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The federal lawsuit, filed Thursday in San Francisco, accuses major Chinese solar panel makers Suntech Power, Trina Solar, Yingli Green Energy, as well as their suppliers and banks, of colluding to undercut competitors by flooding the U.S. market with products at below cost, Bloomberg reports. Solar panel prices fell 75 percent over four years as a result and forced Solyndra to file for bankruptcy over a year ago, Solyndra says.

Solyndra is seeking $1.5 billion in compensation for the loss of its business value.

The lawsuit seems an odd move for the California company, though winning the lawsuit could help it pay off its list of creditors. The lawsuit also will shine a new spotlight on the trade practices of Chinese solar cell and panel makers, who have risen to dominate the world’s solar market. A day before Solyndra filed the lawsuit, the U.S. Department of Commerce issued a final decision on tariffs against Chinese silicon solar cell makers after determining that the companies had received unfair subsidies from the Chinese government and were selling their products at below fair market values.

Chinese manufacturers are facing similar trade complaints in Europe. The Chinese government is understandably unhappy with the commerce department’s decision and may slap tariffs on silicon – a raw material in solar cells – from the U.S.

Since its bankruptcy filing, Solyndra hasn’t been able to find a buyer for its technology. The gleaming factory is in the process of being sold to Seagate Technology, a maker of data storage devices.

Solyndra’s rise and fall touched off a political storm about whether the government placed too big of a bet on cleantech companies lie Solyndra, which received $535 million loan guarantee to build a factory. The company was counting on the new factory to mass produce its solar panels, which were consisted of solar cell-filled tubes, and drive down its costs and therefore prices for those panels. The company, which also had raised over $1 billion in private money, couldn’t reduce its costs fast enough, however, before it ran out of money and went bankrupt.

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The Department of Commerce’s decision determined that Chinese companies have indeed been selling products at below fair market prices, and the ruling addressed part of a broader trade complaint filed by SolarWorld and other manufacturers last October. To offset the impact of the below-market pricing, the commerce department reached a preliminary ruling to impose an import tariff of about 31 percent on solar cells from 61 Chinese manufacturers and nearly 250 percent for the rest.

It’s worth noting that the tariffs will affect only silicon solar cells made in China but not solar panels made in China with silicon solar cells from another country. Plus, the commerce department could modify the tariffs when it issues a final decision in October.

Paper tiger

The 250 percent tariff sounds scary, but the fact is the biggest Chinese solar companies such as Suntech Power, Trina Solar, Yingli Green Energy and Canadian Solar will face the 31 percent tariff. While that 31 percent tariff will likely raise the wholesale prices, there are ways to manage it.

For months Chinese manufactures have been brainstorming around ways to lessen the impact of any tariffs. They have been talking to solar cell makers in Taiwan about buying and shipping their cells to China or elsewhere to be assembled into panels. A company like Canadian Solar, for example, could buy Taiwanese solar cells and assemble them in its Canadian factory (most of the company’s manufacturing is in China, hence it’s considered a Chinese company) or hire a manufacturer in Korea. Chinese companies also could set up solar cell production outside of China.

Shyam Mehta, a senior analyst at GTM Research, estimated that hiring Taiwanese companies to make cells will increase production costs for Chinese companies by 6 percent to 12 percent, which “is meaningful but manageable.”

Solar installers

While manufacturers figure out their strategies, solar service providers – from companies that provide consumer financing to roofers who install solar panels – need to come up with plans to cope with higher solar panel prices. People in the solar retail sector, understandably, have strongly opposed the trade complaint. They contend that the solar market growth could slow if they have to pay more for solar panels.

Certainly, profits will shrink if costs increase. But that doesn’t mean retail service providers will raise their prices or raise by a whole lot. They will likely absorb the added costs and still make good money, especially by increasing the sales volumes (the solar market is hardly saturated). We are not talking about razor-thin margins that will be rendered non-existent by the tariffs.

For a while now, investors and solar retail service providers have talked about how they could deliver or receive very good (double digit) and long-term returns. We’ve seen banks and other types of investors such as Google putting up funds in hundreds of millions to finance leases and power purchase agreements, which are long-term contracts in which consumers pay a monthly fee for solar electricity instead of the high upfront cost of installing and owning solar panels. Consumers opt for these financing plans because they take away the hassles of doing research and picking equipment manufacturers, and because they are often promised lower utility bills. That promise of lower utility bills is a key selling point, and any solar retailer who took that away will lose a serious competitive edge.

