U.S. solar rush now underway

With roughly a month to go before a key U.S. solar incentive is set to expire, a familiar phenomenon emerges once again: a rush to install projects.

Solar panel makers Suntech Power (s STP) and Trina Solar (s TSL) both noted a surge in sales for the current quarter during conference calls with analysts to discuss earnings last week. The incentive is a cash grant that covers 30 percent of a project’s cost and is set to end at the year’s end. Congress created the incentive in 2009 as an alternative to a 30 percent investment tax credit and had planned to kill it last December before last-minute politicking extended it by another year.

Project developers can claim the cash grant much sooner than the tax credit which, by the way, won’t expire until the end of 2016. The money comes in handy when lining up loans isn’t easy. The prospect of extending it is unclear, but the solar industry’s main trade group, Solar Energy Industries Association, remains hopeful that a last-minute extension will happen.

Meanwhile, many solar equipment makers are expecting to increase shipment to customers who want to get in line for the grant before it disappears. The program rule requires projects to start construction before the year ends (and be completed by 2016) in order to claim the grant.

“We see a strong pulling demand due to the potential cash grant change, and we expect at least 50 percent sequential growth in shipment in Americas in the fourth quarter,” said Andrew Beebe, Suntech’s chief commercial officer, during a conference call.

Beebe also noted that while Suntech executives are optimistic about the grant program’s survival, “We think we will thrive either way. Everyone is prepared to go back to an (investment tax credit) world.”

While a stronger demand is always nice, it’s unlikely to prevent manufacturers from posting losses again for the fourth quarter. Many companies have been boosting their shipments at various times this year but still couldn’t squeeze profits from them. That’s because the prices of solar panels have plummeted so much and so quickly – by 30-40 percent during this year — while the production costs haven’t fallen as quickly. A pile up of unused solar panels, a result of delays in setting new levels (and lower) incentives by European countries such as Italy and France and the teetering European financial market, are to blame.

While many companies are reducing production significantly or closing factories all together, Trina Solar isn’t cutting its production as much this quarter even though it had amassed quite a bit of unsold products before the fourth quarter began.

“We want to meet the demands of the market, especially when the U.S. market and customers want to capitalize on the cash grant,” said Terry Wang, Trina’s chief financial officer, during the conference call.

The rush-to-install mentality isn’t unique in the U.S. It’s part of the cycle in countries like Germany, where government incentives are structured to fall over time. But being in a hurry to meet a deadline can lead to poor judgment, as SunPower executive Julie Blunden pointed out last December about the then fear that the grant program would not survive: “SunPower and other companies are racing to meet the end-of-year deadline, and we are making decisions that aren’t consistent with the lowest-cost considerations.”

Photo courtesy of the U.S. Army