* Hurdles include high installation costs, fragmented grids
* Solar potential lies in utilities with high power demand
* Softbank says to spend several pct of revenue in solar power
By Risa Maeda
TOKYO, May 25 (Reuters) - Japan's Prime Minister Naoto Kan is expected to announce a drive towards renewable energy, including slashing the cost of solar power, when he meets fellow leaders of the G8 rich nations group later this week, media reports say.
One target will be to increase the use of solar power 15-fold by 2030, according to the Asahi newspaper, while the Nikkei business daily said every new building, including residential houses, will be required to have solar panels by then.
The shift reflects efforts to ensure energy security and safety as regions hit by the March 11 earthquake and tsunami, which knocked out several power stations, face possible blackouts during the peak summer demand period, possibly even beyond this year.
Japan was the world's third-biggest user of nuclear power before the quake. But enthusiasm for nuclear energy has waned since the tsunami triggered a crisis at Tokyo Electric Power Co's Fukushima Daiichi plant, where engineers are still struggling to control reactors that had fuel meltdowns and stop radiation leaks that have caused thousands of residents to be evacuated.
Softbank Corp , Japan's third-largest mobile phone operator, said on Wednesday it plans to invest several percent of its more than 3 trillion yen ($36.6 billion) of sales revenues in solar power. [ID:nL3E7GO39X]
Its billionaire president, Masayoshi Son, has committed to helping boost renewable energy sources in the wake of the nuclear crisis. [ID:nL3E7GO39X]
Kan is expected to outline efforts to ensure energy security by boosting the use of solar power especially in cities, where constant power demand and use of thermal facilities make it easier for utilities to vary sources of electricity.
Unlike wind or geothermal power, whose potential has geological restrictions, solar power panels can work almost nationwide, and if installed in Tokyo and other areas of dense power demand would lessen the risk of blackouts.
The government called on Wednesday for curbs in electricity use by 15 percent from July 1 for two months in areas covered by Tokyo Electric, known as Tepco, which serves the capital and surrounding region, and Tohoku Electric Power Co , serving the devastated northeast region.
Utilities in other regions are also on alert for possible supply shortages this summer, with safety worries prompting local authorities to refuse to allow reactors shut for maintenance to be restarted.
"Solar is the most appropriate to cut demand in peak hours," said Hiroshi Komiyama, chairman of Mitsubishi Research Institute. The government could start by boosting its use in quake-affected areas, he said.
Japan's Institute for Sustainable Energy Policies says the nation should boost solar power to 71,000 megawatts by 2020 if it shifts away from nuclear power.
Currently, solar power in Japan has total capacity of about 2,600 megawatts, equivalent to a little more than 10 percent of the disabled Fukushima Daiichi plant.
But it is unclear how the government can achieve a switch to solar power, which has the highest installation costs of any energy source, beyond the proposed enhancement of an existing price incentive scheme for renewable power suppliers.
A bill submitted to parliament in March would expand the range of renewable sources from the existing scheme for small-lot solar power suppliers, mainly house owners.
Even if the bill is passed in a divided parliament and utilities are obliged to buy electricity from mega solar projects in a so-called "feed-in" tariff scheme, solar panels are not economically viable in Japan without subsidies, according to a government estimate.
Construction of a 1,000-megawatt power plant using solar energy would cost three times as much as if it used wind power and at least 10 times as much as for nuclear energy, when the energy efficiency of each source is taken into account, a separate government estimate showed.
But solar panel prices are on the decline, and if houses and buildings are more effectively insulated, initial investments would be paid back in eight years or so, instead of 15 to 20 years currently, Mitsubishi Research's Komiyama said.
Limited transmission capacity between regionally dominant power companies is another factor keeping power suppliers from tapping into solar or wind power.
Unlike in Europe, where power grids are connected across national borders, Japan's fragmented system is divided into nine regions and links are used only when there is a sudden jump in demand or problems at power facilities.
In the northern Japan island of Hokkaido, where wind potential is higher than in other regions, for example, Hokkaido Electric Power Co limits its capacity for wind power to 360 megawatts, or a little more than 10 percent of the island's minimum power demand, to avoid any failure to meet demand.
A failure would cause unexpected blackouts.
But for utilities with larger power demand such as Tokyo Electric, Kansai Electric Power Co and Chubu Electric Power Co , their capacity for such variable sources should be much bigger.
Using a similar assumption, Tokyo Electric, which serves the country's economic heartland of Tokyo and its surrounding areas, could take in about 3,000 megawatts of wind and solar power combined without support from neighbouring utilities or causing unexpected blackouts. (Editing by Michael Watson)