Sept. 8 (Bloomberg) -- Showa Shell Sekiyu K.K., a Japanese refiner, is considering selling shares in a solar-panel unit to fund an expansion of its renewable energy business and cut reliance on fuel sales. The stock rose.

Shares in Showa Shell Solar K.K. may be sold either in Japan or overseas, Chairman Shigeya Kato said in an interview in Tokyo yesterday. The funds may be used to build a fourth factory, probably in the Middle East, to make panels that convert sunlight into electricity, he said. Kato didn’t say how much money may be raised or when the proposed initial public offering may be held.

The unit of Royal Dutch Shell Plc aims to enlarge its share of the global solar-panel market to at least 10 percent by March 2015 from the current 1 percent, and diversify from refining as Japan’s petroleum demand declines because of a shrinking population and increased energy conservation. Showa Shell said it will build a 100 billion-yen ($1.1 billion) factory in southern Japan to boosts its solar-panel capacity 10-fold.

“In a head-to-head race in the global solar market, Showa Shell can’t let up in efforts to invest, expand, and make theirs the top-of-the-line product,” Hirofumi Kawachi, an analyst at Mizuho Investors Securities Co., said by phone from Tokyo. “Fundraising through an IPO probably wouldn’t be a good idea this year or next given the state of the global market, but the door may be open from 2011 onwards.”

Global Race

Showa Shell climbed 2.3 percent to 995 yen in Tokyo trading, the highest closing price since Aug. 14. The stock has gained 24 percent in six months, beating the 17 percent rise in the 11- member TOPIX Oil and Coal Product Index.

Showa Shell is competing with market leaders such as Germany’s Q-Cells SE, Arizona-based First Solar Inc., Sharp Corp. and Kyocera Corp.

Q-Cells was the biggest producer last year, with 574 megawatts, or 8.5 percent of global sales, according to California-based researcher iSuppli Corp. Showa Shell’s new factory, in Miyazaki prefecture, will add 900 megawatts of capacity for solar cells, which it assembles into panels.

“We must prove to potential investors that our solar business model is globally competitive and provides a decent rate of returns on investment if we go ahead with an IPO,” Kato said. “We may further expand capacity as soon as we see sales growth and establish ourselves as leading competitors.”

JPMorgan Rating

JPMorgan Chase & Co. analyst Masayuki Nagano called the plan to build the new plant “positive” in a report released today, in which he maintained his “overweight” rating on the shares.

Showa Shell began making photovoltaic, or solar, panels in 2007, commissioning its first plant, also in Miyazaki, with initial capacity of 20 megawatts a year. The company in June started a second factory in the prefecture and expanded capacity to 80 megawatts.

A fourth plant may be located at home or abroad, in places such as the Middle East where solar-power demand is likely to grow quickly, Kato said. Showa Shell has said it will ally with state-owned Saudi Arabian Oil Co., known as Saudi Aramco, to build small solar-power plants to supply schools, hospitals and households in the region.

Climate Pledge

Prime minister-designate Yukio Hatoyama yesterday renewed his party’s pledge to reduce Japan’s emissions of greenhouse gases by 25 percent by 2020 from 1990 levels, contingent on other countries adopting similar targets. Incentives introduced by the Democratic Party of Japan to attain its goal may result in a 20-fold surge in solar sales by 2020, Goldman Sachs Group Inc. analysts Hiroyuki Sakaida and Ikuo Matsuhashi said in an Aug. 17 report.

Some 190 countries will meet in Copenhagen in December to negotiate a new United Nations treaty to fight climate change, which may include targets for reducing emissions blamed for global warming.

Japan’s oil consumption has slumped since touching a peak of 247 million kiloliters in 1996, damped by a shrinking population and a switch to cleaner alternatives. Demand is forecast to continue to decline by an average of 3.5 percent a year to March 2014, according to the trade ministry.

To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net.

Last Updated: September 8, 2009 03:19 EDT