The Japanese giant declined to disclose the amount of new investment but the Nihon Keizai Shimbun said the auto and motorcycle maker would spend some $86.5m on its factory in Kumamoto prefecture in southern Japan.
Honda, which was the first major carmaker to enter the market, said it will use thin film solar cell made of a compound of copper, indium, gallium and selenium - instead of the usual silicon.
The production system will require only half the energy to produce a conventional solar cell and lower carbon-dioxide emissions by 50 percent, Honda said.
Honda said the next-generation solar panels - which had already been developed but had earlier proved difficult to mass-produce - would ultimately cut production costs.
"Honda will contribute to the effort to prevent global warming through production and sales of a clean energy source which does not use fossil fuels," it said in a statement.
The new production system will initially have an annual capacity to produce about 27.5 megawatts worth of solar cells, enough for 8,000 households a year.
Honda and other Japanese carmakers have made sizable profits in recent years to invest in eco-friendly technology such as hybrid cars, which have proven a particular hit in the United States.