A polysilicon producer backed by well-known solar energy industry player is in danger of going out of business, a sign that surviving the economic downturn could be tougher than anticipated.

Silicium de Provence (SilPro) in France has filed for court protection while it reorganizes it business and work out a plan with its creditors, a process similar to the Chapter 11 proceedings in the United States. Three-year old SilPro set out to build a factory for making polysilicon, the main raw ingredient for making solar cells, but couldn't raise enough money to continue as a result of the global credit crunch, said Solon, a Berlin-based solar panel maker and power plant developer.

Solon, an investor in SilPro, could end up taking a €40 million ($53.1) charge as a result of SilPro's restructuring effort, Solon said Tuesday. The news pushed Solon's stock down more than 9 percent on Wednesday.

SilPro's story isn't likely to be unique by the end of this economic downturn, whenever that might be. The company has faced two whammies: the increase of the global polysilicon supply at a time when solar energy components makers are laying off staff and cutting production. The industry could very well see more bankruptcy filings in the next 12 months.

Analysts had warned about the likely glut of polysilicon starting this year, and that it would lead to a lowering of prices for solar panels and a tougher fight for market share among the growing number of companies making various materials and components for making the panels (see Polysilicon Prices Head for a Steep Fall).

Many of the new and existing polysilicon producers started planning and building new factories long before the global financial market tumbled last fall. That seemed to be a good way to go when there wasn't enough silicon being produced to meet demand.

The credit crunch has only intensified the competition. Banks aren't as willing to loan money and customers are cutting their orders or defaulting on payments.

Just last week, Renewable Energy Corp. (NEC) in Norway said it would cut its solar cell and panel production in the second quarter by nearly 50 percent.

OptiSolar, a startup solar panel maker and power plant developer in California, sold off its pipeline of unfinished projects recently and is now selling its remaining business assets (see OptiSolar Shuts Production, Lays Off 200). BP Solar is shuttering some of its manufacturing operations and looking at outsourcing panel production (see BP Solar is Laying Off 620, Outsourcing Panel Manufacturing).

Other companies, including Chinese companies ReneSola and Trina Solar, have taken multimillion dollar inventory write downs since last fall (see LDK Solar Faces Tough Road Ahead, Says Analyst). 

SilPro, founded in 2006, has well-known backers. Sol Holding has a 70 percent stake in SilPro (Sol Holding is a joint venture between Solon and Econcern). Photon Power Industries owns 30 percent of SilPro. EDF Energies Nouvelles has a 12.8 percent stake in Photon Power.

Yet SilPro hasn't been able to raise the money needed to complete building its factory, which was supposed to start production in 2011. With the economy in bad shape, building a polysilicon factory might not be as lucrative or provide the pricing advantage that some investors who also are solar panel makers thought they would get.

The court filing gives SilPro two months to reorganize its business and settle with its creditors. 

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