Shares of thin-film solar manufacturer First Solar (NSDQ: FSLR) jumped a whopping 13 percent Tuesday after the company announced plans to expand production.

In recent trading, the stock was worth $167.40 per share, up from a closing price of $148.10 per share Monday.

According to a company announcement released Monday evening, Phoenix-based First Solar signed $1 billion worth of agreements to sell its cadmium-telluride solar panels to investment firm Babcock & Brown and renewable-energy distributor Ecostream Switzerland.

The agreements call for the purchase of 557 megawatts of panels between 2008 and 2012. First Solar, which is expected to post earnings Wednesday, plans to build a new factory with four additional production lines in Malaysia to help meet its end of the bargain.

The company already is building three four-line factories in the country, with an expected annual capacity of 360 megawatts, and currently has the capacity to make up to 210 megawatts of panels per year at its plants in the United States and Germany.

The news is the latest in a series of announcements that show thin-film solar technologies, which use little or no silicon, are gaining traction during a worldwide shortage of solar-grade silicon.

Last week, Sharp Corp., the world's largest solar-cell manufacturer, also said it plans to expand its thin-film production. According to Nikkei, a Japanese business newspaper, the company plans to start mass production in Japan with a capacity of 200 megawatts per year in 2008.

German solar-cell manufacturer Q-Cells said it bought thin-film company Solar Fields, based in Toledo, Ohio, for $5 million plus stock. The company merged Solar Fields, which develops cadmium-telluride films, with its cadmium-telluride subsidiary, Calyxo.

Then there's all the money.

Last month, Austin, Texas-based HelioVolt, which is developing thin films based on cadmium-indium-gallium-selenide technology, closed a Series-B round worth a cool $101 million for a new factory (see HelioVolt Gets More Cash for Thin Solar).

XsunX on Monday announced it had raised $21 million from Fusion Capital Fund to build a plant with the capacity to churn out up to 100 megawatts of amorphous-silicon thin-film panels per year by 2010.

And on Tuesday, Pittsburgh-based Plextronics announced it had received a strategic investment from Applied Ventures, the venture-capital arm of semiconductor and thin-film-solar equipment manufacturer Applied Materials (NSDQ:AMAT), as an addition to its Series-B round.

While the company didn't disclose the funding amount, the announcement said the investment brought its total funding to $41 million. In August, when Plextronics closed $20.6 million for the Series-B round, it said it had raised a total of $37 million. So the Applied Ventures funding apparently was $4 million, unless the sum included additional unannounced investments.

Plextronics, which is developing thin-film solar as well as flexible displays and other products, also made Greentech Media's list of Top 10 Startups in September.

Huge Potential, Big Challenges

The investor interest is not surprising given the huge potential that some analysts expect thin films to fulfill.

According to a report by Greentech Media Research and the Prometheus Institute, thin-film solar grew from 5.8 to 7.5 percent of worldwide solar-electric equipment production in 2006 and is expected to grow to about 20 percent of the market share by 2010.

But all the interest puts thin-film solar companies under pressure to show the technologies are viable at larger volumes.

While advocates say thin-film technologies hold the potential to drastically cut the cost of making solar cells -- and open the door to new applications, such as textiles and building materials -- the technologies went nowhere for years.

Thin films have historically proven difficult and expensive to manufacture at large scales, analysts say, and so far, only a few thin-film companies have been able to grow beyond demonstration plants.

They also convert sunlight into electricity less efficiently than conventional solar panels (see Does Going Organic Require Exaggeration?).

But Jesse Pichel, a senior research analyst at Piper Jaffray, said low efficiency might not be a barrier if the cost per watt is low.

He pointed to First Solar, which he said has a bigger backlog than any other solar manufacturer, as an example.

"The stock can be overvalued at periods and undervalued at periods, but if you're taking a long-term approach, First Solar is the game-changing technology leader at this point," he said.

Piper Jaffray was an underwriter for First Solar's initial public offering and said the company also is an investment banking client.

Finding a Competitive Edge

Pichel said thin films could have a competitive edge if the price of solar panels falls, which he expects to happen in 2010.

But he indicated brand-new thin-film startups would face challenges catching up to First Solar.

"Nobody's even close," he said, referring to the company's production capacity and cost per watt. "We feel they have a year's advantage over anybody."

At the California Clean Tech Open last week (see California Clean Tech Open Winners Score Cash, Services), Nth Power Managing Director Tim Woodward also suggested newbies might have a harder time.

"Maybe we don't need another thin-film play," he said. "We've got 16 or 18 of those, so we're probably OK."

Woodward added that doesn't mean there's not an opportunity in thin-film, but said unless entrepreneurs have business plans that can deliver solar power at 50 cents per watt or less, "you're not going to get much interest."