Some say competition from China a cause for worry for REC
Neo Chai Chin Today Online 25 May 10;
SINGAPORE - Will the Renewable Energy Corporation's (REC) $2.6 billion solar manufacturing plant in Singapore - the world's largest, which is nearing completion - stand up to competition from Chinese manufacturers?
An analyst from investment research firm Morningstar raised the question on May 11 when he labelled REC's stock overvalued.
"Essentially, REC's Singapore plant (currently in ramp-up) is the company's last chance to solve the woes of its wafer and panel segments, both of which have destroyed incredible amounts of shareholder value during the last two years," wrote Mr Stephen Simko, a stock analyst covering the technology sector.
The Norway-based REC's stock has fallen about 70 per cent in value over the past year.
"If Singapore fails to bridge the wide divide between the wafer and panel production costs of REC and Chinese solar companies such as Trina, Yingli and LDK Solar, these segments - 70 per cent of total sales - will be proven to essentially have no value. In our opinion, this is how events are likely to play out," he added.
When REC chose Singapore to build a new plant in 2007, it was a boost to Singapore's clean energy hub ambitions and the Economic Development Board's (EDB) then-managing director Ko Kheng Hwa said it would be a "queen bee" attracting a hive of solar activities to Singapore.
Last year, the EDB also set aside $680 million to develop the clean technology sector over the next six years.
So how widely shared are Morningstar's sentiments, and is it cause for Singapore to worry?
While some industry experts noted that Morningstar's analysis was valid, others felt there was a need to look at the bigger picture of the solar energy industry.
"I believe to some extent the analyst's assessment is true," said Mr Ravi Krishnaswamy, Asia-Pacific director of energy and power systems at Frost and Sullivan.
But with REC's aim to keep manufacturing costs below 1 ($1.76) per watt, if achieved, would give it a "slight edge" over the Chinese, whose costs are about US$2 ($2.81) per watt, he said.
The way for manufacturers to stay ahead of the competition is to deliver all-round value to customers, said Dr Michael Quah of the National University of Singapore's Energy Studies Institute (ESI).
"As to pricing, just remember that panels are but one component in the supply and value chain; what the consumer sees, and what the public and government projects buy, are complete systems, not simply panel prices," said Dr Quah, ESI's principal fellow and chief scientist.
On REC's declining stock prices, he had this to say: "If there is a lesson from the current stock market gyrations globally, it is that stock prices reflect public sentiment more than ground reality."
When contacted, REC vice-president and Investor Relations officer Mikkel Torud said production costs for wafer, cell and module production are expected to come down with the Tuas South plant, compared to its European manufacturing facilities.
REC's Singapore plant has begun test production, and announced last month its plans to run at nearly full capacity in the fourth quarter of this year to meet demand in Asia. Its planned capacity is 740mw of wafers, 550mv of solar cells and 590mv of modules.
