The solar photovoltaic market is hitting some bumps right now, with tight polysilicon supplies and lagging support for subsidies, but companies, investors and analysts gathered in Shenzhen, China, believe there are good times ahead for industry.

They were all in town for the Photovoltaic Technology Show, which highlighted some of the strengths and the weaknesses of the solar market.

"Any time that governments get involved with subsidies, creating artificial demand, or whatever you want to call it, there is opportunity for uncertainty," Jonathan Hoopes, managing director of Greentech Research at ThinkEquity Partners, told Cleantech.com.

Solar took a hit when recently passed energy legislation in the U.S. did not include a renewal of tax credits for the solar industry (see U.S. solar & wind incentives on the way?).

And Germany is working on changes to its feed-in tariff for solar, causing concern in the industry over what is currently one of the biggest photovoltaic markets in the world.

"We're clearly in a period right now of early stage growing pains," said Hoopes.

As for the polysilicon supply problem, Hoopes said there was a lot of disagreement at the conference as to exactly who will bring up how much capacity and when. But he said there was unanimous consensus that significant quantities of polysilicon capacity will come online in 2009 or 2010 at the latest.

Even with the expected polysilicon supply, it's hard for analysts to predict the subsequent price of cells and modules because of the dependence on subsidies.

"At the end of the day, demand is driven in this marketplace by subsidies, and it will be until we reach grid parity," said Hoopes.

But the fundamentals still appear strong in the industry, he said, especially for major players.

Hoopes recommended companies that have proven research and development capabilities, leadership with low-cost scale operations, and strong balance sheets, naming Wuxi, China's Suntech Power Holding (NYSE: STP) as the best pick in the space for 2008.

In October, Suntech signed a long term contract to buy $1.5 billion of polysilicon from China's Asia Silicon (see Suntech buying $1.5B of silicon from Asia Silicon).

"The Chinese vendors, in particular, understand that they have a significant cost advantage from a manufacturing, land, labor, and, a very important component here, electricity standpoint," said Hoopes.

"And they're trying to leverage that and stay in front of future demand curves, all with an eye on policy."

Figuring out that demand could be tricky, as the companies at the conference, including Suntech, JA Solar Holdings (Nasdaq: JASO), LDK Solar (NYSE: LDK), Yingli Green Energy Holdings (NYSE: YGE), and Trina Solar (NYSE: TSL), presented widely varied forecasts, ranging from 7 gigawatts to 13 GW in 2010.

"It's clearly going to be significantly more than where we are today," said Hoopes.

Whatever the demand turns out to be, production costs are likely to go down as the availability of polysilicon goes up.

Hoopes said it looks like the equipment makers have been expanding and are planning to expand further under the premise that the tight polysilicon supply will ease by 2009.

Most of the makers of parts for wafer and cell manufacturing gave delivery times of about six to eight months, but that may only apply to orders coming from big companies.

In a presentation, Suntech CTO Graham Artes said that top-10 producers would not have a problem securing equipment, which could leave smaller companies waiting a bit longer for deliveries.

Thin-film solar also made a showing in Shenzhen, with Hoopes saying that he expects turnkey systems from established, deep-pocketed vendors like Applied Materials (Nasdaq: AMAT) and Oerlikon to significantly lower the barrier of entry in the amorphous silicon thin-film production arena.

A copper indium gallium selenide production line could also be on the way. Germany's Centrotherm Photovoltaics reportedly can produce CIGS panels at over 10 percent efficiency. The company is developing a commercial scale production line.

The biggest potential market for all of this solar is still the U.S., and Hoopes said there is a silver lining to the tax credits not getting extended there.

"That allows U.S. taxpayers to wait and let Europe subsidize this market till it gets closer to grid parity."