AU Optronics Corp., one of the world's largest LCD panel makers, is diving into the thin-film solar world with a plan to set up a pilot production line this year.

The Taiwanese company said its know-how in making thin-film transistor liquid crystal display panels would give it an edge in making solar panels. AUO (NYSE: AUO) announced its plan last week but didn't say in its press release which thin-film technology it would use.

But the company said it intends to use a third-generation thin-film technology that can convert more than 10 percent of sunlight into electricity, a description that matches the progress being made in the amorphous silicon thin-film field. Citing unnamed sources, DigiTimes reported that AUO plans to produce amorphous-silicon panels at its pilot plant in Taichung, in central Taiwan.

The solar energy business has attracted display panel makers and their suppliers because the processes for making the displays are similar to those making solar panels.

For instance, Santa Clara, Calif.-based Applied Materials, which makes equipment for producing display panels, entered the solar market in 2006. In Silicon Valley, a small U.S.–South Korean company called Telio Solar has jumped into copper-indium-gallium selenide solar cells, in part because of its strengths in TV manufacturing.

South Korea's LG Electronics flirted with the idea of entering the solar panel business through a joint venture with Germany's Conergy last year (see LG Shoots Down Conergy Deal). LG, however, didn't get out of the deal because it didn't have the skills – the company said the timing was wrong.

Many Japanese electronics makers already have invested heavily in solar and rank among top producers in the world (see Sharp Guns for U.S. Thin-Film Market and Panasonic to Buy Sanyo for $9B).

With its manufacturing muscle, AUO could become a serious contender in the thin-film market domestically and abroad. A growing number of Taiwanese electronics companies have launched plans to make thin-films, which use little or no silicon.

The thin-film business is still young, and many companies exploring different technologies and trying to commercialize their products. Most of the solar panels made in the world today aren't thin-films but are made with crystalline silicon. Crystalline silicon panels can convert more sunlight into electricity than thin-films, but thin-film makers say they could make panels cheaper.

AUO's competitor, Chi Mei Optoelectronics Corp., spent $66 million to set up a new subsidiary in January 2008 to make amorphous silicon thin-film panels. Chi Mei plans to start production in the first quarter of 2009 at a factory with an annual capacity of 50 megawatts.

Other amorphous-silicon solar players in Taiwan include Auria Solar, which said last month it had begun producing thin-film panels. Sun Well Solar, a division of media storage maker CMC Magnetics, began mass producing amorphous silicon thin-film panels last summer (see Sun well Rolls Our Thin-Film Panels).

Nanowin Technology, another Taiwanese solar company, is developing thin-film panels using copper indium gallium selenium (CIGS) instead of amorphous silicon. It also is developing equipment for making CIGS panels.

Meanwhile, Taiwan's chemical giant Formosa Plastics is gearing up for the thin-film business, too. The company plans to invest NT$11 billion ($333 million) to build a factory for making silane, a gas used to make amorphous-silicon panels. It also is putting up NT$33 billion ($996 million) to make polysilicon, the key ingredient for making crystalline silicon panels, reported the Economic Daily News in Taiwan (via DigiTimes).

Taiwan's government-owned utility, Taiwan Power, said last week it would expand its solar energy production to reach 10 megawatts per year by 2011. The plan, as a result of the government mandate, would cost about NT$3.57 billion ($108.6 million).

AUO hasn't disclosed details about its pilot thin-film production line, such as the cost and capacity. The company could be buying equipment from one of the two big suppliers, Applied Materials or Oerlikon Solar.

Both Applied and Oerlikon, based in Switzerland, have sold equipment to Taiwanese companies.