Is the sun going down on solar?

US Domestic Solar Market

Questions remain as to whether tax credits, grants and loan guarantees from Washington are doing enough to drive demand for solar power in the US market.

Figures released by the principal analyst at Navigant Consulting at the recent Solar Energy Investment and Finance Summit would suggest not.

Paula Mints announced that throughout the entire world, demand for solar energy technology will fall by 17 percent in 2009. This will be the first time ever that the market has contracted. She said that solar cell and panel makers are likely to sell about 4.6GW this year, compared with about 5.5GW in 2008.

However, one must consider the fact the world is emerging from the worst recession since the Great Depression of the 1930s, which led to demand for many things crashing - but a fall of 17 percent is a fairly alarming slump nonetheless.

Recession is in danger of distorting supply versus demand figures

The recession is therefore in danger of distorting supply versus demand figures, because in fact demand for solar is growing in the United States but the process is extremely slow. Slowed even further by the economic crisis.

Earlier this month at the Novogradac Financing Renewable Energy Conference, focus was drawn to the way in which solar and other renewable projects are funded. Seeking Alpha, who covered the conference, state that traditional renewable energy projects in the US are financed by tax credit equity (i.e. "dollar for dollar" reduction in tax liability). Through 2016, solar projects are eligible for a 30 percent Investment Tax Credit (ITC), meaning upstream solar manufacturers stand to benefit from supplying developers.

And although the recession significantly reduced the number of tax credit equity investors to around 12, this year's ARRA has responded well by stimulating growth in the renewable energy sector.

China's giant steps in the solar market

The prospect of new green jobs and a determination to respond to China's giant steps in the solar market have done well in helping push up domestic demand for solar in America. But, as said before, it's a gradual process.

The crisis made things tough for solar firms in the US - especially those who started planning for new factories before it hit - but since last fall these companies have opened their plants in light of renewed optimism in the sector.

The development of manufacturing plants within the US, and avoiding the temptation to just "buy cheap" from China, is key to driving up domestic demand. For example, Arizona-based First Solar purchased yet-to-be developed projects from OptiSolar for $400 million earlier this year, specifically aimed at creating demand in the US market.

Since the recession hit, Washington has responded well to the needs of our fledgling green industries. And although demand is down on a global scale, the light still shines bright(ish) for America's solar panel market.

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