updated 9/19/2006 6:00:24 PM ET 2006-09-19T22:00:24

As demand for clean energy rises around the world, the nation's high tech hub is finding new ways to squeeze money from silicon.

Silicon Valley, named for the material used to make computer chips, is applying its expertise to design and manufacture silicon solar cells that convert sunlight into electricity. Advocates hope the region's engineers and entrepreneurs will help make solar competitive with traditional energy sources such as coal and natural gas.

"We're in the very early stages of a long build-out in solar technology," predicted Erik Straser, who heads the "cleantech" practice at the Menlo Park venture capital firm Mohr, Davidow Ventures. "The potential is really enormous."

Thanks to aggressive government policies, Germany and Japan are still the world's solar leaders, but as the global market expands and California launches ambitious programs to promote solar energy, Silicon Valley is emerging as a key center for sun-powered technology.

Solar cells, which produce an electric current from the sun's rays, share many similarities with the microprocessors that form the brains of computers and other electrical devices.

Both are types of semiconductors -- devices that control the flow of electrical currents -- and both are made from polysilicon, a kind of silicon refined into crystals that can be sliced into wafers. Solar cells, which are commonly assembled together into rooftop panels, are larger and made from a less refined form of polysilicon than computer chips, but the same manufacturing processes can be applied.

Despite technological advances since the first photovoltaic cells were invented 50 years ago, solar is still two to three more times more expensive than power generated from fossil fuels in the U.S. and relies on government subsidies to compete.

But improving technology, falling costs, rising prices for fossil fuels, concerns about the electric grid's stability and worries about global warming are all fueling the growth of solar. The industry is expected to grow from $11 billion in 2005 to $51 billion in 2015, according to a projection by Clean Edge Inc., a market research firm focused on clean technology.

And that's why Silicon Valley is getting involved.

So many valley companies, venture capitalists and entrepreneurs are rushing into the burgeoning solar industry that it's inviting comparisons to the early expansion of the microchip industry more than two decades ago.

"If there's anywhere in the world that can push the envelope on solar, it might very well be Silicon Valley," said Clean Edge co-founder Ron Pernick. "Silicon Valley is very well-positioned to provide a lot of innovation in solar."

This month, Applied Materials Inc., a Santa Clara company that makes manufacturing equipment for microchips and flat-panel monitors, announced plans to sell tools for making solar cells. The company projects the market for such equipment would triple to $3 billion over the next four years.

The company's semiconductor equipment can be retooled to make silicon solar wafers, while its technology for flat-panel displays can be applied to "thin film" solar cells sprayed onto glass and other flat surfaces.

"By lowering the cost and increasing the volumes, we think that solar power will become much more affordable in more places in the world," said Chief Technology Officer Mark Pinto.

Cypress Semiconductor Corp. of San Jose was one of the first Silicon Valley chipmakers to cross over into the solar sector.

Four years ago, Cypress founder T.J. Rodgers persuaded his board to buy a majority stake in solar cell-maker SunPower Corp., founded by his former Stanford University classmate Richard Swanson. Rodgers argued that Cypress' manufacturing technology could be used to reduce costs and expand production of SunPower's cells.

Cypress' investment is paying off. SunPower raised $146 million when it went public last year, making it one of last year's most successful initial public offerings. Revenue has increased from about $10 million in 2004 to a projected $230 million in 2006, said SunPower Chief Executive Officer Tom Werner.

"The semiconductor and solar industries are very similar," Werner said. "It's just that the solar industry hasn't gotten to the same scale as the semiconductor industry."

Solar's expansion in Silicon Valley won't necessarily create lots of manufacturing jobs in the San Francisco Bay Area. Like the microchip industry, the solar sector is moving production offshore to low-cost countries, mostly in Asia.

Only about 100 of SunPower's 1,300 employees work at its San Jose headquarters; the rest work at a new manufacturing plant in the Philippines.

Silicon Valley venture capitalists are also taking an interest in solar, part of their growing interest in "cleantech" companies that develop environmentally friendly technologies.

About $1.4 billion in venture capital was invested in cleantech ventures during the first six months of this year, and $1.6 billion was invested last year, according to the Cleantech Venture Network.

About one-third of that money was invested in Silicon Valley, said Carl Guardino, who heads the Silicon Valley Leadership Group.

"We all realize that green is gold," Guardino said. "Venture capitalists are betting with their wallets that cleantech will play a significant role in Silicon Valley."

The valley's rush to solar isn't without risk. The solar industry must bring down costs significantly to persuade homeowners and businesses to install solar systems on-site rather than just buy electricity from the local utility.

The industry also faces a worldwide shortage of polysilicon created by the rapid expansion of solar. This year, for the first time, the solar industry is expected to consume more silicon than the semiconductor industry.

And some valley solar startups are moving beyond silicon. Miasole of San Jose and Nanosolar Inc. of Palo Alto are developing thin-film solar cells made from alternative materials like copper and selenium. Nanosolar has raised $100 million in venture funding and plans to build what it says will be the world's largest solar-cell factory in the Bay Area.

Solar still makes up far less than 1 percent of the world's electricity supply, but it has grown by more than 40 percent annually over the past five years, and today is worth about $15 billion globally, according to Rhone Resch, president of the Solar Energy Industries Association.

"The solar industry is the next great high-tech industry," Resch said. "Our estimate is that within 10 years solar will be the lowest cost option for electricity in the U.S."

State governments from Arizona to New Jersey are creating programs to reduce emissions of heat-trapping gases such as carbon dioxide and expand use of carbon-free energy such as wind and solar.

California hopes to overtake Germany and Japan as the world's largest solar market with its "Million Solar Roofs" program, which provides $3 billion in rebates to consumers who install rooftop panels. The state's landmark global warming legislation, which seeks to reduce greenhouse gas emissions by 25 percent over the next 14 years, is also expected to dramatically expand the market for solar power.

"With the help of Silicon Valley," said Bernadette Del Chiaro, clean energy advocate for Environment California, "California can become the Saudi Arabia of the sun, exporting new technologies for the rest of the country and world."

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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