Research business Solarbuzz recently projected that solar-generated electricity in the U.S., which increased by 36 percent in 2009, could expand tenfold over the next five years. Local, state, and federal tax credits and incentives are driving demand. But, ironically, a federal agency’s decision this summer threatened to slow that growth, at least temporarily.

California dominates the solar field in the U.S, representing half of the 485 megawatts of electricity generated from solar installations in the country last year (see chart). Solarbuzz estimates that solar energy would increase nationally at an average annual rate of 30 percent and reach between 4.5 gigawatts and 5.5 gigawatts by 2014.

There’s a blizzard of federal, state, and local incentives that encourage households and businesses to consider solar power, according to the Database of State Incentives for Renewables & Efficiency. Among the more popular are Property Assessed Clean Energy (PACE) programs that allow homeowners to pay off the cost of solar panel installations on their houses over 20 years through property taxes.

Twenty-two states have PACE programs. But their viability came into doubt in July, when the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, directed the GSEs to avoid approving PACE assessments, because liens a county or town places on the property would take precedence over mortgages if the owner defaults.

However, momentum for renewable energy might be stronger than any bureaucratic resistance to it. California’s Attorney General Jerry Brown, who is running for governor, and Sonoma County immediately filed suits against Fannie, Freddie, and FHFA for blocking the financing program. Senate Majority Leader Harry Reid offered to add PACE-restoring legislation to the federal energy bill before Congress if he could find a Republican sponsor. And other municipalities were quick to indicate they wouldn’t give up PACE without a battle. Stay tuned.