by Tom Abate, SF Chronicle

The solar industry remains a bright spot in a down economy. But while the field continues to grow, the rate of progress may be slowing as the credit crunch and technological difficulties blunt the effect of government subsidies, industry sources say.

A layoff announced last week by Hayward's OptiSolar Inc. highlighted some of the issues facing the sector. The local company, which builds power-plant-size solar arrays, blamed the 290 job cuts on trouble securing financing. Industry observers said its troubles also reflect the challenges of moving new technologies from the lab to the field.

"The Silicon Valley plants are now coming to the proof of principle point," said Neal Dikeman, a founder at Jane Capital Partners, an energy investment firm in San Francisco. "Everyone has simply underestimated how difficult this is."

As the new Obama administration pegs its job-creation hopes on industries like solar, the question is not whether the field will grow, but whether it will grow faster or slower – and with what subsidies.

Last year, Congress enriched and extended a 30 percent federal tax credit on solar installations. California, which adds another 15 to 20 percent in incentives on top of that, has seen solar installations soar, according to California Public Utilities Commission analyst Molly Tirpak Sterkel.

"We have continued to see strong, in fact record, installations in California despite the economic conditions, and we are optimistic that it will continue in 2009," she said.

But industry sources say the nationwide market, while still growing, is growing slower.

Ron Pernick, with the market research firm Clean Edge, said solar installers are still hiring but at a slower pace in part because of the credit crunch and a wait-and-see attitude about government incentives.

"Until we get clarity from the Obama administration and the credit markets loosen up, it's going to be real hard for some of these solar outfits," Pernick said.

'Financing is a problem'

Barry Cinnamon, chief executive of Akeena Solar in Los Gatos, said his firm's solar installation business has slowed from a growth rate above 40 percent to something more in the 25 to 30 percent range. He hopes that falling prices for solar arrays, coupled with more generous federal tax incentives, will re-energize orders.

"The economics of solar have never been better," Cinnamon said. "But financing is a problem. They can't borrow money to put in the system."

Financial analyst Jesse Pichel, who follows the solar industry for Piper Jaffray, said all three segments of the installation marketplace are feeling the credit pinch to varying degrees. The residential sector must contend with plunging home equity and declining consumer confidence. Corporate buyers are leery of the capital expenditures required to put in huge arrays. The third solar market is for industrial-scale installations to sell power to utilities, and Pichel said it faces the largest financial and technical hurdles.

Focus on current contracts

OptiSolar falls into this last category. The Hayward firm says it will focus on completing current contracts, including a 550-megawatt solar plant for PG&E in San Luis Obispo. A PG&E spokeswoman said the utility remains confident OptiSolar will hit the project's Dec. 31, 2010, deadline. That deal is one of about 40 contracts PG&E has made with alternative energy suppliers to meet a state-imposed requirement that it get more than 20 percent of future power from renewable sources.

To spur installations nationwide, the solar industry wants Congress and President Barack Obama's administration to sweeten the new federal tax incentives.

Rhone Resch, president of the Solar Energy Industries Association, argues that tax credits work only when consumers and businesses pay taxes. With the recession hitting paychecks and profits, he says tax liabilities will shrink, making credits less appealing. He wants the 30 percent credit to be refundable, so even if buyers do not pay taxes on the installation, they could still get the benefit.

In a press conference after Obama's stimulus speech, Resch said solar companies have been talking about layoffs in the industry's 80,000-person workforce. He said the goal of creating 165,000 new jobs by 2011 would be jeopardized unless "these tax credits are improved."

Pichel, the financial analyst, said European countries have driven solar installations using a different strategy, promising to pay certain prices for solar-generated power. That has created large markets in countries such as Germany, Spain, Italy and Greece. Pichel said Europe now accounts for about 80 percent of global solar demand versus close to 10 percent for the United States.

"Solar continues to be an industry driven by subsidies," he said.

E-mail Tom Abate at

Original Article.