Solar shares climb as industry giants Suntech Power (NYSE:STP) and Trina Solar (NYSE:TSL) say China may double its solar panel installations this year, absorbing surplus yield that has held prices and margins down, said a Bloomberg report.

Suntech Power Holdings Co. CEO Zhengrong Shi projects that China may add more than 4 gigawatts of panels, and Trina Solar Ltd. CEO Jifan Gao predicts 5 gigawatts. That’s a significant increase from the approximately 2.2 gigawatts the country installed in 2011 — more than twice the capacity of the average U.S. nuclear reactor.

Chinese manufacturers led by Suntech increased production last year causing the price of solar panels to fall 47 percent, and pulling market share from Western competitors such as Q-Cells SE and First Solar Inc. (NASDAQ:FSLR).

The Bloomberg Large Solar Energy index of 17 companies, which suffered a loss of more than two-thirds of its value in 2011,was up 1.7 percent yesterday and has gained 20 percent this year. In New York, Suntech rose 2.7 percent and Trina was up 5 percent. 30. An index of eight solar companies in China climbed 5.4 percent, more than five times the rate of the NEX Index of clean energy shares.

The recent rally of solar shares stems in part from politics in Germany, the world’s largest solar market, but further recovery by the industry this year could be fueled by increasing demand in China. “I’m hearing a lot from on the ground in China about how hopping demand has been,” said Maxim Group LLC anaylist Aaron Chew, adding that “China could surpass Germany” as the largest solar market in the world.

Get Your FREE Special Report: 4 Things You Must Know About the US Economy Now!