Solar power era dawning soon

OSLO (Reuters) - The solar power industry could see "unlimited growth" potential when production costs drop to those of conventional energy sources in some 3-5 years time, a leading producer of solar energy equipment said on Wednesday.

Erik Thorsen, chief executive at Norway's Renewable Energy Corp (REC.OL), told Reuters that advances in production technology and solar cell efficiency were quickly slashing the cost of producing electricity from sunlight.

In addition, legislation stoked by growing public awareness of climate issues has begun to put the environmental cost of producing power from dirtier coal or natural gas on to electricity bills, further accelerating cost convergence.

"Once you crack that formula and can compete against conventional energy you have unlimited growth," said Thorsen.

"If you can provide a good energy source versus a bad energy source at basically the same price, it becomes a no brainer."

In the meantime, the solar industry must overcome shorter-term hurdles, such as a shortage of polysilicon, the material used in making solar and electronics, he said.

REC, a company worth $23 billion whose value has more than doubled since it went public last year, plans to slash its unit production costs in half by 2010, compared to 2005 levels.

"We believe that in a 2010-2012 perspective, if you share that cost reduction with the market, solar could at that point be competitive (against conventional energy) in the 'sun-belt'," he said referring to areas with 1,400 hours of sunlight a year.

"If you can be competitive in that market segment, it would cover a substantial part of the world population," he said.

The "sun-belt" covers most of North America's population and Europe's Mediterranean region as well as many developing regions around the globe, Thorsen said.

The advantages of solar power over other alternative energy sources, such as wind or hydropower, include the ability to meet demand locally without the need for much grid infrastructure.

Also, solar power output peaks during daylight when typically demand is highest.

ECONOMIC SENSE FIRST

Further north or in more cloudy areas, government subsidies are needed to make solar cost effective, unless consumers would pay a premium for using green energy.

But in order for that to happen electricity would have to stop being viewed by consumers as a commodity and start being differentiated depending on its environmental footprint, said Thorsen, adding that such a mind-shift would take time.

"Although everyone is scared about the scenarios of climate change, it takes a long time to get that filtered into a change in behavior," he said. "People invest in solar power today because it is economically justified, and it is justified because there are incentives in place by governments."

Nevertheless, Thorsen said that hinging a business model entirely on government aid was risky and "environmental sensitivities go in waves", as seen in the 1980s -- when a sharp fall in oil prices sent many solar power firms belly up.

For now, REC and its rivals are focusing on subsidized markets such as Germany or the U.S. state of California, but Thorsen said that only half of expected solar cell supply in 2010-2012 was earmarked for such markets.

"The remaining 50 percent needs to be carried to the market on its own commercial terms," he said. "Investors are gradually understanding that solar can be price competitive -- where you can compete on your own merits and have virtually unlimited growth opportunities."