Department of Energy seeks to cut solar costs by 75 percent

Student Arnaldo Vazquez from the Universidad de Puerto Rico cleans solar panels to maximize energy efficiency during the U.S. Department of Energy Solar Decathlon near the Washington Monument on the National Mall in Washington, October 10, 2009.

NEW YORK (Reuters) - The U.S. Department of Energy said on Friday it will spend $27 million on a new effort to reduce the costs of solar power by 75 percent by the end of the decade in a bid to make the renewable power source as cheap as fossil fuels.

Energy Secretary Steven Chu dubbed the program a "sun shot" that was patterned on President John F. Kennedy's "moon shot" goal in the 1960s that called for the United States to land a man on the moon.

Chu said cutting the cost of installed solar power by 75 percent would put the price at about $1 per watt, he said, or about 6 cents per kilowatt hour.

"That would make solar energy cost-competitive with other forms of energy without subsidies of any kind," he told a conference call.

Costs for to install photovoltaic solar panels, which turn sunlight directly into electricity, currently run above 22 cents per kilowatt per hour, although federal grants and state incentives can trim that to below 15 cents for large projects.

Many U.S. solar industry advocates have long complained that the Chinese government's support of its solar companies has enabled its companies to take market share from U.S. manufacturers.

Chinese companies such as Suntech Power Holdings Co have made inroads into both European and U.S. markets, and now supply about two-thirds of the global market. Suntech said on Thursday it had sold 250 megawatts of panels in North America last year, about 25 percent of the total market.

However, the lowest cost solar producer is thin-film panel maker First Solar Inc, which is based in Tempe, Arizona.

Costs for solar modules, which make up about half the total price of the systems, have dropped sharply in the past five years as manufacturers dramatically increased output to meet rising global demand.

About 1,000 MW of solar panels are estimated to have been installed in the United States last year, double the 2009 level, but solar still contributes less than 1 percent of the total U.S. electricity output.

Coal-fired power plants remain the dominant provider, supplying about 50 percent of the power, while nuclear and natural gas plants each supply about 20 percent. Other renewable power sources such as hydropower and wind turbines provide the remainder.

Richard Swanson, co-founder and president emeritus of SunPower Corp, who joined Chu on the conference call, said the industry could likely cut its costs in half by the end of the decade.

"A (four-times) cost reduction ... is certainly not possible without the support of the Department of Energy," he said.

(Reporting by Matt Daily; Editing by Marguerita Choy)