(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.

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