Silicon Energy has discovered a manufacturing defect in some of its newer, Minnesota-made solar panels, forcing a shutdown in production, delaying new installations and possibly requiring replacement of solar arrays, including one in a state park.

The company, which received state assistance to open a plant in Mountain Iron, Minn., in 2011, has told customers that some of its Next Generation Cascade Series panels — a product introduced in late 2012 — have developed "cracks and/or discoloration" on their sides.

The issue was detected early this year in about 20 percent to 30 percent of the Cascade units but doesn't affect their safety or electrical output, Silicon Energy President Gary Shaver said Friday in an interview.

The problem has not surfaced in the company's earlier products or in Cascade units manufactured in its Marysville, Wash., plant, Shaver added.

Hundreds of solar panels will need to be replaced under warranty, Shaver said. Ten workers who produced them in Mountain Iron are out of work, though some will be recalled soon to work on a new, lower-cost solar panel called the Voyageur, he said.

"We discovered something that standard testing regimes did not catch," said Shaver, who attributed the problem to a faulty manufacturing process, not the materials. "We have to learn from this and fix that process and move on."

Some solar projects affected are at Afton State Park and on a Minnesota Department of Natural Resources office building in Hibbing. Part of a new solar project in Itasca State Park has been delayed. And the city of Red Wing, which installed solar arrays at six sites, may need to replace some panels. Any replacements are expected to be covered by warranty.

Recipient of state help

Silicon Energy has benefited from $5.1 million in state loans and a $15 million-a-year, state-mandated made-in-Minnesota solar subsidy funded by ratepayers of investor-owned utilities, including Xcel Energy.

Rebecca Lundberg, CEO of Powerfully Green, a Champlin-based solar installer, said no defects have surfaced in Silicon Energy's first-generation panels. She said her company installed about 500 of the Cascade panels on three commercial projects in the past year.

Shaver said Silicon Energy plans to replace only panels that exhibit cracking or discoloration. But some installers, including Lundberg, want the manufacturer to replace all of their customers' Cascade panels, avoiding the need for future replacements, which can be costly.

"The goal is to properly prepare and plan for swapping out the modules and do it all at once," said Michael Allen, president of All Energy Solar of St. Paul, who estimated he may need to replace up to 1,000 Cascade solar panels on several commercial projects.

Most installers can offer new customers a choice of other manufacturers' panels for upcoming projects. But customers who want to take advantage of the made-in-Minnesota subsidy have been in a bind because the only other in-state manufacturer is TenKsolar of Bloomington — and until recently that company had a backlog of orders, installers said.

Allen said he believes Silicon Energy will survive. "We feel confident that they are going to fix the problem appropriately," he said. "It is a small hiccup in the total scheme of things."