The Mortgage Crisis Delivers a Hit to Solar Firms

The mortgage crisis roiling financial markets is now causing new casualties in an unexpected sector -- solar-power firms that cater to the home and small-business markets.

Akeena Solar, one of the largest solar-system installers in the U.S., just reported a wider-than-expected quarterly loss due to higher operating costs and warned of weaker demand for the rest of the year. "Benchmark crude at $125 a barrel is no longer inducing U.S. consumers to seek attractive renewable energy sources, for tightening credit is weighing on consumers' decisions to invest in residential solar installations," Akeena CEO Barry Cinnamon said in a release.

"Since the beginning of the second quarter we have seen signs that a looming recession and tightening credit are weighing on consumers' decisions to invest in residential solar installations -- even with the price of energy skyrocketing," Cinnamon added.

The residential and small commercial markets were expected to grow to approximately $1 billion through 2010, up from an estimated $884 million in 2007, according to SolarBuzz, a research and consulting firm. This guidance is starting to look way too optimistic, however, because declining consumer purchasing power in the slowing U.S. economy is offsetting net metering credits and tax incentives. (These allow companies and homeowners to claim a 30 percent tax credit for investments in solar equipment and fuel cells -- unlimited for business, capped at $2,000 for consumers.)

The residential and small-business solar-power boom exists largely thanks to easy financing. "Energy-efficient mortgages," for instance, offered more generous loan terms to consumers buying energy-efficient homes and in some cases let buyers finance new solar systems and similar improvements. Home-improvement contractors also offered consumer financing through vehicles such as GEO Smart Loans from GE Money's Sales Finance business.

Both sources of credit, unfortunately, are drying up faster than the Aral Sea. And it seems unlikely that things will turn around until credit markets settle down.