Abound Solar, once heralded as an emerging player in American solar manufacturing because of its aggressive plans for growth and its strong Department of Energy backing, took a major step backward this week when it announced it was shutting down production of its first generation thin film modules and that it was temporarily laying off 180 employees from its Colorado facility.

In 2010, Abound closed on a $400 million loan guarantee from the Department of Energy that would be used to triple capacity at its 65-MW Longmont, Colo., facility and to build a new 640-MW facility in Tipton, Ind., an area that was hit hard by the economic downturn.

In an interview in July, company officials were hopeful that the Indiana facility would come online by 2014. In a press release, the company said it “still has long-term plans for a Tipton, Indiana manufacturing facility once production of its next-generation modules begins. The company anticipates having an update on a Tipton facility build-out in mid-2013.”

It remains unclear whether the temporary shutdown of the Colorado lines will impact the scale of the Indiana facility, and whether DOE backing would remain intact. The company did say it has drawn out $70 million of the total loan amount to date, and that it continues to work closely with the DOE.

As far as the Colorado plant, the company is working to make equipment changes necessary to launch its higher-efficiency module, and that it hopes to resume production by the end of the year. A message left with Abound Solar for more details was not immediately returned.

For Abound, its overriding goal and its reason for pushing for the DOE loan guarantee, was its desire to compete with thin-film leaders, especially industry giant First Solar. Over the summer, company executives were saying that the only way for small start-ups like themselves to compete with the big players, both in thin film and crystalline silicon, was to achieve scale. With this week’s news, it appears that for Abound reaching scale has taken a backseat to market pressures.

A lot has changed since the summer when Abound was touting its expansion plans and even more has changed since the company first entered into the DOE loan guarantee process.

Today, the thin-film industry in general is struggling mightily under the weight of low-cost crystalline silicon modules coming from China. Even First Solar, which like Abound produces cadmium telluride (CdTe) thin-film modules, is having its share of troubles.

“If the market leader in thin film CdTe is having a hard time, a start up with domestic manufacturing and low utilization rates is going to be struggling even more,” said Robert Lahey of Ardour Capital Investments. “It’s hard to find a thin-film competitor that is weathering the storm right now. For the foreseeable future, the thin film players will continue to struggle as they face competition from silicon manufacturers.”

Among the problems facing thin-film manufacturers is a competitive rooftop market, especially in Europe, that is currently being dominated by crystalline silicon modules. “We’re having a good year in ground mounted systems, but I don’t know how many super-sized projects are out there,” said Lahey.

Thin film’s recent troubles may have some in the industry wondering about the future of that technology. But Abound’s decision to halt production is likely to have mainstream political implications as well.

The Solyndra bankruptcy has been widely used by Republicans as a measure of the viability of all cleaner forms of energy. The recent news by Abound is likely to reignite that message, especially in the context of the 2012 Presidential Election.

“The fact that $70 million has been drawn down won’t be in the headlines,” said Lahey. “The headlines will be $400 million. I definitely see more negative headlines, despite the fact that the loan program is a success. Eighty percent [of the loan guarantees] went to power generation projects. The focus was not on domestic manufacturing programs. But it’s a tough environment right now in D.C.”

That wasn’t always the case. In fact, when the DOE awarded the loan guarantee to Abound Solar, it looked like a good bet. Unlike Solyndra, which even at the time relied on an innovative but risky technology, thin film already had proven itself in the marketplace, a factor that likely influenced the DOE’s decision to back a loan to Abound.

“If you go back two years, First Solar was the absolute jewel of the solar sector,” said Lahey. “They never missed earnings; they never had inventory; their panels were going out the door in Germany, Italy, Spain and France; they were making headway in the U.S. on the project development side; and silicon cost more than double what it costs now.”

It’s a far different PV landscape today. And many companies are quickly shuffling to face the new realities.