SunPower, Suntech Expect U.S. Tax Credit to Rescue Solar Power

By Christopher Martin

Oct. 14 (Bloomberg) -- SunPower Corp. and Suntech Power Holdings Co., solar manufacturers that lost half their value in the past month, are counting on tax credits in the U.S. bank bailout bill to boost sales as European incentives wane.

Utilities, warehouses and retailers from Wal-Mart Stores Inc. to Whole Foods Market Inc. can deduct 30 percent of a solar system's cost from federal income taxes. The savings are part of the $700 billion legislation to bolster the banking industry, which also contained tax breaks for wind power and fuel cells.

Solar manufacturers lost more than $27 billion in market value in a month as concern mounted a U.S. recession and the 45 percent decline in oil prices will reduce demand for renewable energy. U.S. subsidies for the next eight years may help solar power compete with coal as Spain and Germany, the world's largest markets, reduce subsidies.

``Utilities in the U.S. are opening their minds to rooftop solar and that's going to be huge for the SunPowers of the world,'' said David Prend of Rockport Capital Partners in Boston, which manages $800 million in clean technology startups. ``The bank bailout package will rescue solar.''

The World Solar Index more than doubled in 2007. As U.S. markets declined this year, SunPower, based in San Jose, California, tumbled 60 percent to $52 in New York trading, while Suntech lost 66 percent to $27.70. Phoenix-based First Solar Inc., which makes the cheapest solar modules, sank to $117.45 last week from a record $311.14 on May 16 in Nasdaq trading, before rebounding yesterday.

Executives, investors and customers will gather in San Diego this week for the Solar Power International 2008 conference to explore ways to profit from the $17 billion incentives added by the Senate to the bailout plan. They will also discuss how to improve lending for households and companies who want to install clean-energy systems.

Solar Panels

China's Suntech, the world's biggest maker of solar cells, expects the U.S. will overtake Germany as the largest solar market in a few years, said Chief Executive Officer Zhengrong Shi.

Spanish solar installations may drop to 500 megawatts next year from about 1,400 this year, according to Lazard Capital Markets. Germany's solar incentive, a feed-in tariff, is declining by at least 5 percent a year.

The price of a solar power module will slip 15 percent to 20 percent next year, estimates Paul Clegg, an analyst at Jefferies & Co. in New York. The panels sell for $4.85 per watt, according to Solarbuzz, an industry publisher that conducts price surveys.

``We're starting off in a hole in 2009,'' said Clegg, ``Pricing and margins will be down next year.''

Shade-Free Roofs

There are 30 billion square feet of large, flat, shade-free roofs in the U.S., space for enough panels to produce as much as 150,000 megawatts of solar power, according to Navigant Consulting in Chicago. That's enough to supply 25 percent of U.S. electricity demand at a cost of about $650 billion.

Wal-Mart, the largest U.S. retailer, has 17 stores and distribution centers with solar panels and plans to add at least five more, according to its Web site. Whole Foods was the first national retailer to install a solar system at its site in Berkeley, California, in 2002 and has added systems on other outlets that get up to 24 percent of their needs from solar.

Wal-Mart and Whole Foods spokesmen didn't immediately respond to calls seeking comment.

Schott Solar GmbH, a unit of Schott AG that last week shelved an $899 million (657 million euro) initial public offering, plans to complete a factory in Albuquerque next year to produce 70 megawatts of modules annually, enough to supply 56,000 homes with electricity.

Solyndra Inc., a manufacturer backed by Richard Branson's Virgin Group Ltd., Wal-Mart's Walton family and Rockport, the venture capital firm, has raised $600 million to expand output.

Planned Expansion

Solyndra's factory in Fremont, California, can make up to 110 megawatts of panels annually, and Chief Executive Officer Chris Gronet plans to build a second factory with a 420-megawatt capacity next year. The company has a backlog of orders worth $1.2 billion, mostly in Europe and California.

``We are planning to aggressively ramp up production,'' Gronet said in an Oct. 3 interview in New York. The company has enough financing to expand production and will consider selling shares when the market improves.

PG&E Corp., the San Francisco-based owner of California's biggest utility, said 25,000 of its 5 million customers have installed rooftop solar systems.

``The market is ready to take off,'' said David Rubin, director of service analysis at PG&E, on Sept 25. The utility last month signed contracts to buy 800 megawatts of solar energy.

New York's Long Island Power Authority has 1,250 customers with solar panels, and plans to award a contract for 50 megawatts of rooftop systems by the end of the year, Chairman Kevin Law said in a Sept. 25 interview.

To contact the reporter on this story: Christopher Martin in New York at cmartin11@bloomberg.net.