The sun sets on REC (sometimes, no XPS in the world can retain your competitiveness)

The Renewable Energy Corporation (REC) has recently closed its second of two factories in its home country Norway. All the state-of-the-art technology and lean improvement initiatives in the world could not save the Norwegian factories from shutting down this year. The REC case is a good example of how benefits of process improvement programmes can be far outweighed by global politics. A natural question to raise is then; under such conditions – is an XPS programme insignificant?

The REC factory at Herøya, Norway, closes down due to price competition from China. Photo: NTB scanpix

REC is among the leading global players in the young and growing solar energy industry. As many other multinationals REC has developed and implemented its own company-specific production system (XPS): the REC Production System (RPS). Together with a focus on state-of-the-art technology, the RPS aims to achieve world class productivity in all of REC’s five globally dispersed factories. REC was established in 1996 and is head-quartered in Oslo. It has been among the world largest producers of wafers for solar applications; today only one of three such factories are left: A factory in Singapore that also produces solar cells and modules. REC also produces upstream silicon materials in Washington and Montanta in the USA.

REC is exactly the type of company the world needs more of; an environmental, ethical and societal concerned player with products that can help solve the key global challenge of providing more green energy. (At their global webpage anyone can easily submit concerns about their business through the “whistleblower channel” – how many companies have that?) . Solar power is a relatively clean and environmental friendly source of energy – perfect, as the world needs more energy but less pollution. A few years ago I had a strong belief in this up-and-coming company and bought a very modest amount of shares in REC. Today, 94 % of my investment in REC is gone with the wind…

Despite the world-leading quality of wafers from the two Norwegian wafer factories they cannot compete with the Chinese wafer producer GSL Solar on price. The fact that the Norwegian Herøya plant produces wafers that give 17,4 % power efficiency per panel and GSL Solar’s panels “only” achieves less that 17 % power efficiency, is of course of minor importance when the price per wafer produced is $0,96 in China versus $1,9 for REC in Norway (Source; TU, 2012). Even in highly technological industries, manpower is needed and still more costly in some countries than others.

Ole Enger, President & CEO, delivered the following statement when the first REC factory in Glomfjord in Northern Norway was decided closed down in March 2012:

“Our organization in Glomfjord has demonstrated operational improvements and cost reductions that are impressive, but this has unfortunately not been sufficient to ensure profitability in a very challenging market environment. We are conscious of the impact the shutdown will have on the affected employees and the community of Glomfjord, and this is therefore not a decision we have taken with ease” (www.recgroup.com)

Nevertheless, the answer to the posed question “Under such conditions – is an XPS programme insignificant?” has to be a crystal clear “No!”. Without the REC Production System and investments in technology that made the Norwegian factories world leading in terms of wafer efficiency, they would probably be closed down much earlier. In today’s global market; continuous process improvement is not an option, but an order-qualifyer. Either you make sure you’re in the forefront or you prepare for exit. Sometimes, like in the REC case, an XPS has been necessary but not sufficient. Even with an XPS in place, some plants in volatile and political industries have to prepare for exit. In the words of Metallica: Sad but true!

REC delivers energy plus sustainability while waiting for profitability (Photo: recgroup.com)

Note: REC has not sold the factory at Herøya, and – if solar energy markets substantially improve as is assumed after 2012 – its production might be restarted. I hope so.

Sources