Canadian Solar Inc is scrambling to ramp up production of solar panels to meet an unexpected surge in demand from Europe, Chief Executive Shawn Qu said on Tuesday.

German customers, in particular, have increased orders in anticipation of a reduction in the government's subsidy for solar energy in the coming months, Qu told Reuters in an interview.

We have seen very strong demand in the past few weeks which caught us a little bit off guard, Qu said. Part of this demand pull is because the German customers are concerned about a policy change.

Canadian Solar's shares, which were down about 9 percent before Qu's comments, briefly moved into positive territory before settling down about 7.5 percent at $3.82 on the Nasdaq.

Germany's environment minister last week said Berlin aims to lower solar power incentives by April 1 as it tries to rein in growth in the world's largest solar market. Germany added a record 7.5 gigawatts of photovoltaic solar installations in 2011 - well above many expectations.

In addition to the surprisingly strong increase in demand, the Chinese New Year holiday also took a toll on Canadian Solar's ability to boost production, Qu said.

Because of that there is a supply shortage going on in the past two weeks, Qu said. At this moment we are trying to ramp up as much as possible to supply our European customers.

Canadian Solar is based in Ontario, Canada, but has most of its operations in China.

A shortage of supply has been unheard-of in the solar industry for much of the past year, as increases in manufacturing capacity combined with subsidy cuts in key markets contributed to a flood of panels into the global marketplace.

The whole solar sector has been in a predictable downturn ... Many companies were cutting down inventories, and we also had tight control of inventories, Qu said, adding that when demand surged right before Chinese New Year earlier this month, it was already too late to respond.

In China most of the operator workers go back home a few days before Chinese New Year, Qu said. It's not like in the past where you can call them in to work at any time. These days people in China are rich enough ... the young operators, they all have iPods and iPhones. If they want to go home, they go home.