UPDATE 1-SunPower says polysilicon costs dropping

(Adds details on costs, polysilicon)

NEW YORK, Feb 20 (Reuters) - SunPower Corp SPWR.O Chief Executive Tom Werner said on Wednesday new supply contracts for polysilicon were beginning to cut the solar cell and panel maker's production costs.

The addition of the cheaper supply contracts to its existing contracts had so far cut its polysilicon costs by about 10 percent, Werner told a Piper Jaffray investors conference.

As the older supply contracts roll off, the polysilicon costs should drop by 30 to 50 percent, he said.

Polysilicon is the main component in most solar cells that turns sunlight into electricity, and shortages of the material have pushed prices sharply higher over the past year, limiting expansion in the solar industry.

Werner declined to detail SunPower's cost of polysilicon per solar panel, but put the cost of the polysilicon, manufacturing ingots and silicon wafers at about 20 percent of the total installed cost per panel.

Manufacturing the solar cell and panels contributes another 30 percent of that cost, he said, while installation contributes 50 percent.

Solar manufacturers and industry analysts expect polysilicon prices will decline in the second half of 2008 as new production capacity comes on line. (Reporting by Matt Daily, editing by Leslie Gevirtz)