Soaring oil prices have led to such a boom for solar power that the industry could operate without subsidies in just a few years, according to industry leaders. At the solar industry trade fair in Munich over the weekend, there was growing confidence that the holy grail known as "grid parity" - whereby electricity from the sun can be produced as cheaply as it can be bought from the grid - is now just a few years away.

Solar photovoltaics (PV), which convert sunlight into electrical power, have long been dismissed as too expensive to make a meaningful contribution to the battle against climate change. But costs are falling as PV production booms, and with electricity prices rising rapidly in line with soaring oil and gas prices, demand for solar panels is increasing sharply.

Germany, the world leader in PV thanks to its "feed-in tariff" support, installed 1.1 gigawatts of capacity last year - the equivalent of a large power station. It now has nearly half a million houses fitted with PV panels. The feed-in tariff pays people with solar panels above-market rates for selling power back to the grid.

"High oil prices have boosted demand even more. The market will probably expand another 40% this year," said Carsten Körnig, of the German solar industry association, referring to both PV and solar thermal systems, which produce hot water. He said his previous assumption - that grid parity would be reached in Germany in five to seven years - now looked very conservative since it allowed for only a 3% rise in electricity prices each year. In many countries increases of 20% a year are becoming the norm.

All the companies at the Intersolar fair are planning large increases in production of solar panels. The China-based Suntech, the world ' + char(39)+ N' s biggest maker of PV panels, plans to double production from 540MW this year to 1GW in 2009.

Jerry Stokes, head of Suntech Europe, thinks grid parity in Germany can be reached within five years. In California and Italy, where there is lots of sun and high electricity prices, he said grid parity for PV systems had already been achieved.

"The great thing about solar power is that although you have an upfront cost, the fuel is free and is not controlled by another country," he said. PV costs were falling rapidly and would continue to do so as the efficiency of panels improved and installation costs dropped, Stokes said. Moreover, the price of silicon - which can be 70% of panel costs - is also likely to fall as new production comes onstream.

Although spot silicon prices have passed $400 (£200) a kilogram - up from $25 five years ago - many firms have secured long-term supplies at about $50-$70 a kilogram. Nitol, a Russian chemicals company, is building a new silicon production plant in Siberia that will take its output from 300 tonnes this year to 3,700 by 2009. Dmitry Kotenko, chief executive, said: "We expect to build five times that capacity in the coming years."

Q Cells, the world ' + char(39)+ N' s largest maker of PV cells from which panels are made, is relaxed about silicon supply. "By 2010 there will be easily enough silicon, maybe even too much," said spokesman Stefan Dietrich.

Q Cells plans to increase production of cells from around 600 MegaWatts this year to 2GW by 2010. The company now employs 2,000 people and is based in eastern Germany. Eight years ago it did not even exist.

Like other companies, Q Cells are also investing heavily in a newer technology called "thin film" PV which which is cheaper to make than conventional panels but less efficient.

The Norwegian company REC, which produces silicon, cells and solar panels, plans a 10-fold rise in production. REC ' + char(39)+ N' s Jon André Lökke said new plants were much more efficient than older ones and cut costs by at least 30%. REC predicts that several countries would reach grid parity for PV by 2012, although rising oil prices could mean those targets are met earlier. REC also expects panel costs to fall by 30% to 40% by 2012.

But rising demand could mean panel prices remain high even as costs fall. "It all depends on demand and that could remain high for a long, long time," Lökke said. Suntech ' + char(39)+ N' s Stokes agrees: "When we reach grid parity the demand could well be infinite."

Clive Collison, director of Action South-Facing, one of the few UK solar installers, is sceptical about talk of price falls because of high demand in Europe. "The industry has been telling me for the past three years that prices would drop but they have not. I have come here looking for cheaper panels but cannot find any."

Demand is particularly high in Spain, Germany and Greece but Britain ' + char(39)+ N' s PV market remains non-existent in the absence of a feed-in tariff. The industry has very high hopes for the American market, though, as fears of energy dependence grow. Suntech ' + char(39)+ N' s marketing director, Jeffrey Schubert, said:

"Things will get much better after the [US] election. Oil prices have accelerated the change and our intention is to no longer rely on government subsidies as an industry."

"Oil prices have accelerated the change and our intention is to no longer rely on government subsidies as an industry."

Martin Hake, marketing director of Japanese firm Sanyo, which makes the world ' + char(39)+ N' s most efficient PV panels, said: "The US market has huge potential and California is already at grid parity." Sanyo is doubling its production between now and 2010 to 600 MW peak. It has built a plant in Hungary to supply the European market but also expects to increase production in Mexico for the US market.

The solar revolution has not entirely passed Britain by. Sharp of Japan manufacturers PV panels in Wales although sells barely any into the UK market.

And Cardiff-based firm G24 innovations has just announced it has attracted £10m of new funding from investment bank Morgan Stanley to expand production of its dye-sensitised solar PV material which does not use silicon.

Its chief executive, Bob Hertzberg, says that although the new type of material is not as efficient as silicon panels, it is flexible and can be used on things like backpacks to charge mobile phones. It also works well in low light conditions and is ideal for off-grids locations in places like Africa and India.

G24 is in talks with mobile phone companies to provide solar chargers which would retail at $25-30. "We are not in competition with roor-mounted solar, we are in competition with batteries," he says.

40% The expected increase in Germany ' + char(39)+ N' s solar power market this year

1.1 The solar power capacity in gigawatts installed last year in Germany

30% The predicted fall in the cost of PV panels over the next four years