By Jennifer Robin Raj and Aftab Ahmed

BANGALORE, Aug 6 (Reuters) - As the solar industry seeks to
cut costs, once-niche products such as thin-film panels with
cadmium telluride (CdTe) are boosting the profile and profits
of suppliers like Canada's 5N Plus Inc.

The solar industry, worth around $40 billion globally, has
lagged other alternative energy sectors due to its high costs,
but thin-film panels coupled with CdTe are emerging as a viable
low-cost rival to wind power, hydro power and natural gas.

The success of thin-film market leader First Solar Inc,
which uses CdTe in its modules and has the lowest costs in the
industry, and favorable government regulations have prompted
firms such as GE Inc, Q-Cells and privately-held Abound Solar
to shift towards CdTe.

"The interest in CdTe comes from the promise of the
technology driving down costs, not relying on silicon, and
making significant gains in efficiency," said solar industry
analyst Thomas Maslin at advisory firm IHS Emerging Energy
Research.

Conventionally, solar cells are made using various forms of
silicon, whereas thin-film panels apply very thin layers of
semiconductor material such as CdTe to inexpensive materials
such as glass, plastic or metal.

CdTe is reckoned to have a 10-15 percent cost advantage
over the more widely used silicon, and prices at less that $1
per watt of electricity produced, around half the cost of
silicon, analysts estimate.

However, the supply of tellurium, a tin-coloured component
of CdTe and a byproduct of the copper industry, could be a
limitation as it is not widely available.

That said, the CdTe solar market could be worth $5 billion
this year and $6 billion in 2011, estimates Michael Willemse at
CIBC Capital.

First Solar, which saw second-quarter revenues rise 12
percent to $588 million, plans to double both its capacity and
its market share, to around 30 percent, though it has trimmed
its 2010 sales forecast because of weaker prices.

The industry's lowest-cost producer continues to cut
production costs, and has trimmed 5 cents from its per watt
cost to an industry-leading 76 cents per watt.

5N Plus, which earns most of its revenue from supplying
CdTe, looks well placed to seize the growing market potential,
but will face competition from Apollo Solar and Vital Chemicals
Inc in China, PPM Materials based in Germany, Japan's Nikko
Metals, and Honeywell Electronic Materials, a unit of Honeywell
International Inc.

"We're expecting a ramp up in (CdTe) demand in the second
half," said Versant Partners analyst Massimo Fiore. "We also
expect more growth in 2011-12."

5N Plus -- the name comes from the 99.999 percent purity of
its products, or five nines and more -- should see a profit
boost from next year as thin-film panel makers increase output.
It is due to report fourth-quarter earnings on Aug 10.

The company has a long-term growth rate of 57 percent,
according to Thomson Reuters Starmine data.

The Montreal-based firm, valued at $234 million, has an
edge over rivals with its scale advantage, a proven
relationship with tellurium suppliers and a supply contract
with First Solar, noted National Bank Financial analyst Rupert
Merer.

CHINA TO GET IN ON THE ACT?

Most Chinese solar panel makers use polysilicon, though 5N
Plus CEO Jacques L'Ecuyer has hinted this could change.

"We think there are quite a few others that will jump on
the bandwagon, and we wouldn't be surprised if the Chinese got
into CdTe as well," he told Reuters.

Spot prices for polysilicon have slumped to around $50 per
kg from $400 in mid-2008, denting panel prices, which are
forecast to slip further. Prices of thin-film materials like
CdTe are far less volatile.

However, with production costs of $30-$40 per kg, some
Chinese polysilicon manufacturers have narrowed the gap to
thin-film panel prices.

Sources told Reuters in June that Beijing was freezing IPOs
of some renewable energy companies to ease an oversupply that
had battered wind equipment and polysilicon prices, though
official media quoted a regulatory official denying that.

5N Plus' L'Ecuyer said CdTe has a big advantage from a cost
per kilowatt hour perspective as it operates more effectively
under low light illumination conditions. He also noted it's
cheaper to set up a production facility and quicker to recover
the energy put in the module.

Thin-film panels can be made using other semiconductor
materials like copper indium gallium selenide (CIGS), but these
have yet to gain the same levels of traction.

"There's a lot of talk about CIGS potentially being more
competitive longer term because the efficency can be higher,
but it's a much more complex material to work with in terms of
manufacturing and getting all those different components
working together on the module," said IHS' Maslin.
"In terms of track record, (CdTe) is far ahead," he added.

Thin-film panels with CdTe are not, however, expected to
displace silicon panels, as they need more space to generate
power, said CIBC's Willemse.

"The market will have a number of niches and a number of
technologies that can survive," said National Bank Financial
analyst Rupert Merer.
(Editing by Ian Geoghegan)
(aftab.ahmed@thomsonreuters.com; within U.S. +1 646 223 8780;
outside U.S. +91 80 4135 5800; Reuters Messaging:
aftab.ahmed.reuters.com@reuters.net))