This Is the Make or Break Year for Solyndra

Solar company Solyndra, which has been on a roller coaster ride of funding and political attention over the past two years, is now slowly ramping up production at its new factory. The company shipped 60 MW of modules to customers in 2010, is approaching 100 MW installed by its customers, and hopes to boost its annual production rate to 200 MW by the end of this year, said Ben Bierman, Solyndra’s executive VP of operations and engineering, during the Photon Thin Film Conference in San Francisco this week.

That ramp-up is significantly lower than the company had hoped for back in early 2010, before its high manufacturing costs forced it to ditch its plans for an IPO, then later in the year lay off employees and consolidate production. Solyndra closed its first factory at the end of January and moved all its equipment to its second factory (so-called fab 2) just down the road from its headquarters in Fremont, Calif.

But while the company may not be thriving — particularly compared to expectations — the company is surviving. For now. Production costs have fallen to less than $2.50 per watt, Bierman told us. If it can produce 200 MW per year this year and 300 MW by the end of 2013 and find customers for them, it will be one of the leaders in the next-generation, thin-film solar industry. So 2011 looks like it will be a make or break year for the company.

Solyndra’s Roller Coaster Ride

Solyndra, founded in 2005, made a name for itself initially for its unusual solar panel design. The company came up with an innovative design for a solar panel made up of a series of tubes lined with copper-indium-gallium-selenide solar cells. The idea is to capture reflected light from the rooftop, though this works best if the roof is painted white, and the company engineered its own racking system that doesn’t require digging holes in the roof to anchor it. The racking design is meant to cut equipment and labor costs. Solyndra’s panels have an average efficiency of 12.7 percent, Bierman said. UPDATE: The 12.7 percent efficiency refers to when the thin films are rolled flat, said Dave Miller, Solyndra’s spokesman. Without doing so, the panels have around 10 percent efficiency, he said.

The technology is so novel that Solyndra generated a huge amount of attention in 2008, when it began to divulge its designs and business plans publicly. By mid 2009, the company had announced $2 billion of sales deals with customers that were mostly in Europe. Energy Secretary Steven Chu held up Solyndra as a model of innovation when he took part in the groundbreaking ceremony of fab 2 in September 2009. California Gov. Arnold Schwarzenegger also joined the ceremony and quipped, “We are here to say, ‘Hasta la vista, global warming!’”

But Solyndra has also made a name for itself by the massive amount of money it has raised to bring its technology into commercial production. The company had raised about $970 million in private equity by October 2009, when it was planning for an initial public offering, and also snagged a $535 million loan guarantee — the DOE’s flagship — to build fab 2.

Production costs, however, are where the company started to hit a snag. In the midst of building fab 2 last year, the company cancelled its IPO plan and opted to raise $175 million in convertible promissory notes instead to tie it over until it could get fab 2 up and running. At the time, the company thought it could get an annual production rate of 300 MW by the end of 2011.

Last November, Solyndra’s new CEO, Brian Harrison, announced a plan to close the first factory and lay off about 40 employees. The company also wasn’t going to renew contracts with about 135 temporary workers. He said the plan would save the company about $60 million. Instead of reaching a total production capacity of 610 MW by 2013, as the company had envisioned, Solyndra was looking at up to 300 MW by the end of 2013.

Cutting spending through layoffs and production consolidation is a prudent move to make when times are tough. But Solyndra had built up such a high expectation for what it could deliver that making changes to its operations only raised questions about its ability to execute and survive.

Solyndra’s Make or Break Year

The spotlight on Solyndra won’t go away any time soon. The company still has to prove it’s using money from investors and taxpayers wisely and can succeed long-term. Even though it’s still working on getting fab 2 fully up and running using the federal loan guarantee, it’s already becoming a pawn in a strategy by Republicans to cut federal funding to clean energy projects.

A Republican leader in the House, Fred Upton (R-Mich.), is questioning the wisdom of giving Solyndra a loan guarantee that translated into the $535 loan from Treasury’s Federal Financing Bank. Republican lawmakers have started a budget battle with the Obama administration, which unveiled its 2012 budget proposal this week.

Meanwhile, Solyndra’s technology still gets plenty of attention at trade shows and conferences. The company’s solar panels and systems have now been installed in both the U.S. and Europe. Businesses with Solyndra systems on site include Coca Cola (s ko), Anheuser-Busch (s bud) and Frito-Lay (s pep). “I feel like a guy from Apple (s aapl) at a PC convention,” Bierman said. “We are the Apple guys showing people here are different ways to thinking about the business.”

While Solyndra has mapped out its production and cost-cutting plans, so has its many competitors. Many larger manufacturers already are making panels at between $1-$2 per watt. First Solar (s FSLR) reached 0.75 per watt last fall. Bierman maintained the company isn’t competing just on solar panel costs but the cost of the entire system. That sounds like a good proposition, but the customers that signed all those deals might no longer see it that way, given how quickly other solar panel makers are aggressively building factories and lowering their manufacturing expenses.

The company already is held up as an example of a capital-intensive company that venture capitalists no longer want to touch. It will have to meet the goals it has set for this year, and preferably exceed them, to be taken seriously.

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