UPDATE 1-Japan looks to solar subsidies to boost industry

(Adds analyst comment, background)

TOKYO, June 23 (Reuters) - Japan is poised to bring back subsidies for solar panel makers next year to maintain its lead in the industry, two officials at its Ministry of Economy, Trade and Industry said.

The Ministry of Economy, Trade and Industry (METI) will receive recommendations from a panel that is due to discuss clean energy on Tuesday, officials said.

The ideas discussed include subsidies and tax breaks that could halve the cost of putting up solar panels in households, one said.

“It’s clear that lack of vision dented Japan’s lead in market share,” said the official, who asked not to be named as he was not authorised to speak to the media. “Japan has the technological advantage. But the measures would have to be drastic if we are to keep our lead.”

Japan has watched domestic solar demand dry up after it pulled the plug on subsidies, hurting firms’ ability to invest in research and expansion abroad.

Japan's decision to scrap solar subsidies helped Germany's Q-Cells AG QCEG.DE beat Japan's Sharp Corp 6753.T to become the No.1 supplier of solar cells, while China's Suntech Power Holdings Co Ltd STP.N nudge out Kyocera Corp 6971.T for third place, analysts said.

Japan, still the world’s biggest supplier of solar cells, made a mistake scrapping solar subsidies in 2005, said Nomura analyst Tetsuya Wadaki.

“The tide won’t change quickly. But Japan has owned up to its mistake. Now there is ample hope,” he said.

Because of the low barrier to entry in the solar market right now, Japanese firms will likely regain their technological edge only when thin-film technology becomes mainstream -- around 2010, he, and other analysts, said.

Thin-film solar cells cost less to make because they use a fraction of the silicon used in other silicon-based solar cells, but they are now less efficient in turning sunlight into electricity.

Japanese firms’ failure to procure adequate silicon further puts a cap on growth in the next two to three years.

Reports about the panel's proposals left shares of Sharp and Kyocera remained mostly unchanged, while Sanyo Electric Co Ltd 6764.T, which owns a hybrid technology that combines elements of thin-film and existing silicon-based cells, closed up 3 percent at 274 yen.

Shares of makers of solar equipment on expectations that the measure would further spur investment in environmentally friendly energy.

Japan is also home to solar equipment suppliers such as Ulvac Inc 6728.T, which jumped 7.8 percent, NPC Inc 6255.T, which rose 6.2 percent and SES Co Ltd 6290.Q, which rose 15.7 percent.

Prime Minister Yasuo Fukuda on June 9 announced a long-term goal to cut greenhouse gas emissions by 60-80 percent from current levels by 2050.

The initiative includes a target to have more than 70 percent of newly built houses equipped with solar panels by 2020. (Additional reporting by Tetsushi Kajimoto, Yuko Inoue; Editing by Louise Heavens)