Has the pressure to compete in a world market beset by an equipment glut and plummeting prices over the past two years led to an increase in poor quality solar panels?

The answer is “yes” say some executives in the business of selling materials, insurance and performance testing and on-site factory monitoring businesses. They said they are seeing the use of substandard materials for the metal contact lines, backsheets and encapsulants for protecting each panel from UV radiation and other environmental damage, and for insulating wire cables. The process of soldering, or connecting the cells together inside a panel, also is a source of lousy workmanship.

Now, there were certainly badly made solar panels before the supply-and-demand imbalance began to take a firm hold in early 2011. If anything, many manufacturers, especially those that have become major players, have learned to use more sophisticated equipment and testing instruments in their factories. But recent evidence from testing and monitoring performed by independent firms shows that penny-pinching is at play as manufactures struggle to reduce costs and survive. 

SolarBuyer, which sends people with solar manufacturing experience to do factory checks on behalf of project developers and investors, is seeing an average defect rate of 8.8 percent for solar panels that roll out of manufacturing plants, said Ian Gregory, managing director of the Boston-based company. The spread of the defect rates range from 5.5 percent to 22 percent.

“Industry as a whole the quality is suffering. You think you are going bankrupt in three months, so your priority will be on cash flows and not quality,” said Jenya Meydbray, CEO of PV Evolution Labs, which performs reliability testing of solar panels. “That means cutting corners to get a few cents per watt out of your cost so that you can start to squeeze out a little bit of the margin.”

Meydbray said the notable problems he’s seen in his labs included the degradation of the materials that hold the cells together and the yellowing of the back sheets and encapsulants. Some manufacturers are using less of the silicone material that attaches the junction boxes to the back of the panels, causing them to fall off and create fire hazards. Problematic panels aren’t just coming from Chinese manufacturers, who historically have had to battle a reputation for producing poor quality products, but also from European and American companies. Though problems might show up more often in smaller, less financially viable manufactures, they also crop up in top brands.

The issue of quality control seems to have showed up more in public discourse lately.  At the Greentech Media’s solar conference near San Francisco last month, speakers on two panels raised the issue. Brian Matthay, vice president of environmental finance at Wells Fargo, told the audience that solar panels are far from earning the “commodities” label because some manufacturers had been “cutting corners.”

Conrad Burke, general manager of DuPont Innovalight, echoed the same concern during the conference. In a recent interview, Burke said DuPont, a big supplier of Tedlar backsheets and other materials, has been testing panels made with materials from rivals and found inferior materials that cause solar panels’ performance to degrade quicker overtime. He said he spoke with a panel maker at the conference and was surprised to hear that the manufacturer, who he declined to name, was offering panels in three grade levels.

“What struck me was that we were having a conversation like this. I’m concerned that quality is being compromised at the expense of cost,” Burke said.

Meydbray, Burke and Gregory declined to name the manufacturers who are having quality control problems. Burke pointed a story that RenewableEnergyWorld.com ran last month about the removal of solar panels from 24 campuses of San Diego Unified School District in California. Solar Integrated Technologies made the panels and has since filed for bankruptcy. General Electric developed the project and sold the solar electricity to the school district under a 20-year power purchase agreement.

Not all companies disclose or reveal fully the extent they have had to spend on honoring warranties and replacing faulty panels. At least one company has replaced faulty solar panels, but not without securing non-disclosure agreements from its customers. So the extent of the warranty problem wasn’t made public.  First Solar’s acknowledgement of large warranty payments this year therefore surprised many in the industry.

What does all this mean to developer and bankers? At the conference, Matthay talked about negotiating stringent warranties because investors are counting on a power project to produce a steady stream of electricity for over 20 years.

Meydbray said some investors don’t put much stock in warranties these days given dozens of companies have filed for bankruptcies and a few hundred more are expected to go out of business or get bought in the next few years. Manufacturers are aware that they may have more to prove these days, so they are seeking more reliability verifications from PV Evolution Labs and other similar service providers.

PV Evolution Labs also has teamed up with SolarBuyer to assemble a list of solar panel makers that they would recommend to project developers and investors.

Solar Insurance & Finance in the Netherlands only insures warranties or underwrites projects after its staff has toured the factories from where the solar equipment were made, said René Moerman,  the company’s founder and chief strategy officer. Moerman is making his first trip to Korea this week.

“I trust nobody. That’s not because I’m cynical. I’ll trust when I see the report,” Moerman said.