LOS ANGELES (Reuters) - One of the largest companies to manufacture solar panels in the United States uses a surprising resource to keep costs low and compete against producers from China: prison labor.

Suniva Inc, a Georgia-based solar cell and panel maker that is backed by Goldman Sachs Group Inc, farms out a small portion of its manufacturing to federal inmates as part of a longstanding government program intended to prepare them for life after prison.

Suniva does not actively publicize its work with the prisons, saying it prefers to talk about its in-house factories in Georgia and Michigan, which handle most of its production and employ more than 350 people.

But the company’s arrangement with Federal Prison Industries, known as Unicor, has helped Suniva move all of its solar panel assembly to the United States from Asia over the last 18 months, said Matt Card, vice president of global sales and manufacturing. The company says prison labor accounts for less than 10 percent of its panel manufacturing.

By making panels in the United States, Suniva has been able to capture lucrative federal contracts, avoid U.S. government tariffs on Chinese-made panels, and appeal to private sector customers who want American-made products. The company is the third-biggest producer of solar modules that are made in the United States, according to GTM Research.

“As a U.S. company you have to be very, very smart about where you manufacture,” Card said.

Inmates working for Unicor, which has existed since the 1930s, have long made things like license plates and goods for the military. Solar panels were added to its list of products so that inmates could acquire skills in a new and growing industry and help government efforts to use more renewable energy.

The vast majority of Unicor’s 12,000 inmate workers make products for the federal government, but as federal budgets have shrunk in recent years the company has been trying to attract more contract work from private businesses. About 10 percent of its inmate workers are now engaged in such work.

About 200 inmates make solar panels working in factories at prisons in Sheridan, Oregon and Otisville, New York. A request by Reuters to visit a prison solar factory was denied by prison officials.

Suniva was founded in 2007 by solar scientists from the Georgia Institute of Technology, and it has grown rapidly. While the private company doesn’t disclose its financials, a federal contract from 2014 said Suniva had $93 million in annual revenue.

The company’s panels generate more electricity from the sun than typical Chinese-made panels, and they therefore command a premium price in the market.

‘A GOOD PRODUCT’

Suniva panels are on systems at Whole Foods Market Inc’s flagship store in Austin, Texas and at the Guantanamo Bay Naval Base, to name just two projects. The company does not disclose where panels for individual projects are made.

SolarCity Corp, the top U.S. rooftop solar installer, also purchases Suniva panels.

“It’s a good product,” SolarCity spokesman Jonathan Bass said in an email. “Suniva’s relationship with Unicor has never been a factor in our decision to use the modules... the mission to provide job training to prepare inmates for successful re-entry to the workforce is admirable.”

Suniva has raised more than $200 million from investors including Goldman Sachs, venture capital firms New Enterprise Associates and Prelude Ventures and private equity firms H.I.G. Ventures and Warburg Pincus. It has also received $6.8 million in Department of Energy grants.

Goldman Sachs would not comment on its investment in Suniva.

Suniva would not give any details on its financial arrangement with Unicor, citing government restrictions on the disclosure of contract terms. Unicor also declined to offer details on how individual contract manufacturing agreements are structured.

The average wage for inmate workers in the Unicor programs is 92 cents an hour, though employers pay a significantly higher amount to Unicor for overhead and other costs. Inmates responsible for court-ordered fines, victim restitution or child support payments are required to use half their earnings to meet those financial obligations.

Suniva has “no visibility” into how much inmates are paid, Card said.

“It costs us more to manufacture through Unicor than it does in China,” he added.

But the company sees advantages to its American operations, both in and out of prisons. The company saves 30 to 45 days of transit time from Asia so products get to market more quickly. This is significant now that 90 percent of Suniva products are used in U.S. projects and marks a change from when it was shipping most of its solar cells to Europe and Asia.

Unicor says its workers are 24 percent less likely than other inmates to return to criminal behavior once they are released from prison. The program is focused on providing work experience to prisoners who are within two years of release.

REPATRIATION

In 2012, Suniva approached the prison company about starting production as a contract manufacturer, according to Card. Under the agreement, Suniva provides all the raw materials. It also paid to convert Unicor’s factory equipment to support its manufacturing process.

Unicor had been making its own panels since 2009 but later gave up because federal agencies were hiring large energy service companies for solar projects and were not purchasing stand-alone panels.

The arrangement with Suniva was among the first in which Unicor positioned itself as a manufacturer that could help U.S. companies transfer production from overseas to the United States through what it called “repatriation.”

The repatriation projects are meant to address criticism that it is unfair for U.S. companies to have to compete with Unicor for government contracts. Unicor has about 40 repatriation projects for private companies that manufacture signs, electronics and more.

The Business Coalition for Fair Competition, a group opposed to the government competing with private businesses, said it would like to see a verification system to make sure the so-called repatriation work being done in prisons is not being taken away from American workers.

“There has to be some transparency,” said John Palatiello, the group’s president.

Solar was one of the industries considered ripe for the repatriation program, because Chinese-made panels were being slapped with hefty tariffs in the United States, according to Unicor board meeting minutes.

But the deal has been far from a success for the prison company so far. Revenue from the solar operations has fallen short of projections, Cantwell said, but declined to specify why.

“We are therefore currently evaluating how best to proceed with the solar program,” she wrote.

Suniva’s Card said he could not comment on specific operational details, adding that demand for Suniva modules exceeds expectations.

“We are very happy with Unicor’s workmanship and quality,” Card said. “Both organizations continually look for opportunities to increase production and deepen the relationship between us.”