UPDATE 2-Showa Shell to spend $1.1 bln chasing First Solar

* To invest Y100 bln in solar plant to go on line in H2 2011

* New plant raises annual capacity 12-fold to 980 megawatts

* Showa buys Hitachi plant to be solar facility site

* Aims to match low-cost First Solar (Adds details, background)

TOKYO, Sept 7 (Reuters) - Japanese oil refiner Showa Shell Sekiyu KK (5002.T) said it will invest $1.1 billion to build a new thin-film solar cell plant, as it chases First Solar (FSLR.O) in a growing market.

Showa Shell's 100 billion yen plant -- its third solar cell facility -- will boost its annual production capacity twelve-fold to 980 megawatts when it comes onstream in the second half of 2011.

A market downturn has hurt demand for pholtovoltaic solar systems that turn sunlight into electricity, hitting even low-cost players such as First Solar.

But that's not stopping investment by stragglers who reined in spending in the solar boom last year.

Japanese polysilicon maker Tokuyama Corp (4043.T) is investing $700 million in a solar cell materials plant, while South Korean flat-screen maker LG Display Co (034220.KS) plans to invest $41 million in a pilot solar cell line.

"We believe we will be able to match First Solar's cost-per-watt in the near future," said Shigeaki Kameda, head of Showa Shell's solar unit. He declined to say what Showa Shell's cost per watt is, but First Solar in February said it was able to make solar cells at $1 per watt.

Showa Shell, Japan's fifth-biggest oil company, is hunting new revenue streams in alternative energy, as it foresees electricity demand outpacing global oil production.

Showa Shell, whose annual production capacity is now 80 megawatts, aims to next build a fourth and a fifth plant as it aims to make its solar business earn half of its target core recurring profit of 100 billion yen in 2014.

The company specialises in solar cells made using copper, indium, and selenium, which are not as efficient at converting light into electricity as the bulk of solar cells made from polysilicon, but are cheaper.

Showa Shell's new plant will supply 900 megawatts-worth of power per year through solar cells with conversion ratios of 13 percent to 15 percent. That falls short of the more than 20 percent conversion ratio boasted by Sanyo Electric Co 6764.T, but its panels cost 25 percent to 35 percent less.

The company, which hopes to gain a 10 percent share of the market, bought Hitachi Ltd's (6501.T) plasma display factory in Miyazaki, southern Japan, and is building its new plant there. It said it would hire Hitachi's former employees to man the lines.

Its shares closed up 2 percent prior to the announcement, against a 1.3 percent rise in the Nikkei average .N225. ($1=93.15 Yen) ($1=1232.1 Won) (Reporting by Mayumi Negishi, Nobuhiro Kubo; Editing by Hugh Lawson and Joseph Radford)