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A glut of photovoltaic solar panels on the market has caused solar cell manufacturer Solyndra to go under. The company filed for bankruptcy and laid off 1,100 workers this morning.

The company makes cylindrical solar rooftop systems and is a now-controversial recipient of a $535 million loan guarantee from the Department of Energy — one of the first of its kind as part of the U.S. government’s federal stimulus program. After raising $1 billion, the company was forced to slash costs, close a factory and cancel an initial public offering as photovoltaic panel prices collapsed amid the economic recession that began in 2008.

“The price drops outpaced market growth and put pressure on solar panel manufacturer revenues,” Lux Research analyst Matt Feinstein told VentureBeat. “Eventually, the market growth begins to then outpace the price decline, but that hasn’t happened yet.”

As a result, the company has closed its factory in Fremont, Calif. The company grew from $6 million in revenue in its first year of operations to $140 million in revenue. Its solar panels cost an average of around $2 per watt to produce — which is high compared to many manufacturers in China and First Solar, which can produce solar panels for less than $1.20 per watt.

“I wish we would target more U.S. companies, but the solar manufacturing market is in Asia,” senior director of global product marketing Jim Cushing of Applied Materials, a company that sells solar panel manufacturing equipment, told VentureBeat. “China in particular has been extremely aggressive investing in building up a photovoltaic infrastructure and a photovoltaic capacity, and they’ve been able to drive their costs down.”

Dropping demand for solar panels that capture between 16 and 17 percent of the sunlight shining on them has also taken its toll on solar cell manufacturers. Many governments are offering incentives for solar panel manufacturers, but the market is shifting in favor of higher-efficiency photovoltaic manufacturers because the incentives favor rooftop solar installations with smaller surface areas, Cushing said.

The loan guarantees are one of the financial engines powering many cleantech investments in Silicon Valley. But concerns about burgeoning debt in the United States have raised questions about whether the program will continue to exist. The program will likely continue to exist in its current form for electric car manufacturers, but other cleantech sectors could be in jeopardy, Kleiner Perkins Caufield & Byers partner Ray Lane told VentureBeat. Kleiner Perkins Caufield & Byers has a large presence in the cleantech space with investments in Fisker Automotive and electric bus manufacturer Proterra.

The U.S. government has allotted an enormous amount of money to companies like solar panel manufacturer First Solar. The program has issued conditional guarantees valued at around $16 billion to solar power projects and $38 billion to clean technology projects. Other countries stimulate cleantech expansion by other means, like feed-in tariffs.

“I don’t think (cutting the loan program) will ever not be on the table,” Feinstein said. “Newer technologies, unproven technologies are the ones that would suffer most because they rely on those loan guarantee programs.

Solyndra’s annual revenues topped $140 million last year amid growth in U.S. and European markets. Solyndra had shipped nearly 100 megawatts of panels and expected to reach an installed system cost-of-goods-sold price of about $2 per watt in the first quarter of 2013 as of February.

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