HOUSTON, Jan 11 (Reuters) - CPS Energy of San Antonio, the largest power and gas municipal utility in the nation, is negotiating with OCI Solar Power to develop 400 megawatts of solar power over the next five years as part of a larger economic development effort, officials said on Wednesday.

OCI Solar said it will relocate its headquarters from Atlanta to San Antonio, establish an engineering and operations center and work to bring solar manufacturing facilities to the area as it develops solar farms totaling 400 MW, enough to serve about 24,000 typical Texas homes.

OCI solar is majority-owned by OCI Enterprises Inc, the North American subsidiary of Korean-based OCI Company Limited.

Wednesday's announcement caps an 11-month effort by San Antonio officials to attract a solar manufacturer to the city and to boost use of emission-free power to meet a 20 percent target of 1,500-megawatts by 2020.

City officials said the economic development proposal could involve $100 million in capital investment and 800 new jobs.

"San Antonio has reached a sweet spot at the intersection of job creation and environmental stewardship," said Julian Castro, mayor of the state's second-largest city, at a press conference. "A lot of folks out there wonder whether these two things are mutually exclusive. This is about doing both."

The OCI Solar partnership will help the city reach its renewable goal by 2020, Castro said.

OCI said it is building a consortium of companies to manufacture components that will eventually be used in the wind farms.

Nexolon, which produces polysilicon ingots and wafers used in solar panels, will serve as an anchor manufacturer and will locate its North American headquarters in the city, said Kirk Milling, chairman of OCI Solar.

The partners hope to hammer out more details in the next three months, said Doyle Beneby, CPS Energy president. Building initial manufacturing facilities could take two years, followed by phased development of the solar farms over the next five years.

CPS said it will buy the output from the new solar facilities as they are developed. Some will be built near San Antonio while others may be sited in West Texas.

Beneby declined to talk about the price the utility will pay for the solar output which is more expensive than other forms of electric generation, but said the projects should be "among the most competitively priced of any solar projects in the country."

OCI has developed a number of small solar projects and has about 350 MW in the pipeline, Milling said. Even without state subsidies for solar producers, Milling said Texas is an attractive market for solar to become economical.

CPS already buys solar power from two solar farms as well as a larger amount of wind power.

Texas leads the U.S. in wind power with nearly 10,000 MW of installed capacity and San Antonio's move is the latest among large Texas cities to claim "green" bragging rights.

Austin Energy, a smaller municipal utility serving the state capital, has set a goal to have 35 percent of its electric supply generated from renewables by 2020.

Houston, Texas' largest city, which does not operate a municipal power agency, ranks as the largest purchaser of green power among local government entities, enough to supply 34 percent of its city-owned facility needs, according to the U.S. Environmental Protection Agency.

Following closely in the top five on the EPA's list are Austin which uses wind power for 100 percent of the city's electric needs and Dallas which uses renewables to supply 40 percent of its civic load. (Reporting by Eileen O'Grady in Houston; Editing by Alden Bentley and Carol Bishopric)