U.S. solar installations soared nearly 40 percent in the third quarter and are likely to be even higher in the current period, though 2011 overall will lag expectations slightly due to a decline in state incentives.

Third-quarter photovoltaic solar installations were 449.2 megawatts, up from 324.3 MW in the previous quarter, according to a report released on Wednesday by trade group the Solar Energy Industries Association and research firm GTM Research.

That brings the total for this year to more than a gigawatt for the first time ever. For all of 2010, the U.S. installed 887 MW of PV solar.

Plummeting prices on solar panels has been a boon to domestic installations, the report said. Prices have dropped about 40 percent this year due to a global oversupply, hurting manufacturers's profits but helping spur demand for the clean energy source.

The U.S. utility-scale market was particularly strong, with 23 projects accounting for more than 200 MW of the quarter's total -- a 325 percent increase from the second quarter.

The residential market increased 21 percent, though installations on business rooftops fell by nearly a quarter due to changes in state incentives in top U.S. solar markets including California, New Jersey and Pennsylvania.

In California, its solar incentive program for businesses was frozen in two major utility territories due to strong demand for the subsidies.

It was just too many projects in the pipeline relative to the funding that they had, said Shayle Kann, GTM Research's managing director for solar research and the report's lead author.

In New Jersey and Pennsylvania, meanwhile, a recent boom in solar installations means there is now enough capacity to meet state mandates for solar power, making the incentives for new systems less attractive.

As a result of weakness in those commercial markets, SEIA revised its 2011 installation forecast downward to 1.7 GW from 1.8 GW. That would still bring annual growth to 89 percent over last year.

For the fourth quarter, a boom in utility installations should push quarterly levels to a new record, though the commercial market will continue to be weak.

In 2012, the U.S. PV market is expected to grow once again, though it will face several challenges, including the outlook for state incentives in major solar markets.

In addition, a key federal subsidy that allows developers to receive cash for up to 30 percent of the cost of a new installation is set to expire at the end of this year. Without that incentive, installations will slow in the second half of next year, the report said.

In addition, the outcome of a trade petition accusing Chinese panel makers of dumping modules and cells on the U.S. market could impact prices on solar products.

We do expect to see growth next year, but the magnitude of that growth is definitely a question and there is a pretty wide range of possibilities, Kann said.

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