Competition in the retail sector has intensified in recent years, and that, too, will make it difficult to raise prices and still compete effectively. Venture-backed startups such as Sungevity, SolarCity and Sunrun started in 2006 or 2007 and have expanded well beyond their home turf of California. Many more have shown up and some of them that first made their fortunes in a different business, such power company NRG Energy, home security company Vivint and roof installer PetersenDean. Consumers only benefit when they have more companies to choose from.

Lastly, solar panels don’t make up the bulk of the price of a solar electric system. In fact, they take up around 20 percent, and the rest comes from the costs of other components, sales and marketing, permits and labor. A bigger worry for installers has been these non-solar panel costs, particularly in permitting and marketing and sales. The average price for a residential system by the end of last year was just over $6 per watt (and less $5 per watt if a homeowner bought a system outright rather than doing a lease), GTM said, while the wholesale price for solar panels was near $1 per watt (it was $1 per watt when I caught up with Chinese solar panel makers at PV America West in March). UPDATE: Solar panel prices fell around 50 percent in 2011 while the average price for a residential system dropped 3.6 percent during that time.

The solar industry wants to show critics that solar electricity can be affordable and compete with power from fossil fuels and it deserves government subsidies to help reduce costs. To raise prices in a big way will only give ammunition to critics that solar is far from prime time. That’s one outcome everyone in the solar industry, regardless of which side they are on in the trade dispute, would hate to see.

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The Japanese government is set to start a major incentive program for clean power this July, roughly a year after it passed legislation to create the program. The incentives will come in the form of guaranteed, premium prices that utilities must pay for renewable energy such as solar, wind, geothermal. Under a proposal, solar electricity could fetch roughly twice the price that Japanese households currently pay for power, Reuters reported.

“What we are most bullish on is the Japanese market,” said Smittipon Srethapramote, vice president of research at Morgan Stanley, when he was asked about solar market growth worldwide at a Greentech Media’s solar conference panel in Phoenix this week (via webcast). “Traditionally it’s been a closed market, where you can only buy Japanese. But 20 percent of the (solar panel) sales were from foreign companies in 2011.”

Some solar companies have increased their sales efforts in Japan. China-based Yingli Green Energy announced on Friday that it’s set up a Japanese subsidiary. SunPower’s CEO, Tom Werner, told analyst during a conference call on Thursday that Japan is the company’s largest market in Asia, and it shipped “record volumes” during the first quarter of this year. SunPower has a supply deal with Toshiba.

The CEO of China-based Trina Solar, Gao Jifan, told Dow Jones in March that he expected “sales to Japan to grow aggressively in 2012.”

Suntech Power, another big Chinese solar panel maker, made a go at the Japanese market when it bought a Japanese solar panel maker, MSK, in 2006. Japan was a hot market then, thanks to government incentives, though it has since moved down in the world market ranking when the government cut subsidies in the mid-2000s. Japanese solar panel makers also began their slide in the ranking of solar cell and panel makers as Chinese companies and Arizona-based First Solar began to significantly boost their production and sales. Until 2007, Sharp was No. 1 and Kyocera No. 3. In 2011, Sharp was No. 6 and Kyocera No. 10.

Although Suntech has been selling far more solar panels to other countries such as Germany, Italy and the United States, it’s increased sales to Japan. Revenues from Japan reached $143.9 million in 2011, up from $134.2 million in 2010 and $81.6 million in 2009, according to its annual report.

Sharp and Kyocera will still enjoy some home-court advantage, but they will face stronger competition from other solar energy equipment makers as Japanese developers and banks gear up for building big solar projects. Both solar panel makers already have teamed up with developers to build projects. Some banks and developers have announced projects but haven’t named their suppliers (see our chart tracking some of the proposed projects).

Photo courtesy of Solar Frontier.

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By buying Innovalight, DuPont not only added a new material offering to its lineup, it also snagged customers that have licensed Innovalight’s technology. The silicon ink developer has signed up some of the biggest solar-cell makers in the world, including Yingli Green Energy, JA Solar and Motech. Innovalight works with its customers to figure out how to incorporate silicon ink into their production lines, and it sells the ink as well.

A few years ago Innovalight decided to change its business model and has now demonstrated that to be a wise decision. Innovalight once wanted to become solar-cell maker.

Founded in 2002, the company decided to forgo that ambition when the financial market crashed and demand for solar goods dived in late 2008 and first half of 2009.  Startup companies were having a hard time lining up money to continue their product development and move into production. Innovalight’s CEO, Conrad Burke, told me at the time that Innovalight needed to steer away from the manufacturing business because it required too much capital.

