BEIJING, June 3 -- Solar Millennium AG, a Germany-based solar energy technology company, is working with its Chinese counterpart to build a multi-billion-dollar solar power plant in North China.

    The firm, with the Inner Mongolia Ruyi Industry Co Ltd, is conducting a feasibility study for the project in Ordos of the northern Inner Mongolia Autonomous Region.

    Preparatory work will be completed for construction to begin by the end of the year, said Christian Beltle, chairman of Solar Millennium.

    When completed, the plant will be China's first large-scale commercial plant converting sunlight into electricity, industry experts said.

    The project, using solar-thermal technology provided by Solar Millennium AG, would have a capacity of 1,000 MW (megawatts) by 2020.

    Total investment would be about 20 billion yuan (US$2.5 billion), according to the company.

    An initial phase with a capacity of 50 MW would be built in "a short period" at a cost of around 1.3 billion yuan (US$162.5 million), said Wang Genshu, chairman of the Inner Mongolia Ruyi Industry Co Ltd.

    Wang said they would invite strategic investors to come forward, both domestic and foreign, when the National Development and Reform Commission (NDRC) gives the go-ahead for the project, possibly next year.

    "About 20 to 30 per cent of the total spending will be financed by investors, with the remaining coming from bank loans," Wang said.

    He said a few companies, including foreign ones, have shown strong interest in the solar project.

    Officials from the country's top five power companies, including Huaneng and Datang, were not available for comment.

    The German energy firm signed a framework agreement with its Chinese partner last month.

    The move marks Solar Millennium's first entry into the growing renewable market in China. It has clinched deals to build similar plants in other places such as Spain and the United States.

    "This is our pilot project in China; I consider this to be a forward-looking decision based on sharply-increasing energy demand in the country," said Beltle. "China is expected to become our largest market in three to four years."

    Analysts participating in the feasibility study said they had investigated three provinces in China, but finally selected Ordos in Inner Mongolia because of its water resources and abundant sunlight.

    Solar-thermal technology, different from the more-commonly-used photovoltaic cells that directly turn light into electricity, needs water to generate steam for power production, and is cheaper in terms of construction costs, experts said.

    Ma Shenghong, a professor at the Chinese Academy of Sciences, said the Ordos solar plant would sell its electricity for 1.5-1.6 yuan (18.8-20 US cents) per kilowatt-hour to the grid companies.

    China, the world's second-biggest energy consumer after the United States, is pushing the use of renewable energy sources such as wind and solar to generate electricity. At the beginning of the year the government passed the country's first law on renewable energies.

    Beijing aims to increase renewable consumption in the energy mix from the current 7 per cent to 15 per cent by 2020.

    China's major power companies have been ordered to ensure 5 per cent of their electricity generators are fuelled by renewable energy sources by 2010, Zhang Guobao, vice-minister of the NDRC, the nation's top economic planning body, has said.