Analyst Corner: Possible REC Solar buy could reduce RIL’s execution risk

By: |
September 03, 2021 7:15 AM

REC owns patents over the entire FBR production process and mono-crystallisation technology. These patents along with the long commercial operating history are major competitive advantages.

These patents along with the long commercial operating history are major competitive advantages. (Representative image)These patents along with the long commercial operating history are major competitive advantages. (Representative image)

Key takeaway: RIL could acquire REC Solar, reports media. REC is a fully integrated solar PV maker with similar ambitions to RIL. It is the only player globally to commercialise a tech that consumes 75% less power than Chinese comps. It has patented tech and has a long operating record of reliability. Challenge in stabilising yield has prevented wider adoption of REC’s tech. The possible acquisition could lower RIL’s execution risk but wouldn’t eliminate it.

REC fully backward integrated solar equipment maker: REC Group is a fully integrated solar PV module maker starting from Si. It uses a proprietary tech for polysilicon manufacturing that has a high monocrystalline yield. REC’s fully integrated model is in line with RIL’s aspiration of a similar integrated operation. REC also manufactures semiconductor-grade polysilicon of much higher purity Low power cost key competitive advantage for China’s polysilicon makers: Polysilicon is the basic building block of the solar PV module. Power cost is c40% of polysilicon production cost. Major polysilicon producers in China are located in Xinjiang, which has abundant supplies of sand and coal, among the lowest industrial power cost in China, and accounts for 45% of global polysilicon supply. REC only company globally to commercialise tech that consumes 75% less power than Chinese comps: REC has implemented the Fluidized Bed Reactor (FBR) tech for producing polysilicon on a commercial scale. The FBR process consumes 75-80% less energy than the traditional Siemens process that Chinese players use. REC’s plants have a long operating history of reliability and quality. REC owns patents across its tech: The FBR tech is very difficult to stabilise and is protected by many patents. REC owns patents over the entire FBR production process and mono-crystallisation technology. These patents along with the long commercial operating history are major competitive advantages.

Multiple challenges have prevented wider adoption of FBR tech: Despite its energy cost savings, FBR has seen limited adoption because 1) Every design in the manufacturing process is protected by patents 2) For a new entrant, operating and stabilising the tech could take years 3) Some benefit of low energy cost is offset by high share of unusable silicon dust in the output.

E.g. GCL Poly that acquired the only other commercial FBR tech globally, SunEdison in 2017, which was declared bankrupt at the time, took four years to achieve quality and yield adequate to start commercial production in CY2021.

A possible acquisition of REC would lower execution risk, but wouldn’t eliminate it: As REC owns patents across the FBR manufacturing process and has a long operating history of uninterrupted operation with stable yields, it would lower RIL’s execution risk were it to come under the latter’s fold. It managed to stabilise operations at its Chinese JV in the first year of operation- comforting in our view. However, RIL as a new entrant could take time to stabilise the process based on examples in the industry. REC would also help RIL enter the semiconductor grade silicon supply chain.

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