OSLO - Norwegian solar energy company Renewable Energy Corporation ASA (REC) said it expected overcapacity and price declines in the solar industry to continue into 2010 after missing third-quarter forecasts.

REC, one of the world's biggest makers of solar energy equipment, said the solar market had been weak, although there were early signs of improved demand for solar modules in some geographical regions.

Even with an increase in demand, we expect overcapacity within solar energy to continue in 2010, Chief Executive Ole Enger told a presentation.

Enger said REC had reduced prices and volumes for solar wafers considerably this year, and expected additional concessions in current 2010 price negotiations. He added that overdue receivables in the wafer division had been increasing.

It's regrettable, but we feel we are forced to draw upon bank guarantees, Enger said.

Earnings before interest, tax, depreciation and amortization (EBITDA) fell to 429 million crowns ($77.64 million) in July-Sept from 711 million a year ago, and below an average forecast of 466 million in a Reuters poll of 18 analysts.

This may be a bit disappointing to the market, Argo Securities analyst Henrik Schultz said.

Shares in REC rose 1.2 percent at 0818 GMT to 42.66 crowns, still well below a peak of 267.21 crowns seen in late 2007, as traders said underlying figures were close to expectations.

The earnings before depreciations were actually a bit better than I expected, but the operating profit and pretax is much worse thanks to the Sovello writedown and hedging costs, Schultz said.

SOVELLO WRITEDOWN

REC said an impairment test of a unit in partly owned Sovello gave rise to an impairment charge of 672 million crowns, which affected operating earnings, making REC swing to an operating loss of 665 million crowns.

Sovello produces solar modules in Thalheim, Germany and is 33.3 percent owned each by REC, Germany's Q-cells and Evergreen Solar.

Sovello operates under a waiver from financial covenants expiring at the end of November and could require additional financial commitments from the shareholders, REC said.

We are discussing this with the banks and the two other partners, Enger said.

He said REC would miss a previous target for 2009 polysilicon production of 9,000 tonnes.

REC's high-tech silicon plant in Moses Lake, Washington, had produced around 538 tonnes of material following a restart of the plant in July, REC said.
The increase of commercial production at the plant was continuing with gradually improved product quality, REC said, adding it was critical to further improve process stability to achieve higher product quality.

The solar industry inventory situation and supply and demand imbalances have also put pressure on module prices during 2009, and REC repeated that its REC Solar division expects average module selling prices for 2009 to be approximately 35 percent below 2008 levels.

($1=5.525 Crown)

(Reporting by Richard Solem; Editing by Jon Loades-Carter)

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