UPDATE 2-INTERVIEW-Kyocera wary of bubble in solar sector

*Expects 80 percent of solar sector makers to fail

*Expects large price falls ahead for solar panels

*Aims to achieve grid parity in 5 or 6 years (Adds details)

By Mayumi Negishi and Kentaro Hamada

KYOTO, Japan, Sept 29 (Reuters) - The solar power sector is in a bubble, and 80 percent of companies in the industry could fail when prices of solar panels fall below the cost of making them, the head of Kyocera's solar operations said on Monday.

Compared to rivals, the world's No.4 solar cell maker has been wary of expanding solar panel production, waiting for technology advances to lower the cost of converting solar power into electricity, managing executive officer Tatsumi Maeda said.

Kyocera, which trails Germany's Q-Cells QCEG.DE, domestic rival Sharp Corp (6753.T) and China's Suntech Power Holdings Co Ltd (STP.N), was the first to mass-produce polysilicon solar cells in 1982.

But it now faces growing price competition from rivals, who have announced aggressive spending plans, pushing up the price of silicon, which is used to make most solar cells on the market.

"This is a bubble," Maeda told Reuters in an interview, referring to the estimated 200 solar power firms now in the sector and their plans to ramp up capacity.

"The prices of solar panels need to fall to less than half of what they are now (for their use to spread without subsidies), and current technology doesn't make that commercially viable."

"The industry is in for large price falls," he said, adding that it was dangerous to invest prematurely in inefficient technologies. "Eighty percent of solar sector makers will fail."

He said Kyocera aims to achieve grid parity -- making the price of electricity households get from solar panels as cheap as conventional electricity -- in five to six years.

Kyocera is under pressure from rivals who are launching production of thin-film solar cells, which convert solar energy into electricity at a lower rate but use a fraction of the silicon needed in conventional solar cells, cutting production costs.

But Kyocera will not adopt thin-film technology until the conversion rate improves to 12 percent from current levels of around 8 percent, Maeda said. Kyocera's existing solar modules now convert 14 percent of solar energy into electricity.

The Kyoto-based company plans to more than double its solar cell output to 650 megawatts by March 2012, and is angling for a competitive edge as it seeks to keep pace with growing demand for renewable energy.

That lags far behind market leader Q-Cells's plan to ramp up capacity to 1,000 megawatts in 2009 and 2,500 megawatts in 2010.

Solar cell demand is growing rapidly on the back of higher oil prices and concerns over climate change, and has been given an added boost from government subsidies and incentives.

But Germany and Spain, the world's top installers of solar power in 2007, have said they will cut subsidies for solar panels that have helped makers recover high initial costs.

Kyocera does not give breakdowns for its solar business, but the fine ceramics applications segment, which contains its solar operations, accounted for 21 percent of operating profit in the year ended in March. (Editing by Edwina Gibbs)