2008 was a scary year for many solar startups. After the bliss of the two years prior, when venture capital money was being dumped into solar startups as if pouring out of a hose, last year saw a decline in solar investment due to the economic downturn and the extra scary notion that solar tax credits might expire.

Well the tax credits did not expire. In fact they got even better for homeowners (and therefore the industry as a whole) when the new cap-less incentives kicked in with the new year. That news was rosy enough to keep smiles on a few faces, but the trepidation remained and, tax credits or no, several startups began laying off employees as they tried to weather the upcoming storm.

Then came the economic stimulus package, which is more than friendly to the renewable energy industry. Combine that with a new administration that is determined to become lasting friends with renewable energy, green building and all things energy efficient, and you find even more smiling faces. Solar power companies now look to have, at least, the softest landing amongst a bunch of companies falling fast through dire economic straits.

There are a few ways in which the stimulus and new tax credits are fueling (or are set to fuel) solar industry growth. Already some companies are quickly turning from firing to hiring mode.

• Utilities now can directly benefit from federal 30% tax credits, and utilities tend to have a good amount of established capital which many solar startups could use.
• The economic stimulus is pumping big time bucks into the renewable energy industry and streamlines the tax credit process, resulting in more money and greater security for startups.
• Increased supply, a scary notion when demand is down, may actually help solar startups by driving down solar equipment costs and therefore installation costs, which could drum up significant business for young companies.
• Long-term commitment may be the biggest boon to solar companies the world round. Even during a recession and a fall in oil prices, the commitment to renewable energy remains strong in every sector, from the populace to government to corporations. That is keeping many startups confident even through the toughest of times. There is a general feeling that solar power is on the right side of history.

It should be noted that no one of the above factors could really have worked on its own. When venture capital began to dry up with the economy, the government was there to stimulate funding in the nick of time. Supply had been a major problem for solar pricing during the boom, when silicon was in short supply. The recession has allowed supply to catch up and even surpass current demand, but without some sort of stimulus, supplies would likely keep skyrocketing, leaving an over inflated market.

In other words, the current volatility of financial markets — and arguably the entire financial system — should keep solar startups clearly focused. Nought can be taken for granted anymore. Still, the solar industry, along with its renewable energy cousins, stand to weather this recession as well as anyone.

Photo credit: Borrego Solar

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Posted on March 20th in Solar Funding by Dan.