The company late last week broke ground on a plant that will produce silicon wafers, widely used in the solar power industry, the Economic Daily News reported.

It said the plant, which is scheduled to go into operation in the fourth quarter of this year, will eventually cost Tw$25 billion ($850 million).

AU Optronics also plans to spend Tw$73 billion on a solar cell manufacturing plant in central Taiwan, with construction expected to kick off before the year's end, it said.

Friday's investment -- the latest of a series of similar ones launched by IT giants such as Hon Hai and Taiwan Semiconductor Manufacturing Corp. -- comes as the government aggressively pushes for projects to utilise clean energy.

Taiwan's parliament passed a major renewable energy bill in 2009 aimed at adding between 6,500 and 10,000 megawatts of installed energy from renewable sources over the next 20 years. The move partly reflects a scarcity of energy sources on the island.

Even so, the rush to enter an increasingly crowded field has sparked concerns about anticipated global oversupply as China, the world's biggest solar energy equipment supplier, keeps boosting its manufacturing capacity.

Kenneth Lo, chairman of the Industrial Bank of Taiwan, warned Tuesday that if the rush is not checked, solar power may emerge as another debt-ridden sector.

But analysts said the outlook for Taiwan's solar power sector is fairly bright at least for the coming two years, despite the expected steep rise in supply and dumping of cheap China-made products.

"The biggest niche of local makers is quality," Sean Chen of Concord Securities, told AFP.

For instance, he pointed out, solar cells made in Taiwan are more stable than those manufactured in China, where human labour is more widely used, increasing the risk of errors.

"After all, solar cells have to withstand wind and rain for 20 years. Poorly made cells may generate additional maintenance costs for the downstream module suppliers," he said.

Prices of solar cells are expected to fall by up to 20 percent this year, while global supply is forecast to surge 50 percent, he said.

The world saw its installed solar power capacity nearly double to 16 gigawatts last year, as users scrambled to boost capacity before the subsidies offered by countries like Germany and Spain were cut due to budget considerations.

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