BP Solar Scraps Maryland Factory Expansion

BP decided to cancel the factory plan at a time of a dismal U.S. financial market prompted by the bankruptcy filing of Lehman Brothers Holdings Co. and the sales of several large U.S. banks and mortgage lenders.

The turmoil has triggered fears that raising money to carry out solar power plants will be difficult. Companies that do line up financing could see a rise in project costs, said Mark McLanahan, senior vice president of corporate development at MMA Renewable Ventures, on Thursday after the company announced a joint venture with solar-panel maker Suntech Power Holdings (STP Quote). (Don't miss "Suntech Breaks Into Solar-Power Financing")

"You can assume that it will bring up the price of delivered kilowatt or megawatt hours because your debt costs are higher, the conditions are more onerous and the transaction costs will be higher," McLanahan said.

BP Solar's move also could reflect the possibility of an oversupply that some analysts predict will lead to fewer solar companies and lower profit margins in 2009 and beyond. (Don't miss " Analysts Pick 2009's Solar Winners: Suntech")

"We believe the pace of capacity being added, relative to actual demand expectations, is alarming," wrote Jeff Osborne, an analyst with Thomas Weisel Partners, in a research note last month. "We look forward to the coming shakeout of the sector, when prices will fall over 20 percent and winner will be separated from the losers.

All year long, some solar industry analysts have been forecasting that a glut of silicon, which is turned into wafers to make solar panels, will arrive on the market as early as next year. It they're right, the oversupply would reverse a trend that began in 2005, when solar companies competed fiercely against integrated-circuit companies for silicon and couldn't secure enough to meet the demand for panels.