First Solar Inc on Wednesday said it expected to cut manufacturing costs by a third or more over the next five years, mainly by making its solar panels more efficient at transforming sunlight into electricity.

In a presentation to analysts in Las Vegas, First Solar President Bruce Sohn said the company's manufacturing costs would fall to between 52 cents and 63 cents per watt by 2014. In the first quarter of this year, the company's cost per watt was 93 cents.

Reducing the cost of solar power is key to making the clean energy source competitive with electricity generated from coal and other fossil fuels.

First Solar currently produces the lowest cheapest panels in the industry. They are made from cadmium telluride rather than the higher-priced polysilicon that is the main raw material in traditional solar panels.

The drawback to First Solar's panels, however, is that they are less efficient than silcon-based panels.

The company on Wednesday, however, said it would be able to increase its panels' conversion efficiency to 12.5 percent from 10.9 percent in the next few years. First Solar Vice President of Technology David Eaglesham said the company had high confidence of achieving efficiencies well beyond that.

We believe that 16 to 18 percent as a practical production limit is very achievable, Eaglesham said, without giving a specific timeline.

The record for cadmium telluride cell efficiency is 16.5 percent, which was achieved in a lab by the United States' National Renewable Energy Laboratory.

By comparison, First Solar rival SunPower Corp, which makes silicon-based panels, recently introduced a solar panel with a conversion efficiency of 19.3 percent.

Prices on silicon-based panels have dropped sharply this year due to weakened demand amid a global recession and falling prices on polysilicon.

First Solar has said it would cut its prices to remain competitive with silicon-based panels, but Chief Executive Mike Ahearn said it was still unclear whether it was a lack of access to financing, competitors' prices or other factors that were slowing down demand.

Broadly speaking we need to look at price as a way to drive throughput against the production plan we've put in place. The question becomes, is price the constraint? Ahearn said. Is that the issue or is volume throughput constrained by other factors like project finance or permitting approvals and so on? It's pretty easy to get caught up in market hype ... Sometimes it's hard to see what the real data points are.

Also on Wednesday, Ahearn said the search for a new CEO is still in an early stage. Ahearn said in April that he would vacate the CEO, but remain as executive chairman to focus on public policies to stimulate development of renewable energy.

(Reporting by Nichola Groom; Editing Bernard Orr)

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