LEXINGTON, Mass.--Energy Secretary Steven Chu toured tiny solar company 1366 Technologies here today, holding it up as an example of success in the ARPA-E program and the importance of federal funding for energy research.

Chu toured the labs of 1366 Technologies, a company spun out of the Massachusetts Institute of Technology in 2008 to bring the price of solar power down to the price of coal, after briefing incoming members of Congress at the Harvard Kennedy School of government in nearby Cambridge.

Steven Chu during a media briefing, after touring 1366 Technologies in Lexington, Mass.

1366 Technologies received a $4 million grant from the ARPA-E program, which enabled it to attract private capital to bring its "direct wafer" technology closer to commercialization. That manufacturing technology promises to cut the cost of making photovoltaic solar cells in half.

1366 typifies the innovation that American scientists and engineers are capable of, Chu said. The United States should invest more in energy research because innovation in clean energy technologies will fuel economic growth, as the world transitions to cleaner sources of energy and more effective uses of energy, he said.

Echoing comments he made during his "Sputnik moment" speech three days ago at the National Press Club, Chu said he is "alarmed" to see the rapid pace of technical advancement in energy, compared to the U.S., that he saw during a trip to China.

"Despite these threats, I still maintain--and 1366 is one of the prime examples of this--that the innovative brilliance of Americans...when set in the right direction, when given 'This is where we want to go as a country,' need not be afraid of any other country and any outside technology. They can do this and compete...and not only compete but prevail convincingly," Chu said.

But even as Chu remains bullish on American ingenuity in energy, the ARPA-E program faces a funding challenge after next year.

ARPA-E is modeled after DARPA (Defense Advanced Research Projects Agency), the U.S. military research agency that yielded the Internet and many other technologies. The mandate at ARPA-E is high-risk, high-reward energy research projects done within three to five years. It was created in 2007 but not funded until April of last year, when it received $400 million through the stimulus program.

Because ARPA-E was not part of the Department of Energy budget last year, Congress will need to fund the agency beyond its first two years for it to continue, according to an Energy Department representative.

Chu said the prospects of having continued funding are good. A number of high-profile reports done by business leaders have recommended increasing ARPA-E's budget, an indicator of how people from different fields--venture capitalists, universities, national labs, large corporations--appreciate what ARPA-E has done, he said.

"There's almost unanimous enthusiastic appreciation for what ARPA-E has done. So even as we approach austere budget times, its value is certainly widely appreciated," Chu said.

Wafer manufacturing The tour Chu was offered included technical presentations on both disclosed and secretive work of the 30 or so engineers at 1366 Technologies.

The company has developed a few manufacturing techniques for incremental improvements in polycrystalline solar cell efficiency. One is a texturing machine that treats the surface of a silicon wafer so that it reduces reflectivity and traps more light. Another is to use a substrate that reflects light back onto the surface of a cell.

1366 Technologies' breakthrough idea, however, is called Direct Wafer, a technology enabling a machine to produce a silicon wafer at half the cost of existing techniques. Solar manufacturers take flat 6-inch by 6-inch silicon wafers and, through various steps, create solar cells that are fitted onto a module, or panel.

Typically, manufacturers take ingots of raw silicon and saw them to make wafers, a process in which a lot of the silicon is lost. 1366 Technologies is working on a prototype of a machine that can produce that wafer directly from melted silicon.

The machine is a furnace like those used in typical wafer manufacturing, but it "freezes" the molten silicon into shape, explained Adam Lorenz, senior photovoltaics engineer. Because this process cuts the cost of wafer manufacturing in half, U.S. companies can afford to make wafers, which are mostly made in China and Germany, he said.

1366 Technologies CEO Frank van Mierlo said the company hopes to complete engineering work on the machine next year and break ground on a 100-megawatt wafer-manufacturing facility by the end of next year. The plant would take a year to build, and 1366 expects to apply for a loan guarantee from the Energy Department for construction, van Mierlo said.

A 100-megawatt facility is far smaller than commercial plants, but it would eliminate any technical risk, he said.