Renewable Energy Corp. ASA, a solar- energy group grappling with falling demand, will stop funding its Norwegian solar-wafer division and plans to file for the insolvency of the unit after shutting down all production.

REC Wafer Norway AS’s liabilities exceeded its assets by about 1.2 billion kroner ($203 million) at the end of July, making a solvent winding-up of the unit dependent on more money from REC, the Sandvika, Norway-based group said in a statement today. Costs related to the bankruptcy are expected to be about 400 million kroner, the company said.

European solar-component makers are under pressure from Chinese rivals that expanded capacity just as demand slowed, causing wafer and cell prices to plummet. Demand also shrank as France, Italy and Germany reduced subsidies to cap booming solar installations.

“Although we had looked for potential savings of up to about 1 billion kroner, we believe the news is positive as REC has been somewhat vague when discussing this topic in the past,” Pareto Securities ASA said in a note to clients. The move will save REC about 800 million kroner, it said.

The bankruptcy of REC Wafer Norway won’t affect REC’s solar and silicon units, it said today. The wafer unit has already been removed as guarantor from REC’s bond-loan agreements and wasn’t included in a new bank loan agreement which came into effect earlier this month, REC said.

REC, whose shares have slumped 99 percent since listing six years ago, fell as much as 1.3 percent and traded 0.8 percent lower at 1.928 kroner as of 10:27 a.m. in Oslo.

Copyright 2012 Bloomberg