A year ago, Xunlight 26 Solar embarked on a two-year plan to develop a production-readysolarpanel of cadmium-telluride encased by plastic.

The startup, which is licensing technology from the nearby University of Toledo in Ohio, has been able to fabricate a cell that could convert 10.5 percent of the sunlight that strikes it into electricity, said Al Compaan, Xunlight 26 chief technology officer and an emeritus professor at the university.

That efficiency is lower than what the leader of cadmium-telluride thin films, First Solar (NSDQ: FSLR), could produce. Tempe, Ariz.-based First Solar's panels fetch an average of 10.9 percent efficiency, which means the cells assembled into the panels should have even higher conversion rate.

Of course, First Solar in its present incarnation has been around for a decade, so it's had time and resources to improve its technology.

But Xunlight 26 isn't just chasing after First Solar.

In fact, Xunlight 26 is tackling a different set of challenges than many startups developing cadmium-telluride thin films. Its competitors mostly work on sandwiching the semiconductor compound between two pieces of glass, much like what First Solar is doing.

The startup wants to replace glass with polyimide, and use what's called a roll-to-roll process to produce the thin films, Compaan said. The roll-to-roll process is akin to the process used by United Solar Ovonic and Nanosolar.

United Solar Ovonic makes thin films with layers of amorphous silicon while Nanosolar uses a mix of copper, indium, gallium and selenium.

"We take a material proven successful mainly by First Solar, and we are trying to eliminate glass so that it's light weight and flexible," Compaan said. "That will open up new markets for cadmium telluride panels."

The more pliable thin films could be less obtrusive and fit in space that can't accommodate glass panels.

Boosting the cell efficiency is a priority for Xunlight 26. The company also needs to show that plastic is a suitable substitute that can withstand different weather conditions and other environmental issues.

"Efficiencies on glass are higher than on polyimide now, but we see no fundamental reason why they couldn't be equivalent," Compaan said.

By the way, the numbers "2" and "6" in the company's name refer to the II-VI semiconductor family in which cadmium and tellurium belong.

Xunlight 26 has received undisclosed seed money from Xunlight Corp. and about $1 million from the state of Ohio. The two companies share an office in Toledo.

Xunlight Corp., founded in 2006 as a spinoff of the University of Toledo, is developing thin films with layers of amorphous silicon, amorphous silicon germanium and nanocrystalline silicon. The company also is using the roll-to-roll manufacturing process.

Xunlight 26 plans to complete developing a prototype panel, which would measure 1 foot by 3 feet, in 12 months, Compaan said. The company will then build a pilot production line.

Many companies in recent years have jumped into the business of developing cadmium-telluride solar panels.

The trend emerged partly because silicon, which is the key ingredient for most of the solar panels made today, became so expensive and in short supply a few years back that entrepreneurs began to look for alternative materials or at least figure out ways to use less silicon.

The rise of First Solar coincided with this period of silicon shortage and high pricing. The company also succeeded in scaling up its production and marketing its products. It's now one of the top five solar panel producers in the world and claims a low manufacturing cost of $0.87 per watt.

Cadmium-telluride startups hope to replicate First Solar's success. The area around Toledo is home to not only Xunlight 26 but also a few other new comers.

Willard & Kelsey Solar Group (WK Solar), founded in 2007, has set up a small factory in Perrysburg, which is near Toledo and is also home to First Solar's factory. WK Solar's management included former employees of First Solar and Glasstech. Harold McMaster started Glasstech in 1971 and then a solar company in the 1984 that would evolve to become First Solar (see When First Solar Wasn't So Hot).

WK Solar recently received approval for a $10 million loan from Ohio to expand its factory. It appeared to have started trial production earlier this year.

Other cadmium-telluride players in the Toledo area include Calyxo USA, the American subsidiary for the Germany company largely owned by Q-Cells.

Solargystics, which doesn't offer much on its website, also is part of the cadmium-telluride club.