and better distribution. Solar energy is growing rapidly in all countries unlike 5 years ago, where it was mostly a European phenomenon. Asia and Africa have become the primer drivers which is perhaps a big reason for the decline of European solar companies. The US companies which thrived, have Asian operations and REC has correctly taken a leaf out of their book. Solarworld the other big European player has seen its fortunes decline year after year and is surviving, thanks to an equity infusion by Qatar. However, Solarworld has become a minor niche player seeing a huge decline in market share over the last 5 years.