REC ASA - Update on polysilicon expansion ("Plant III")

Sandvika, December 15, 2008: REC has, in early December, formally accepted and taken control over the entire FBR-area and all related equipment at the new plant under construction in Moses Lake, Washington. The first reactor test runs have been successfully completed. However, during final stages of the commissioning in the silane gas production area, REC encountered quality issues with certain standard prefabricated carbon steel pipes. Control measures and repairs were initiated immediately. Based on the final conclusions of the analysis undertaken during the last few days, start-up of the silane production will be delayed until late January 2009. This will negatively affect production of polysilicon and, to some extent, wafers and solar cells in 2008 and early 2009.
 
Although the FBR-area has been accepted and taken over by REC, the company's mechanical integrity inspections have revealed quality concerns relating to prefabricated carbon steel pipe welds in the silane gas section. The level of weld defects is above industry standard, and the quality falls outside the guaranteed standard delivery specifications for these "off-the-shelf" pipes. All defect pipes have been supplied by one particular pipe fabricator with "seal of approval". The supplier has now taken full responsibility and has accepted to cover costs related to necessary weld repairs to ensure a safe startup.
 
Further, REC has, together with Fluor and a third party engineering firm, spent the last few days finalizing the analysis related to the total extent of the issue. Based on current weld repair rate and the conclusion of the analysis, start up of commercial production is moved to the end of January 2009. With the exception of the weld repairs, the construction of the plant is currently complete.
 
"As a responsible producer we have a rigorous mechanical integrity program which allowed us to discover the defective workmanship. The delay is obviously very unfortunate given our tight polysilicon situation, and we are working hard to mitigate and limit consequences as much as possible," says Erik Thorsen, President & CEO of REC.
 
Simultaneously, start-up activities continue in the FBR section of the plant. Last week, the first two reactors were started on inert gas. This confirms that control systems and reactor characteristics are working in line with expectations. Next week, REC intends to start running full tests of the FBR reactors on silane gas from existing plants.
 
"As we have taken over the FBR-section of the plant, we will continue to prepare for startup of commercial production and the coming ramp-up period in parallel with the ongoing weld repairs. We remain comfortable with FBR from a technology perspective and its low cost and high quality capabilities. However, there is always risks related to starting up new technology", says Erik Thorsen.
 
Plant III was previously scheduled to produce up to 400 MT of polysilicon by the end of 2008. Given an expected start-up of commercial production towards the end of January 2009, the 2008-production will be reduced to only minor test volumes. For 2009, the production is expected to be approximately 5,000 MT. The plant is designed for an annual production capacity of 6,500 MT.
 
REC will host an analyst Q&A conference call today at 15:00 CET. Dial inn details will be distributed during the morning.
 
For more information, please contact;
Erik Thorsen, President & CEO; +47 907 56 685
Jon Andre L√łkke, 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.