Solar power edges towards boom time

LONDON (Reuters) - Solar power could be the world's number one electricity source by the end of the century, but until now its role has been negligible as producers wait for price parity with fossil fuels, industry leaders say.

Once the choice only of idealists who put the environment before economics, production of solar panels will double both next year and in 2009, according to U.S. investment bank Jefferies Group Inc, driven by government support especially in Germany and Japan.

Similar support in Spain, Italy and Greece is now driving growth in southern Europe as governments turn to the sun as a weapon both against climate change and energy dependence.

Subsidies are needed because solar is still more expensive than conventional power sources like coal, but costs are dropping by around 5 percent a year and "grid parity," without subsidies, is already a reality in parts of California.

Very sunny countries could reach that breakeven in five years or so, and even cloudy Britain by 2020.

"At that point you can expect pretty much unbounded growth," General Electric Co's Chief Engineer Jim Lyons told the Jefferies conference in London on Thursday, referring to price parity in sunny parts of the United States by around 2015.

"The solar industry will eventually be bigger than wind."

The United States' second largest company, GE is a big manufacturer of wind turbines and wants to catch up in solar, said Lyons.

CUTTING COSTS

Grid parity is considered vital for freedom from potentially fickle governments for support. Established solar power companies are more optimistic than GE about the timing.

The crux is how fast the industry cuts costs and how fast power prices rise. European power prices neared all-time highs this week, driven by record oil prices.

The industry could halve costs and achieve parity in significant markets including the United States, Japan and parts of southern Europe by 2012, said Erik Thorsen, chief executive of the world's biggest solar power company Renewable Energy Corp

(REC).

"If grid prices go up at the present rate if could happen before," he told Reuters.

REC expects to halve costs on new production by 2010. German solar power company Q-Cells AG, the world's second biggest maker of solar cells, expects similar cuts by making more components itself, thinner than before, and by using cheaper techniques for processing the silicon raw material.

The solar sector has grown at 40 percent per year despite a shortage of silicon, but that bottleneck should ease over the next two to three years, said executives.

But all the growth is from a tiny base. The sun supplies just 0.3 percent of electricity even in market leader Germany, says Jefferies.

"It doesn't even register statistically outside Germany," said Jefferies analyst Michael McNamara.