Coloured dyes offer cheap solar power -Israeli firm

* Dye-sensitised solar cells discovered 20 years ago

* 3GSolar's first system to reach market in two years

* Uses organic dyes instead of costly materials like silicon

By Ari Rabinovitch

JERUSALEM, July 9 (Reuters) - It may take a little bit of colour to create cheaper solar energy.

Israeli start-up 3GSolar says it has developed the world's first commercial-size solar energy system that uses coloured dyes to turn sunlight into electricity.

The technology emerged from a relatively new field in solar energy that uses simple organic dyes instead of rare or costly materials, like silicon, which scare many consumers away from solar power.

Energy companies have been struggling for years to make dye-sensitised solar cells (DSC) large enough to be used in commercial-size systems. Such next generation cells could be used in cutting-edge applications, like windows that turn passing sun rays into electricity.

Japanese electronics conglomerate Sony Corp (6758.T) said last year it had developed dye-sensitised cells with an energy conversion efficiency of 10 percent, a level seen necessary for commercial use, but that its technology was still in the research and development stage.

A 1.5 square metre (16 square foot) prototype, boasting red panels, stands on the rooftop of the 3GSolar's Jerusalem laboratories. The company's founder, Jonathan Goldstein, says it is by far the largest in the world.

It transforms just seven percent of the sunlight it absorbs into electricity, but he said that its efficiency would increase steadily in the coming years.

Scaling up the size of solar panels has been hampered by problems of metal corrosion in their grids. 3GSolar would not disclose the exact process it used to overcome the obstacle.

"These cells, each individual one of 225 square centimetres (34 square inches), we believe are the largest of this type in the world and give a record-breaking current," Goldstein said.

Dye-sensitised solar cells are also known as Graetzel cells, after Michael Graetzel, a professor at Ecole Polytechnique Federale de Lausanne in Switzerland, who discovered them about 20 years ago.

He found that sunlight excites the dye and creates and electronic charge without the need for pricey semiconductors, similar to the way a plant uses chlorophyll to turn sunlight into energy through photosynthesis.