Since then, the company has to seemed to have found success with the licensing model (and also selling the silicon ink). The U.S. Department of Energy has funded Innovalight’s research and development, including $3 million in 2009 and another $3.4 million earlier this year.

Innovalight targets silicon solar-cell makers who want to boost their solar cells’ efficiencies quickly without only relying on internal technology development that typically requires millions of dollars and years of development time. The rapid decline of the price of solar cells, which are assembled into panels, has prompted solar-cell makers to figure out ways to better compete not just in price but also performance in the last three years. Most of the solar panels sold today are made with silicon.

The prestigious R&D Magazine put Innovalight’s silicon ink technology, which was developed with the help of the National Renewable Energy Laboratory, on its annual top 100 list of innovations this year.

DuPont already is a big player in the solar market. It makes the films that protect solar cells from moisture and other environmental damage. The company said the solar market brought it over $1 billion in revenue last year.

Image courtesy of Innovalight

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One thing to blame is Italy, which struggled for months to revise its solar subsidies in order to curb an explosive growth in solar project installations in recent years and lessen the burden on consumers who pay for those incentives through their electric bills. It was only last Thursday when the Italian government finally approved a new set of solar electricity rates  – which are still higher than rates for electricity from fossil fuels – that utilities must pay. The new incentives, to start in June, could cut solar spending by up to 33 percent in 2011 and 2012.

Shares of First Solar, SunPower, Trina and Yingli all have been falling anywhere from as little as one percent to around three percent in recent trading.

SunPower has devoted a lot of resources to developing the Italian market, including spending $277 million on acquiring Malta-based project developer SunRay that focused heavily on Italy, and completing 85 MW of projects in the country in 2010. SunPower also bought an Italian solar distributor, Solar Solutions, back in 2008. Italy was SunPower’s largest market in 2010, accounting for about 40 percent of its revenue, according to its annual report. The U.S. followed with 29 percent of revenue and Germany with 11 percent.

Italy hasn’t been alone in implementing a significant cutback of subsidies. Germany and France also have the same type of solar electricity pricing program, and they, too, have scaled back its financial aid this year to control growth. Manufacturers and project developers had known for months that cuts would take place, and some reduced shipment because they figured their customers would wait for new policies to materialize in order to adjust their own business plans. Distributors nevertheless have built up a stockpile of solar panels, said IMS Research’s solar analyst, Sam Wilkinson.

Solar panel shipment fell nearly 10 percent from the fourth quarter of 2010 to first quarter 2011, the first time a decline took place since the start of 2009, Wilkinson said. Solar panel inventory, meanwhile, has ballooned to over 10 GW, prompting distributors to cut prices to try to get rid of them, he added.

Solar companies still hope 2011 will be a good year, now that the major European markets have settled on their incentive policies for this year and next. Some companies have stuck to their sales forecast despite a slow start in 2011.

First Solar posted flat first-quarter sales and lower net income, but Gillette re-affirmed a previously issued sales forecast of $3.7-$3.8 billion in sales and earnings of $9.25-$9.75 per share for 2011.

Trina Solar, too, held on to its 2011 forecast even though it announced a lower shipment number for the first quarter on Tuesday. The Chinese company said its first-quarter shipment likely fell between 320 MW and 322 MW. Previously, it had anticipated the shipment to be “slightly higher” than the roughly 351 MW it rolled out of factories in the fourth quarter of 2010. For 2011, the company still expects to churn out between 1.75 GW and 1.80 GW of panels, and that would be a 65.6-percent to 70.3-percent boost from 2010.  Trina plans to discuss its first-quarter earnings on May 17.

Yingli Green Energy, meanwhile, said Wednesday its first-quarter shipment likely declined by a “low teen percentage” from the fourth quarter of 2010. Previously, the Chinese solar panel maker was expecting the figure to be higher by “mid-single digit percentage.”

Chinese and American firms aren’t the only ones to have suffered. European companies, such as German project developer Phoenix Solar, also reported lower sales and earnings this week.

 Photo courtesy of SunPower

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Consider this: The biggest news announced around Solar Power International in Los Angeles this week has come from the likes of General Electric and LG. GE has been vocal about its interest in the solar market, and on Tuesday, it outlined precisely when it can offer products and services and what they will be. It plans to start rolling out cadmium-telluride solar panels via Colorado-based PrimeStar Solar (GE is its biggest investor) in 2011, and it’s now offering copper-indium-gallium-selenide (CIGS) panels from Solar Frontier of Japan. Don’t forget GE is also selling inverters and its project engineering expertise.

