Nov. 6 (Bloomberg) -- Kawasaki Heavy Industries Ltd., a Japanese maker of trains, plans to build a battery factory by 2020 to tap demand from railways and renewable-energy projects.

The 50-megawatt-hour plant in Hyogo prefecture, western Japan, would increase Kawasaki Heavy’s capacity eight-fold and may cost several billion yen, Yuichi Miyamoto, head of a new battery division, said in an interview. The Kobe-based company is also considering building a second production line with the same capacity, he said.

Demand for the batteries, about as big as filing cabinets, is set to rise as companies including East Japan Railway Co. switch from diesel to electric trains to cut emissions, and utilities led by Tokyo Electric Power Co. look for ways to store power from the wind and sun. Kawasaki Heavy is competing against NGK Insulators Ltd. and Hitachi Ltd. for a market that will almost double from 2007 to 540 billion yen ($5.9 billion) in 2013, according to research firm Fuji Keizai Group.

“The prospects for both growth and profit are rosy,” Takeo Shibaoka, an analyst at Okasan Securities Co., said by phone today. “The importance of these larger batteries will grow as the technology is applied to different products.”

Gigacells

Kawasaki Heavy has risen 20 in the past year compared with a 3 percent drop in the Topix Index. The shares rose 0.9 percent to 221 yen at the morning trading break in Tokyo today.

Kawasaki’s Gigacell nickel-hybrid batteries come in 7.2 kilowatt-hour modules and are usually sold in lots of 1,000, according to the company. Kawasaki doesn’t yet have a dedicated factory and instead makes parts at three different plants in Hyogo, Miyamoto said. The company produces about 6,000 kilowatt- hours of batteries annually.

“Our aim is to take about 20 percent of the domestic market” said Miyamoto, whose battery division was set up this month. “We want to be ready for rising demand and avoid a situation where our customers have to wait for our products because we lack the manufacturing capacity,” he said in an interview in Tokyo this week.

Kawasaki Heavy has developed the SWIMO passenger train powered by Gigacells, hoping to win orders from railways seeking a switch from diesel vehicles in order to reduce carbon emissions.

East Japan Railway, which operates in Tokyo and northern Japan, will trial a battery-powered train in January, spokesman Hideyuki Goto said. The company plans to replace more diesel vehicles with battery-powered trains to meet its own target of halving carbon emissions by 2030 from the amount the company produced in 1990.

Kawasaki Heavy aims to take advantage of the government’s drive to increase wind and solar generation. Companies such as Japan Wind Development Co. can command better prices if they are able to store power and supply the grid even when the wind isn’t blowing.

Japan will offer incentives to increase solar capacity 20- fold to 280 gigawatts by 2020, and those incentives may be extended to other forms of renewable power in future, the ruling Democratic Party of Japan has said.

Japan may need to spend as much as 6.7 trillion yen upgrading the nation’s grid, including adding batteries, to manage the coming renewable energy boom, the trade ministry has said.

To contact the reporters on this story: Megumi Yamanaka in Tokyo at myamanaka@bloomberg.net.

Last Updated: November 5, 2009 23:04 EST