WASHINGTON (Reuters) - The U.S. solar energy industry expanded in 2008, but the recession has cut demand for some solar installations, according to a solar trade group.

Sunpower Builders technician Sean Wilde tests a solar panel before installation at a residence in Norwood, Pennsylvania in this picture taken October 12, 2007. REUTERS/Tim Shaffer

Solar capacity in the United States rose about 9 percent, or 1,265 megawatts, to 8,775 megawatts last year, the Solar Energy Industries Association said in a summary of an annual report to be released on Thursday.

Solar panel capacity rose 78 percent from 2007, as solar water heater installations increased 50 percent.

But the housing crisis led to a 3 percent decline in shipments of solar pool heating systems -- the largest segment of the sector by capacity.

The recession has brought financing problems to some solar companies, the association said.

“Many companies report that although consumers continue to express interest in solar, concerns about personal finances and tight credit have reduced sales,” the association said.

A grant program established by stimulus package passed this year will allow some solar customers to receive a cash payment covering 30 percent of the cost of installing solar equipment.

The stimulus law also authorizes the U.S. government to guarantee loans for solar and other renewable energy projects.

“This should help alleviate recent constraints on project financing,” the association said.

SEIA President Rhone Resch said the first quarter of 2009 has been “brutal” for the solar industry, although he could not provide any specific numbers for the sector.

President Barack Obama has pledged to double renewable energy production in three years. Resch said the solar industry can “absolutely” meet this mandate, but only if Congress takes action.

“That is going require a substantial ramp up in the use of solar and that doesn’t just happen organically,” Resch told reporters at a briefing on the report.

In addition to the tax credits and stimulus measures, Resch said lawmakers must establish a renewable energy portfolio that requires electricity providers to generate a certain amount of power from renewable sources.

Resch said such a standard should include provisions that support solar energy use.

No solar power plants came on line in 2008 and Resch said he expects only two or three to be built in the next three years. Much of the short-term growth for solar energy capacity will come from solar panel installations, he said.