Will solar power ever be as cheap as coal?

“Solar power is the energy of the future – and always will be.”

That tired joke, which has dogged solar-generated electricity for decades due to its high cost, could be retired far sooner than many think.

While solar contributes less than 1 percent of the energy generated in the United States today, its costs are turning sharply downward.

Whether using mirrors that focus desert sunlight to harvest heat and spin turbines or rooftop photovoltaic panels that turn sunshine directly into current, solar is on track to deliver electricity to residential users at a cost on par with natural gas and perhaps even coal within the next four to seven years, industry experts say.

“We’re confident that we’re not that far away from a tipping point where energy from solar will be competitive with fossil fuels,” said Ray Kurzweil, a National Academy of Engineers panel member after the panel reported on the future of solar power in February. “I personally believe that we’re within five years of that tipping point.”

To do that, however, the cost of electricity produced by rooftop solar panels, for instance, will need to fall by half – from about 32 cents per kilowatt hour (kwh) today, including subsidies, to about 15 cents per kwh by 2012, according to a new report by FBR Capital Markets, an investment bank, and market researcher Solarbuzz.

Evidence of a shift appears to be taking shape around the country. Google, the Internet search company, has invested in several young solar-power start-ups with an explicit cheaper-than-coal goal. San Jose, Calif.-based Nanosolar already claims to be shipping “thin-film” solar panels that generate electricity on par with the cost of coal-fired power. And in Lexington, Mass., Frank van Mierlo and Emanuel Sachs are leading a team of engineers with one audacious mission: Make a silicon photovoltaic cell that turns sunshine into electricity as cheap as electricity from a coal-burning power plant.

“There’s no doubt that we’re going to see solar as cheap as coal power a lot sooner than many people realize,” says Mr. van Mierlo, president of 1366 Technologies, standing beside an industrial furnace inside the company’s pilot manufacturing facility.

Proof of what he says lies a few footsteps down a hallway where Sara Olibet, an applied physicist, is painstakingly measuring the efficiency of dozens of solar-cell prototypes, each with a different combination of chemical coatings designed to maximize power output.

In her lab, she uses tweezers to select one-inch-square cells and put them into a refrigerator-size machine that shines light with sun-like intensity. In addition to efficiency ratings, readings are taken along the light spectrum to evaluate the cells’ coatings and other aspects being tweaked toward a single optimum formula.

For 1366 Technologies, whose name is derived from the “solar constant” of 1,366 watts per square meter that strike Earth every moment, the immediate goal is to produce a 3 percentage point gain in cell efficiency. While boosting a solar cell’s efficiency from 15 percent to 18 percent may sound trivial, it would mean a huge cut in production costs, from $2.20 cents per watt today to $1 a watt – without federal or state subsidies, van Mierlo says.

At that $1-a-watt level, 1366 Technologies claims it could produce solar panels with cells delivering electricity to a home as cheaply as the delivered cost of coal power – about 10 cents per kwh.

“It’s not hyperbole to say that we’re within reach of grid parity,” van Mierlo says. Adding to that $1 a watt a modest profit and cost of installation, the delivered cost of power would be about $3 a watt – or 18 cents per kwh – without any subsidies. At that rate, a rooftop residential solar module would produce power on par with the cost of grid power in the Northeast today.

Others are less sure. “Relative to every other significant generation source, solar is still quite expensive today,” says Jim Owen, a spokesman for the Edison Electric Institute, which represents investor-owned utilities. “This technology holds significant promise, particularly utility-scale solar thermal technology. We want to tap into solar technologies and the sooner the better, but it doesn’t seem around the corner.”

Still, an array of experts agree that solar could cause a “disruptive” shift in US energy generation five years from now. When “grid parity” for solar arrives at that time, the nation will likely see sharp growth in solar panels installed on residential rooftops, driven not by environmental concerns, but by a desire for more economical electricity, these energy industry analysts say.

Next year, enough solar panels will be sold in the US to generate 330 megawatts of power, the FBR projects. But the US could well see a 20-fold rise in US solar panel sales by 2013, enough to power about 3.5 million homes with two-kilowatt rooftop solar arrays, it says.

That surge could arrive faster with new federal tax credits that cover 30 percent of the cost of a solar installation. In some states, the news is even better for solar customers.

“The reality is that even today, there are some places in California where, with state incentives, solar already has grid parity,” says Robert Margolis, senior energy analyst for the National Renewable Energy Laboratory. Nationwide, the date is closer to 2015, he says.

“Even the credit crisis, funny enough, may actually accelerate it by temporarily squelching demand and causing solar prices to come down faster,” says Travis Bradford, president of the Prometheus Institute, a think tank focused on solar power.

Several analysts expect the solar panel industry to soon enter a brutal shakeout that will eliminate many weaker companies, but also benefit consumers by chopping solar panel costs in half.

Right now companies like Nanosolar that already have funding have soldiered on. Van Mierlo says 1366 is shepherding its resources. It could launch a manufacturing facility in 2010, but the company can afford to wait patiently, refining cell-manufacturing technologies until the perfect moment for full production, he says.

“In five to seven years, the idea of building a home without solar energy on it will be as silly as building without plumbing,” Mr. Bradford says.