UPDATE 4-REC profits rise, unveils Singapore plant plan

(Adds Singapore quote)

By Aasa Christine Stoltz and Joergen Frich

OSLO Oct 26 (Reuters) - Norway's Renewable Energy Corporation (REC.OL) said on Friday it would build the world's biggest solar manufacturing plant in Singapore and its shares rose despite lower-than-expected third-quarter core profit.

REC, one of the world's largest producers of solar-grade silicon, said it expected initial investments in the Singapore production complex of 3 billion euros ($4.29 billion) within the next five years.

REC has seven production plants in Norway, the United States and in Sweden. The Singapore plant will be developed in stages, and will incorporate wafer, cell and module production for solar panels that produce power from sunlight.

The investment, its first in Asia, will be financed with cashflow and a small loan, and could have production capacity of up to 1.5 gigawatts (GW) when fully developed, REC said.

"1.5 GW is big. I think it's just over the current manufacturing capacity of China, and China is big," said Simon Powell, head of Asian power research at CLSA in Hong Kong.

REC's shares were up as much as 7.8 percent before paring gains to 3.8 percent by 1019 GMT, valuing the company at about $23.66 billion, outperforming the Oslo benchmark index .OSEBX, which was flat.

Powell said REC would need an additional 10,000 tonnes of silicon a year to supply the Singapore solar plant, which would mean lifting its current production by about 50 percent.

In addition to the Singapore solar plant, REC said it would look to invest in a new silicon plant which could be four times the size of any of its existing silicon units.

"We expect to make a decision towards the end of the year," Chief Executive Erik Thorsen told a news conference, adding that Singapore is one of the countries under consideration.

Singapore hopes to use its experience in the semiconductor industry to become a leader in developing solar technology globally.

"The project will catapult Singapore into the solar industry world map," said Ko Kheng Hwa, managing director of Singapore's Economic Development Board, adding demand for solar power will continue to grow as pressure mounts to reduce global warming.

The European Photovoltaic Industry Association expects up to 1 billion people to use some form of solar electricity and the industry to create up to 2 million jobs worldwide by 2020.

Earnings before interest, tax, depreciation and amortisation (EBITDA) rose to 643 million Norwegian crowns ($118.9 million) in the three months to the end of September from 522 million in the same quarter a year ago, REC said.

The result missed a 656 million crown average forecast from a Reuters survey of six analysts, whose predictions for EBITDA ranged from 621 million to 715 million crowns.

REC also said on Friday and its partners Evergreen Solar ESLR.O and Q-Cells (QCEG.DE) plan an initial public offering of their German EverQ venture.

"REC's quarterly figures were overshadowed by its expansion plans, a new contract and the plans to list EverQ," analyst Henrik Breum at Danske Bank said.

REC announced a long-term agreement worth about 5.3 billion Norwegian crowns ($979.7 million) to supply silicon wafers to Belgian silicon cell producer Photovoltech up to 2015.

Analysts said the deal gave a sigh of relief to those who had feared prices on wafer and silicon would drop from 2008.

"This (deal) has similar terms as deals made a year ago," Einar Kilde Evensen at DnB NOR Markets said.

REC said fourth-quarter production is expected to be roughly 1,500 tonnes after it cut its 2007 production target for its silicon unit to 5,700 tonnes from 6,000 tonnes. It kept its 2007 wafer unit and solar unit production target unchanged.

Exchange rates will hurt revenue and profit in the fourth quarter compared with the third, REC said, but the company expects prices of cells and modules to be stable.

REC said it aims for 2010 production of about 19,500 tonnes of polysilicon, above 1,600 MW of mono and multi wafers, about 225 megawatts of solar cells, and 150 MW of solar modules.

"REC has increased the general activity and spending level in preparation for further international expansion," it said, adding that the cost level would therefore increase. (Additional reporting by Tom Miles and Luke Pachymuthu)