Japan Showa Shell says eyeing solar

TOKYO (Reuters) - Showa Shell Sekiyu KK (5002.T), the world's second biggest thin-film solar cell maker, said on Wednesday it could build a 7-8 megawatt solar farm on the site of a 120,000 barrel-per-day oil refinery south of Tokyo that is scheduled to close by September.

Japan's government is scrambling to ensure energy security and ease the country's reliance on atomic power after the March 11 quake and tsunami triggered the crisis at a nuclear plant in Fukushima prefecture.

Jun Arai, President of Showa Shell, which is one-third owned by Royal Dutch Shell (RDSa.L) and nearly 15 percent by Saudi Aramco, said at the Reuters Global Energy and Climate Summit he expected the installation of new solar cells in Japan to rise by 25 percent this year from about 1 gigawatt in 2010, and by another 25 percent in 2012.

He added the growth rate, driven by demand for industrial use, would be much faster if Japan launched a new initiative to boost the renewable energy sector via a so-called "feed-in" tariff scheme.

"I think we can prove that solar electricity is not only economically viable thanks to the feed-in tariff scheme, but also practically feasible when linked to the existing power grid networks," Arai said, referring to the option to build a mega solar farm near Tokyo.

Showa Shell, which now sells 70 percent of its solar cell output abroad, aims to become one of the world's least cost suppliers in several years and build up its own sales channels before expanding its sales to Asia, like China, Arai said.

Before then, the firm will continue to focus on its core solar markets of Japan, Europe and the United States as it looks to fight off competition from a raft of low-cost rivals targeting those regions.

Showa Sell wants its products to reach so-called "grid parity" by 2015 on cost cuts and technology innovation to attract users without any government incentive, he said.

That means costs of solar power generation per kilowatt, including those for installation and maintenance, would be even with residential power bills per kilowatt, which currently cost about half of the former in Japan.

TOUGH TIME AHEAD

Many governments have implemented generous incentives for solar power in recent years as they seek to cut their reliance on fossil fuels and fight climate change, though markets in Europe remain the most developed and lucrative.

Competition on price there has intensified recently, however, with Germany and Italy, the world's two largest solar markets, reducing subsidies for solar energy.

"Price competition in Europe has been heating up and that trend will likely continue in the next two to three years as the market is full of players," Arai said.

Showa Shell's Solar Frontier unit is set to begin full commercial operations at its third existing plant, in southwestern Japan, by August. That would bring its total solar capacity to almost 1 GW a year from 80 MW.

But Arai hinted the company may shelve a plan it announced in 2009 to earn half of annual recurring profit of 100 billion yen from its solar business by 2014 as two new plants it would need to meet that target may not be ready in time.

Showa Shell's solar business is expected to be in the red this year, he said.

That showed a sharp contrast to its bigger rival First Solar Inc (FSLR.O), which posted a net income of $116 million in the past quarter, though down 33 percent from a year earlier.

Showa Shell has developed thin-film solar cells without using cadmium, the substance toxic but cheap which First Solar uses to improve energy efficiency of its products.

(Reporting by Risa Maeda; Editing by Joseph Radford)