By Braden Reddall

SAN FRANCISCO (Reuters) - Canadian Solar Inc is expected to decide within months whether to build a factory that could produce 700 megawatts per year of new, more efficient solar cells, the firm's head said on Tuesday, with any facility likely to be in China.

Chief Executive Shawn Qu said at a conference in San Francisco that there was a good chance the company, which already carries out most of its production in China, would take the step despite oversupply in the solar equipment market. He declined to comment on the potential cost.

Solar equipment manufacturers have struggled to reduce production costs as prices for panels that convert sunlight into electricity have plummeted by more than half in the past year on a supply glut.

That has forced several companies in China, Europe and the United States to shutter operations, and many more are expected to merge or shut down as the fledgling industry undergoes a shakeout.

The factory touted by Canadian Solar would produce cells which the Ontario-based firm says can achieve efficiency of 19.5 percent, compared with about 17 percent for many rivals. Solar cell efficiency refers to the ratio of electrical output to the amount of sunlight.

Mark Kingsley, chief commercial officer of China-based competitor Trina Solar Ltd , said he expected to see solar companies start competing more on efficiency and less on price, as costs have come down far enough for most buyers.

Trina earlier on Tuesday said it had expanded into Canada by striking a deal with module maker Silfab Ontario, a unit of Italy's Silfab SpA, as it finds a way around recently set U.S. tariffs on Chinese modules.

(Reporting by Braden Reddall in San Francisco; Editing by Carol Bishopric and Joseph Radford)