Solon's insolvency filing is likely to be followed by other high-profile German solar company failures, analysts said, as the blood-letting in the global industry intensifies.
Shares in Solon plunged 58 percent on Wednesday after the solar module maker announced the filing late the previous day, becoming Germany's first major casualty of a crisis in the sector.
The news weighed on other German solar companies including Phoenix Solar, Q-Cells and Conergy, whose shares were down between 1.7 percent and 6.7 percent.
"Solar managers and experts warned already about further bankruptcies," a Frankfurt-based trader said.
Solar companies in Europe and the United States have been hit hard by a toxic mix of oversupply, falling prices, low-cost Asian competition and lower government subsidies on which the industry still depends.
This has already triggered a wave of bankruptcies in the United States, most notably panel maker Solyndra LLC and Evergreen Solar.
Analysts said Solon's insolvency filing could be followed by others among Germany's solar elite.
"The risk of bankruptcies in the sector looms ever larger," said HSBC analyst Sean McLoughlin.
At 1149 GMT, trading volumes of Solon shares were 39 times higher than the average daily volume.
"In the past few months, Solon SE had engaged in intensive efforts to carry out a financial restructuring. It held talks with investors, the financing banks and the guarantors," the company said on Tuesday, adding negotiations had ultimately failed.
"Solon will now use the opportunities for a restructuring within the insolvency proceedings," it said.
Berlin-based Solon, whose modules harness sunlight and transform it into electricity, was the first German solar power company to list on the stock market in 1998.
Shares in Solon, which became one of the world's top solar module makers, reached a high of 89.01 euros in November 2007 during the height of Germany's solar boom. They were trading at around 0.40 euro on Wednesday.
Swiss bank Sarasin said in a recent study, published before Solon's filing, that Conergy and Q-Cells were among the German solar companies most exposed to the sector's crisis.
Q-Cells, once the world's largest maker of solar cells, is now struggling to meet refinancing needs and took steps earlier this year that may delay its convertible bond that is due in February 2012.
Conergy was rescued late last year after agreeing a debt-for-equity swap in December which would give control to hedge funds Sothic Capital and York.