California Takes Lead In Burgeoning U.S. Solar Market

(Dow Jones)--California has become one of the world's top solar power markets and has attracted startup companies that make biofuels, electric cars and energy storage devices, among other technologies.

Gov. Arnold Schwarzenegger hopes to further that distinction by signing into law March 24 a new sales-tax exemption for companies buying renewable energy or other "clean technology" manufacturing equipment in the state.

Schwarzenegger argued that the tax breaks won't cost the state badly needed revenue, but instead will boost revenue by attracting clean technology companies to California. The state is home to more than 10,000 clean-tech companies, according to the governor's office.

Consider Solar Power Inc. (SOPW), which is looking to cash in on a burgeoning U.S. solar panel market by bulking up at home, not abroad.

The Roseville, Calif.-based manufacturer is working fast. The company is still in the planning stages for its new California plant, but it intends to ramp up quickly and begin producing solar panels there by September.

While most of Solar Power's work force will still be at its Schenzhen, China, plant, the company's decision to expand its U.S. operations to meet growing demand underscores the booming U.S. market for solar power and the tide of federal stimulus money that is accelerating the industry's growth.

"We've hit the tipping point where solar is no longer a fad," Steve Kircher, chief executive of Solar Power, said in an interview, adding that the U.S. market for solar is "very robust and keeps getting better."

Solar Power's move goes against the grain of manufacturing's recent history in the U.S. Although producing equipment for the solar-power industry is cheaper in countries such as China, there are advantages to bringing factories closer to U.S. consumers thanks to federal stimulus funds and lower distribution costs.

The demand for electricity generated by the sun's rays is expected to rise due to various state requirements mandating increased use of renewable energy. This is part of a broader effort to reduce the nation's reliance on polluting fossil fuels. Solar power is proving to be particularly popular because about half of the $2.3 billion in clean energy manufacturing tax credits under the American Recovery and Reinvestment Act went to solar-technology companies.

"Once markets reach a certain size, manufacturers look to put local operations on line," said Reese Tisdale, a research director for Emerging Energy Research, an advisory firm focused on renewable energy.

Since 2006, the amount of installed solar power in the U.S. has grown nearly fourfold to about 425 megawatts of large-scale generation that feeds the power grid, according to the Solar Energy Industries Association, a lobbying group. The number of solar companies climbed to about 5,000 in 2009, up from 3,400 a year earlier. The U.S., however, still lags other countries such as Germany and Spain, where governments have long provided big incentives.

Companies usually look to Asia to cut costs but some are also establishing U.S. manufacturing as well as the market for solar power matures here. BP PLC (BP) partially closed a Maryland manufacturing plant and shifted to Chinese suppliers, while Yingli Green Energy Holding Co. (YGE), a Chinese solar panel manufacturer, is planning to establish a manufacturing operation in the U.S to better serve its customers.

Solar Power Inc. sees its revenue reaching $150 million this year, up from $65 million in 2009. It also plans to double the size of its 63-person U.S. work force.

Federal tax credits and the economic stimulus package are key drivers of that expected growth. Earlier this month, Sacramento County in California made an initial commitment of $24.7 million in bonds to Solar Power. Funds from those Recovery Zone Facility Bonds--a tax-exempt bond created by the federal stimulus plan and intended to encourage job creation and investment in capital projects--will help pay for the U.S. facility.

In addition, a tax credit initially established in 2005 and extended for another eight years in 2008 allows residential and commercial users to recoup 30% of the cost of installing a solar system. The extension, which was part of the Economic Stabilization Act of 2008, eliminated the previous $2,000 cap on the investment tax credit for residential solar installations and also made public utilities eligible for the tax credit.

That tax credit has been "huge," providing a long-term incentive that will help manufacturers drive down costs over time, improve technology and achieve economies of scale, Tisdale said.