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A day after Silicon Valley solar cell company Nanosolar said it has begun manufacturing and sales of its solar cells, rival HelioVolt declared it too is building a solar cell production plant, in its hometown of Austin, Texas.

Both companies are competing to build cells from material called copper indium gallium selenide (CIGS), which they hope will lower the cost of solar cells dramatically, compared to the dominant material today: expensive silicon.

The timing of the announcement by HelioVolt, the second most heavily-funded CIGS maker after Nanosolar, might be intended to show the younger company isn’t falling too far behind its competitors.

However, the Austin HelioVolt plant will produce only about 20 megawatts worth of cells each year (update: the company says it will be able to scale production over 20MW), while Nanosolar’s San Jose plant is built to produce more than 400MW of cells a year. Nanosolar CEO Martin Rosecheisen remarked that HelioVolt’s effort looks more like a pilot project, not a commercial-scale plant.

The real challenge for the HelioVolt plant will be not in capacity, but in how cheaply it can make cells and how efficient they are in converting sunlight to electricity. So far, no player has nailed both of these well enough to threaten silicon’s dominance of the industry.

Until it begins producing cells — in late 2008, says HelioVolt — there’s no telling how closely it can compete with Nanosolar, which says it can churn out cells for less than a dollar per watt (an important price point, because it becomes competitive with other sources of electricity).

First Solar, a publicly traded company that uses a material called telluride to make similar thin-film solar cells, is also close to being able to produce cells for under a dollar per watt, and plans to have over a gigawatt of production capacity by early 2008. Its initial production runs quickly sold out.

Other CIGS startups, notably Miasole and Solyndra, have yet to set up their own plants. All of the CIGS makers have run into problems with production, to one extent or another, so it should be interesting to see whether HelioVolt remains on schedule to roll out its first cells late next year.