LG also announced Tuesday that it’s coming to America to sell its several lines of silicon-based solar panels. It plans to invest $820 million in research and manufacturing over the next five years to generate billions of dollars in revenue during the same period. Meanwhile, Hyundai Heavy Industries, the big shipbuilder in Korea, said Monday it would build a 400-megawatt CIGS solar cell factory in its homeland with a French partner, Compagnie de Saint-Gobain, through a joint venture called Hyundai Avancis.

The encroachment of the conglomerates, combined with the rapid growth of the Chinese solar companies in recent years, has made venture capitalists and Silicon Valley startups rethink their strategies. In manufacturing, there really isn’t much room for new comers who dream of building massive factories. The days of new Nanosolars and Miasoles emerging in 2010 are over. Private investors aren’t so willing to part with their money, and too many manufactures are vying for government subsidies.

Damoder Reddy, co-founder and CEO of venture-backed Solexant, said investors are “extremely shy” about investing in solar manufacturers, particularly since many of their solar investments haven’t paid off. Reddy is still on a march to build his first full-scale factory. Solexant, which prints nanocrystal form of cadmium-telluride compound on metal foil and then sandwiches the cells in glass, is planning a $40 million, 100-megawatt factory in Oregon.

Contract manufacturing and intellectual property licensing will increasingly become an important part of the business models for Silicon Valley technology developers, just as they did for semiconductor startups in the last 20 years. Some solar startups already are moving in that direction. Stion, while building its own factory, also has signed a deal with Taiwan Semiconductor Manufacturing Co. to make its CIGS panels. (TSMC rose to prominence because chip startups could no longer afford to build their own factories.) Innovalight ditched its solar cell manufacturing plan and began selling silicon ink that can boost power generation of solar panels made by the likes of JA Solar and Yingli Green Energy.

Manufacturers that are already producing lighter-weight solar panels that can carpet flat roofs without racks or be built into roofs and other construction materials can still gain a first-move advantage, mainly because it’s a space that many larger manufacturers don’t want to invest in right now. State incentives that encourage adding solar to new homes help to promote these building-integrated photovoltaic (BIPV) products, which don’t stand out nearly as much as conventional solar electric system erected on the rooftops. Success in this field will depend largely on the interest of builders and roofing and other building material companies.

A change in California’s solar incentive program earlier this year allowed builders to bring in a partner who can finance and own solar electric systems on new homes, and that opened up new opportunities for BIPV offerings, said Tom Harvey, director of sales and marketing for SunRun, which has financed solar shingle installations in a new Southern California community built by Toll Brothers. SunRun charges homeowners a monthly fee for using the solar electricity.

The builders “are more concerned about aesthetics. Price isn’t as important as ensuring that their homes look a certain way,” Harvey said.

SunRun also offers an example of the opportunities that haven’t been fully explored. Solar, unlike the chip industry, sells not just goods but also services. Companies like SolarCity are expanding their services to include energy auditing and installation of solar water heaters and other equipment to make homes and businesses use energy more efficiently. Hybrid systems that can generate solar electricity and thermal energy to heat and cool buildings also seem promising.

Valuable services will require innovative software for everything from engineering and installing to monitoring and maintaining solar electric systems. There’s room for companies that can develop good software to help consumers and businesses manage their solar electric systems and overall, monthly energy consumption and expenditures. Some companies developing home energy monitoring gadgets and software are already eyeing this opportunity, but the market is too new to have created clear winners.

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Sharp said the purchase will net it 2 gigawatts of projects under development, including 330 megawatts that are under contract for delivery. The Japanese company’s move seems reminiscent of the decision by First Solar to spend $400 million to buy OptiSolar’s project pipeline in 2009. The acquisition made First Solar a formidable player in the project development business and gave an outlet for First Solar’s cadmium-telluride solar panels.

But Recurrent’s CEO, Arno Harris, said his deal with Sharp is much different than the First Solar/Optisolar deal. For example, the San Francisco-based Recurrent Energy will retain its name and executives and staff, said Harris during a press conference call, unlike how OptiSolar was essentially swallowed up by First Solar. “We are really spreading our wings with strategic support from Sharp,” Harris said.

Although Sharp will own Recurrent, its agreement doesn’t require Recurrent to use Sharp’s solar panels, Harris said. What Recurrent will get mostly from Sharp is the Japanese tech giant’s financial support and brand name recognition. He expects Recurrent to continue its relationship with its suppliers. Recurrent has inked purchase deals with Suntech Power, Yingli Green Energy and SolarWorld in the past.

