The Chinese market isn't likely to be as large in 2009 as expected despite the series of incentives announced by the central government, said Suntech Power executives on Thursday.

Suntech (NYSE: STP), a China-based solar panel maker, cut its shipment forecast for the entire year of 2009 to 600 megawatts from the 600 to 700 megawatts it had anticipated back in May (and 800 megawatts announced earlier this year). That change partly reflected a change of the expectations of its domestic market.

"We also reduced shipment [guidance] to China, which we expected could be a bit more," said Zhengrong Shi, CEO of Suntech, during a conference call to discuss the company's second-quarter earnings. "The policies were just announced, and it will take a while to short them out."

The company also didn't include thin film panel shipment in the 2009 forecast. Suntech had initially expected to ship 50 megawatts of amorphous silicon panels this year. 

The Chinese government has announced two policies this year that would subsidize the installations of solar power projects throughout the country. Back in March, the government discussed providing 20 RMB per watt for rooftop or building-integrated projects with the generation capacity of at least 50 kilowatts. 

Last month, the Chinese government announced the "Golden Sun" initiative to subsidize installations at least 300 kilowatts in capacity (see Chinese Gov't Will Pay to Install 500MW Solar).

Suntech and other Chinese solar companies, including ReneSola, Trina Solar and Yingli Green Energy, have since announced a series of proposed projects and partnerships with local power companies and investors to take advantage of the new incentives (see True or False: China Will Be a Bigger Solar Market Than the U.S.).

The policy announcements have helped boost the stock prices for the Chinese companies. But some analysts remain skeptical that the Chinese market would grow as dramatically as the government and some of the companies are hoping.

Suntech already has submitted 179 megawatts of applications in May for the rooftop program.

But the government still needs to work out the specific rules and processes for administering the incentives, and that's likely going to take three to six months, Shi said.

Suntech is waiting for the government to announce a feed-in tariff that would provide yet another boost to solar companies and the developers.

The government should unveil the policy by the end of the year, Shi added. The feed-in tariff could range from 1.09 RMB per kilowatt hour to 1.45 RMB per kilowatt hour.

A feed-in tariff policy would require utilities to buy solar power at a government-set premium price – higher than the price of conventional coal-derived power. Such policies have turned Germany and Spain into two of the largest markets in the world.

A production automation problem has prompted Suntech to lower its forecast for shipping panels using its new Pluto technology. The problem lies with the panel – not cell – production, Shi said. Suntech has developed its own process for panel production. 

In Mach, the company said it expected to ship 50 megawatts of panels featuring the new Pluto cells by the end of 2009.

Now it expects to ship 10 megawatts to 15 megawatts instead. The company started shipping earlier this year and had installed 100 megawatts of cell production capacity by the end of the second quarter.

The goal is to reach 300 megawatts of production capacity by the end of this year, said Stuart Wenham, Suntech's chief technical officer. The company is set to have both 300 megawatts of cell production capacity and panel assembly capacity. 

The company plans to convert its existing production lines to use Pluto, a technology licensed from the University of New South Wales in Australia. Shi was a researcher at the university for years.

Suntech said Wednesday that it had broken the world record for multicrystalline silicon panels by using the Pluto technology. One of its Pluto panels achieved 15.6 percent efficiency, slightly higher than the 15.5 percent reached by the Sandia National Laboratories 15 years ago (see Suntech Claims New World Record in Silicon Panel Efficiency).

The company generated $321 million in revenue for the second quarter this year, up from $315.7 million in the first quarter but down from $480.2 million in the year-ago period.

Suntech posted a net income of nearly $10 million, or 6 cents per American depositary share, for the second quarter. It recorded $1.8 million in net income, or 1 cent per ADS, in the first quarter and $52.2 million in net income, or 31 cents per ADS, in the second quarter of 2008.

Suntech's shares fell 3.8 percent to reach $15.81 per share in recent trading. 

Image via Suntech.