The solar industry, overcast in recent months by the credit crunch and the wider economic downturn, is hoping for a few rays of sunshine after the passage of the U.S. stimulus package last week.

The months since October have been challenging for the industry, and recent news has reinforced a sense of gloom.

Yesterday, First Solar, a leading maker of solar-power modules, reduced its revenue projections for 2009 to around $1.8 billion, a drop of about $300 million. It also said that it would start to invest in some of its customers’ projects, perceived as a move to keep those projects going. In January, Ausra, a California company that had plans to build several large-scale solar-power plants, announced that it would scale back to become primarily a reseller of solar equipment, and that it would also lay off 11 percent of its staff. Earlier in the same month, OptiSolar, a startup that makes thin-film solar technology and had plans for a photovoltaic power plant, said that it would have to lay off half of its staff, citing difficulties getting funding for the project.

Even before the turn of the year, many projects had run into problems. Back in October 2008, BP Solar scrapped plans for a $97 million expansion of a major solar plant in Frederick, MD. Around the same time, Evergreen Solar, a company that manufactures photovoltaic modules and solar cells, delayed an $800 million plant in China.

“The market had pressed ‘pause,’” says Ethan Zindler, head of North American Research at U.K.-based analyst firm New Energy Finance.

The market capitalization of the solar industry has dropped from $200 billion at the start of 2008 to just $60 billion now, says Michael Rogol, managing director of PHOTON Consulting, a solar-industry research firm based in Boston. Rogol estimates that, out of around 700 solar-power firms that his company monitors, 200 are facing serious cash-flow problems, while another 140 may run into problems. He believes that “a thinning of the herd” is already happening.

But the passage of the U.S. economic stimulus bill (the American Recovery and Reinvestment Act of 2009) has provided a ray of hope for a beleaguered industry.

One provision, in particular, gives solar companies cause for optimism. It changes the rules on how investment tax credits are awarded, allowing companies that are building power plants to take 30 percent of the cost as a tax break in a project’s first year. This could prove vital because, in the last quarter of 2008, 10 out of 14 tax-equity providers stopped doing business in the solar market.

Earlier in February, Southern California Edison said that it will purchase 1.3 gigawatts of power from BrightSource. The company will not finish its permitting phase until later this year, and therefore will not need project financing for months to come. The company is also one of 16 that have been approved for loan guarantees from the Department of Energy–a process that has been accelerated by the stimulus plan. A BrightSource spokesman says that it is not yet clear what the terms of these loans will be, and thus whether the company will take the money, but such guarantees will clearly help make project financing available for renewable-energy firms.

Another factor that, ironically, could help kick-start some solar projects is the plummeting cost of solar equipment caused by the downturn. The Solar Energy Industries Association estimates that the price of solar panels has dropped 25 percent from last summer, and that it may fall another 10 percent by this summer. Some industry observers expect that prices could fall by as much as 50 percent from last year.

Alain Harrus, a partner at Crosslink Capital, a venture-capital firm that has funded First Solar, among other renewable-energy firms, argues that these price drops could have “a huge impact on total cost of capital to start a project.”

Rogol says that further price drops are possible, but he adds that prices could soon climb again, thanks partly to demand created by government stimulus efforts in the United States, Japan, and other countries.

The problems facing the solar industry are mirrored, to a lesser degree, by those rippling through the more established wind-power industry.

Both FPL Group, the largest wind developer in the United States, and Renewable Energy Systems (RES) America have scaled back plans for new projects for 2009. RES said recently that it would cut new construction by half, from 1,300 megawatts to as little as 600 megawatts, blaming the tight capital markets. At least five different European wind-power projects–Alpha Ventus, Nordergrunde, Butendiek, Offshore Park Innogy Nordsee, and the London Array–have been slowed by financing issues or the loss of investors.

Michael Ware, managing director of investment at Good Energies, says that the stimulus package has rekindled interest in solar and wind projects–and brought some potential investors back to the table. “The market is showing new signs of life,” he says. “But we certainly aren’t out of it: to think it’s gone back to pre-September is not the case.”

Even if the situation improves, some believe that it will be a while before the industry starts to show real signs of recovery.

Judy Chang, a principal at the Brattle Group, an economics consultancy, says that financing negotiations will remain drawn out, slowing many projects further still. But as long as governments around the world remain committed to renewable energy, she believes that the future of the industry is assured. “The end of 2009 is what people are hoping for,” Chang says.