The state of California has mandated that a third of its electricity come from renewable sources by the end of the decade. This has caused something of a boomlet in solar thermal and solar photovoltaic development within the state.  The latest project to get the go-ahead is a 250-megawatt solar PV development called the California Valley Solar Ranch. NRG Solar, a subsidiary of NRG Energy, Inc. (NYSE: NRG) and SunPower Corp. (NASDAQ: SPWRA) will team up to build the plant, with NRG kicking in up to $450 million in funding and SunPower doing the design, construction, operation, and maintenance on the plant. The project has signed a 25-year power purchase agreement with Pacific Gas & Electric Co. (NYSE: PCG) for the 250 megawatts of electricity.

Both NRG and SunPower have made acquisitions in the last year of project pipelines. NRG is trying to get on top of renewable portfolio requirements, and SunPower wants a captive market for its solar PV panels. Other solar PV makers, including First Solar, Inc. (NASDAQ: FSLR) and MEMC Electronic Materials, Inc. (NYSE: WFR) have also purchased project development companies in an effort to widen their revenue streams.

The market for solar PV modules is expected to soften as a result of the economic weakness in Europe and slow recovery in the US. Prices for modules and cells are expected to fall in the first half of next year, and many of the solar companies that not invested in captive project pipelines will get squeezed even harder, at least until the second half of next year. We looked at some solar companies’ troubles in this story.

Clearly a nicely stuffed project pipeline alone won’t save SunPower or any other company from falling module prices and tumbling margins. The solar PV makers have got to wring out more from their production costs, or increase the efficiency of the cells they make. Neither is easy, and SunPower especially could have some trouble. It is the current market leader in efficiency, but its products are more costly than those from other makers.

Solar PV makers face an uncertain year in 2011. Prices are almost guaranteed to fall, competition from low-cost providers in China will be fierce, and a weak global economic recovery are all going to weigh on revenue and profits. Project pipelines will surely help. But will that be enough?

SunPower’s shares are up nearly 4% today, and the Guggenheim Solar ETF (NYSE: TAN) is up about 3%, followed by the PowerShares WilderHill Clean Energy ETF (NYSE: PBW), up by about 2.5%.

Paul Ausick

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