For a while, it seemed that the solar power sector would weather the downturn fairly unscathed — but it hasn’t been so lucky, at least in the short run. Not only has venture capital dried up for experimental technology startups, but fewer and fewer homeowners are able to afford upgrades like rooftop solar panels, reports the San Jose Mercury News. The frozen credit market has only made matters worse, stalling capital projects — like utility-scale plants — and forcing layoffs.

To make up for these sources of funds, solar companies are setting their sights on government incentives like tax credits, and subsidies bundled in the recently-approved economic stimulus plan. But these channels aren’t adding up. PG&E says only 747 homeowners and businesses applied for solar installation rebates in January and February, down 24 percent from last year’s total, 985.

This dip in California could be attributed to fewer purchases during the rainy winter months. But the weather now isn’t that different from the end of 2008. Yet in each of the last four months of that year, the number of rebate applications filedĀ  was more than double the number received in January and February of 2009 combined. As the Mercury News reports, 1,164 apps were filed in December, compared with 610 in January and 654 in February.

Concerns that the economy has finally put the brakes on solar development has led to a ripple of layoffs and cost cutting, especially here in the Silicon Valley where real estate remains pricey and competition is thick. Solar company Ausra, for example, has shifted its focus from capital-intensive plant construction projects to solar equipment sales after laying off about 12 employees since December. Similarly, Hayward, Calif.-based OptiSolar, a maker of thin-film solar installations, had to lay off about half of its staff after it tapped out on a plant project, San Jose, Calif.-based SunPower shaved 60 positions from its workforce, and both Heliovolt and SunEdison laid off an undisclosed number of employees.

Times being what they are, the solar sector is trying out a new message — that installation of solar gear, while pricey for homeowners and small businesses, can save major dollars in the long run. The Mercury News cites the example of printing company BarkerBlue Digital, which installed an 800-panel, 141-kilowatt solar system on its roof, saving it nearly 80 percent on its monthly energy bill. This amount, approaching $6,000, could make the difference for a small business with tight finances, especially if the downturn deepens.

As always, solar’s short-term future hangs on whether or not people will be willing to pay now to save later — the stakes just happen to be higher right now. And if the current trend continues, it’s not looking good.