Buying solar panels from Sharp can make good business sense for Recurrent, however. Sharp is one of the largest solar panel makers in the world, so it has the manufacturing might to offer cut-rate products to Recurrent. Sharp makes crystalline silicon solar panels, just like Suntech, Yingli and SolarWorld. Sharp also has been beefing up the production of panels with thin layers of amorphous-silicon/microcrystalline silicon.

Recurrent has been in the business of developing and owning solar energy projects and selling the solar electricity to utilities or business customers. The company will continue with this approach but also will consider selling projects after they’ve been built if doing so will yield a greater return on the investments for Sharp, Harris said.

Harris declined to say how much private equity Recurrent has raised since its inception in 2006. It did announce a $75 million round in 2008 and counts Hudson Clean Energy Partners and Mohr Davidow Ventures among its key investors.

Recurrent has found more success in signing energy delivery contracts in North America. Among the 330 megawatts that are under contract, 170 megawatts are going to Ontario Power Authority, 60 megawatts to Sacramento Municipal Utility District and 50 megawatts to Southern California Edison.

Recurrent hasn’t developed all of the 2-gigawatt pipeline by itself. Back in 2009, Recurrent bought 350 megawatts worth of project under development from Chicago-based UPC Solar.

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Cleantech Financing  Trends 2010 & Beyond

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Image courtesy of NREL.

Lux’s Jason Eckstein, author of the report, argued that a new shakeout is coming as government subsidies in countries such as Germany and France are set to decline. These subsidies, the feed-in tariffs, are supposed to fall gradually as production scale and technologies improve and presumably the prices for them should fall as well. That puts pressure on manufacturers to lower the prices of their goods. Plus, the market is getting new entrants who believe they’ve got something the dominant players don’t.

Eckstein anointed Amonix, Enphase and Abound as breakout stars in their class and, as a result, are likely to go public and reward their investors some nice returns. Kleiner Perkins-backed Amonix is a high-concentrating PV panel maker based in Seal Beach, Calif., that seems to have emerged from hibernation to win some utility-scale contracts. The company has been around since 1989, and it closed a B round of $129.4 million earlier this year. Last month, news came about Amonix’s biggest deal announced to date: a 30-megawatt project in Colorado by Cogentrix Energy, which signed a power sales agreement with Public Service Co.

Enphase got the nod because it was early to the market of microinverters and has “high sales volumes,” according to Lux. Microinverters, unlike centralized inverters, are added to each solar panel to convert direct current to alternating current for feeding the grid. The Petaluma, Calif.-based startup, another Kleiner Perkins pick, is likely to dash across the IPO line quicker than others, Eckstein said. The company’s use of contract manufacturers is a smart move because it eliminates the need to raise a lot of money to build and operate factories, he added.

Lux isn’t alone is feeling bullish about the microinverter technology. In a report released last month, IMS Research said microinverters and their cousin technology the DC-DC power optimizers are likely to generate more than $1.5 billion in revenue over the next five years worldwide.

We all know that First Solar has been super successful. Startups want the same thing. Lux selected Abound Solar from the lot as a rising star in making cadmium-telluride solar panels. Abound, based in Loveland, Colo., and backed by DCM, last raised venture capital in 2008 ($104 million), opened its first factory in 2009 and won a $400 million federal loan guarantee to expand manufacturing in 2010. Its panels can achieve about 10 percent efficiency. First Solar can do 11.2 percent efficiency.

Eckstein also didn’t forget the biggest army in the war for solar market dominance: companies making crystalline silicon solar panels and their suppliers. Not surprisingly, he noted the rise of Chinese solar panel makers, some of whom have their own plants to make polysilicon, ingots and wafers, the materials necessary to make solar cells and then panels. Yingli Green Energy and Trina Solar are examples. He also gave a shout out to newer players such as Samsung Electronics and LG Electronics.

Despite the high amount of buzz about thin film solar players Nanosolar and Solyndra, the Lux report issued cautions on these startups. Nanosolar received low marks for both technical value and business execution, while Solyndra drew low marks for technical value. Solyndra withdrew its IPO plans earlier this year. The Lux report says “The space is becoming bifurcated as start-ups such as Solyndra and Nanosolar fail to execute on their ramp-ups and become long-shots.”

The solar market is still young and relies heavily on government subsidies to grow. That, by definition, means it will be in flux and not so predictable. Already, forecasts for 2011 solar power project installations vary widely, from nearly 13 gigawatts to almost 19 gigawatts.

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Report: Cleantech Financing Trends: 2010 and Beyond