First Solar Inc. (FSLR) Chief Executive Michael Ahearn said United States federal incentives for solar power need to be increased in order to facilitate the long-term health of the industry.

"The incentive from the federal government needs to be higher than it is today," Ahearn said in a conference call to discuss the company's first-quarter results. "The states are not in a position to fill the subsidy gap."

Ahearn, who has served as First Solar's CEO since 2000, outlined several areas where better public policy initiatives would help in establishing a domestic market for solar. More focus, he said, needs to be put on energy transmission and facilitating low-cost project financing.

First Solar said Wednesday that the board of directors is conducting a search for a new CEO. Ahearn will remain at the company to focus on public policy and programs related to the solar industry.

A current program, known as the solar investment tax credit, is "extremely inefficient," Ahearn said, adding that another program providing loan guarantees "is not going to be particularly useful" as presently structured.

As part of the stimulus bill signed earlier this year, the federal government approved around $60 billion in loan guarantee authority and $30 billion in energy grants for renewable energy and transmission companies. Congress has also granted a 30% renewable-investment tax credit to help expand the development of alternative sources of energy.

First Solar shares were recently up 14%, to $172.17. The company, which makes thin-film solar modules, earlier reported first-quarter results that easily topped Wall Street expectations.

The solar energy market in the U.S. is small but growing, and many expect it to eventually replace Germany as the world's largest solar market. Currently, solar power remains more expensive than most non-renewable energy sources, such as coal and natural gas, and as such needs government help to be cost competitive.

Meanwhile, many solar panel makers, such as SunPower Corp. (SPWRA) and SunTech Power Holdings Co. (STP) have seen sales plummet, because tight lending conditions have choked off credit to fund solar projects. And an oversupply of panels led to lower prices, cutting into earnings.

First Solar's cheap, but low-efficiency modules are faring batter in the downturn, and with a strong balance sheet, First Solar is now helping finance some small projects.

-By Jerry A. DiColo; Dow Jones Newswires; 201-938-5670; jerry.dicolo@dowjones.com