UPDATE 3-Solar stocks enjoy rally as US tax breaks renewed

(Adds Sunpower’s Toyota announcement, paragraph 5)

LOS ANGELES, Sept 24 (Reuters) - Solar stocks rallied on Wednesday after the U.S. Senate voted to continue tax breaks worth $18 billion for renewable energy sources, including a generous eight-year extension for solar.

Top gainers included top U.S. solar company SunPower Corp SPWR.O, which rose 6.6 percent to close at $93.30 on the Nasdaq. Solar cell maker Evergreen Solar Inc ESLR.O rose 7.8 percent to close at $6.20 and solar installer Akeena Solar Inc AKNS.O gained 4.7 percent to close at $4.47.

Chinese solar companies also rose on the news. Yingli Green Energy Holding Co Ltd YGE.N, also boosted by the announcement it would supply 1.4 megawatts (MW) of solar panels to a Rutgers University campus, climbed 4.8 percent to close at $13.11.

Trina Solar Ltd TSL.N shares rose 5.8 percent to $29.02, helped by news that it would provide 2.4 MW in cells for a project in Atlantic City, New Jersey, in what it said would be the largest single rooftop solar installation in the United States.

Also on Wednesday, SunPower said it completed what is the largest single-roof solar installation in North America, a 2.3 MW system at a Toyota Motor Corp 7203.T parts center in Ontario, California.

Federal renewable energy tax credits, which had been set to expire at the end of this year, are considered critical to helping solar power compete with electricity from dirtier sources such as coal and fossil fuels. The Senate’s failure to extend the subsidies on eight earlier occasions put a big damper on solar stocks as investors fretted a lack of government support would cause solar demand to slump.

“The solar industry wins big in this bill,” Raymond James analyst Pavel Molchanov said in a client note, pointing to the bill’s provision allowing utilities to claim the tax breaks.

In addition, the bill eliminated a $2,000 cap on tax credits for residential solar systems.

“The bill therefore opens the door to vastly greater domestic adoption of solar power within the residential and utility markets,” Molchanov wrote.

The renewable tax credits measure, which is expected to be approved by the House of Representatives and President George W. Bush, gives businesses a 30 percent tax credit to offset the development costs of solar and other clean energy projects.

The solar tax credit extension will create 440,000 permanent jobs in the United States and generate $232 billion in new investment, according to a recent study by Navigant Consulting Inc.

Analysts agreed that the U.S. tax credit extension removed a concern for investors, But looking ahead, the industry still faces high raw material costs, declining prices for its products, a pullback in government subsidies in markets such as Spain and Germany and global economic turmoil -- all of which could continue to weigh on solar stocks.

“Investors may wait for less uncertainty before jumping back into the sector,” Oppenheimer analyst Sam Dubinsky wrote in a client note. (Reporting by Nichola Groom and Matt Daily, editing by Gerald E. McCormick, Andre Grenon, Leslie Gevirtz)