By Ross Kerber

BOSTON, Sept 4 (Reuters) - Some notable fund managers are betting on solar energy shares, expecting a wave of industry consolidation and lower costs to pay off for the notoriously volatile industry.

The optimists, a mix of specialized environmental managers and mainstream investors, are going against several trends, since solar companies have already had a sizeable run-up this year and more fund managers have been selling the stocks than buying them.

That has not deterred Fidelity Growth Company Fund manager Steve Wymer, who has been talking up the new competitiveness of solar power and has been steadily purchasing shares of panel maker First Solar Inc. Among mutual funds, his is now the largest holder of the stock.

Solar plants coming online in 2019 will generate electricity for $119 per megawatt hour, according to estimates from the U.S. Department of Energy. That is still more costly than some new coal plants, projected to produce electricity at $96 an hour, but down sharply from the $396 the agency projected for solar in 2016 four years ago.

The U.S. industry has benefited from federal subsidies and import tariffs, while concentrating on large-scale solar projects promising regular income. In addition, solar companies have done several deals allowing them to combine operations like manufacturing and installation.

"The reason we're bullish is that solar has finally reached grid parity" in many regions, said Ian O'Reilly, who helps run the Pioneer Global Ecology fund.

 

BUYING IN

Since last year, O'Reilly's $1.5 billion Pioneer fund has become a significant holder of equipment makers SunEdison Inc and SunPower Corp.

Others who have cited falling costs as a reason to invest in solar stocks this summer include the managers of Royce Opportunity Fund. Another well-known solar backer is David Einhorn's closely watched Greenlight Capital hedge fund, now SunEdison's top investor.

Andrew Cupps, president of Cupps Capital Management in Chicago, said his firm earlier this year had begun buying shares of SunPower and residential installer SolarCity Corp, whose largest shareholder and chairman is Tesla Motors Inc Chief Executive Officer Elon Musk.

Cupps praised the efficiency of SunPower's solar panels and said SolarCity's recent purchase of panel maker Silevo should help drive down costs.

 

Shares of SunEdison tripled over the 12 months ended on Sept 3. The Market Vectors Solar Energy ETF is up 84 percent over that period, although the sector has been volatile and still remains below pre-financial crisis highs.

 

PRICEY SHARES

Skeptics cite setbacks like the 2011 bankruptcy of U.S. government-backed panel maker Solyndra LLC, plus soaring North American oil and gas production that could diminish interest in renewables.

The stocks also may be expensive. SunPower, for example, trades at 25 times expected earnings, about twice the multiples of some oil companies.

As solar stock prices rose over the last year, U.S. mutual funds sold some of their shares of SunPower, SunEdison and First Solar, according to Thomson Reuters' Lipper unit. But the value of their stakes still increased, likely because some managers held steady the percentage of solar in their portfolios, said Lipper Americas Research head Jeff Tjornehoj.

Lower solar costs reflect new technologies as well as cheap panels from Chinese manufacturers that have led to expanded U.S. import tariffs.

Kevin Landis, manager of the Firsthand Alternative Energy Fund, expects the tariffs to offer only marginal benefits to the companies he owns, SunEdison, First Solar and SolarCity.

A bigger help, he said, is that public utility commissions often allow electric rates to creep up to cover the costs of fossil fuels. That should bolster the competitive position of solar electric plants that do not have to buy costly fuel once they are built.

For most solar stocks, Landis said, "it's still right place, right time." (Reporting by Ross Kerber; editing by Linda Stern)