A year-old solar panel manufacturer in northern Minnesota, citing slower-than-expected sales, has missed its first two payments on a $1.5 million loan from an Iron Range development agency and is seeking additional forbearance on the debt, executives and state officials said Tuesday.

Silicon Energy, which opened a plant in Mountain Iron in August 2011, also has cut its workforce from 15 to 11, laying off three workers and not replacing one who left.

"We were slow getting to market," said John Carroll, vice president of Newport Partners, the Irvine, Calif.-based parent of Silicon Energy. "We were not able to capture as much business as we expected in the Twin Cities."

Carroll said the opening of the Minnesota factory last year was delayed, in part by the 2011 Japanese earthquake and tsunami which slowed equipment shipments.

The U.S. solar power industry also is undergoing a major shakeout. In the last three months, solar-panel manufacturers in Nevada and Colorado have closed plants, and GE decided to stop building one, also in Colorado. Other solar companies also have failed, most notably California-based Solyndra last year after receiving a $535 million federal loan guarantee.

Gary Shaver, Silicon Energy president, said sales of solar-electric panels are less than half of the $8 million the company anticipated this year, largely because it didn't fully benefit from two solar incentive programs offered by Minneapolis-based Xcel Energy. The popular incentives, which together can cover 60 percent of a system's cost, are already committed for this year -- and future-years' benefits may be less lucrative.

Silicon Energy missed two quarterly $40,000 payments since April on a $1.5 million, seven-year loan at 3 percent interest from the Iron Range Resources and Rehabilitation Board (IRRRB), a state development agency funded by taxes on Iron Range mining companies. The loan was used to purchase manufacturing equipment that is security for the debt.

Silicon Energy also benefited from a $3.6 million IRRRB loan to the Mountain Iron Economic Development Authority, which built and owns the 25,000-square-foot factory. The solar company's first lease payment of $75,000 is not due until October 2013, said Mountain Iron's city administrator, Craig Wainio.

IRRRB Commissioner Tony Sertich said it is not uncommon for startup companies to face cash-flow problems, and the development agency can offer relief on loan payments.

"Our first goal is to make sure the business is successful," said Sertich, a former state legislator. "It can be a bumpy road at the beginning. As an economic development agency, we are able to be patient about money."

The company's business plan relies heavily on sales driven by Xcel's Solar Rewards and Minnesota Bonus incentives, which offer rebates to businesses and homeowners that install solar panels. The bonus incentive, which applies only to Minnesota-made equipment, is mandated by a 2010 state law pushed by Iron Range legislators, including Sertich, to induce Silicon Energy to build the plant in Minnesota. The company's other plant is in Washington.

The state's only other solar panel maker, Bloomington-based TenKsolar, founded in 2009, also benefits from the bonus, and its panels have captured a greater share of the Minnesota incentive. That's provoked sharp words from Silicon Energy, which says TenKsolar's panels are partly Chinese-made. TenKsolar CEO Joel Cannon said that 60 percent to 80 percent of the panels are Minnesota-made. Xcel confirmed Tuesday that TenKSolar's panels qualify for the incentive.

The two incentive programs cost Xcel customers $10 million a year, and the utility recently proposed phasing out the Solar Rewards program. Silicon Energy and other solar supporters protested, saying that dropping the incentive would hurt the industry. Last week, a state agency agreed, and recommended that Solar Rewards stay in place for three years, but with a reduced benefit. A final decision is expected next month.

Sertich said IRRRB will renegotiate the terms of Silicon Energy's loan after the fate of the Xcel incentives is clear.

Silicon Energy's Shaver said he believes the company can succeed.

"We have a good pipeline of projects," Shaver said, noting that a large Silicon Energy array is being installed on Lindstrom City Hall in Chisago County. "The product is doing well. We are optimistic."

David Shaffer • 612-673-7090