You might not have heard, but solar panel maker and Obama administration renewable-energy exemplar Solyndra declared bankruptcy this month. It wasn't the first solar manufacturer to go belly up, and I'd be astonished if it were the last. The recent failure of several solar startups doesn't mean that regular progress isn't being made, and in no way heralds the coming demise of the solar industry. Solar is far from the first -- and will not be the last -- industry to undergo such a shakeout, but the few companies that survive will be the ones best-equipped to lead us toward a new energy paradigm.

Shine a little light
Early industry turmoil hasn't prevented American panel makers First Solar (NAS: FSLR) and SunPower (NAS: SPWRA) from carving out valuable slices of the market. First Solar offers the lowest cost per watt, and SunPower boasts the highest panel efficiencies. They face tough domestic competition from GE (NYS: GE) , which could consolidate the industry on its own by swallowing up both companies and still have enough cash left over to go on a real spending spree. GE has already absorbed Prime Star Solar and developed a more efficient iteration of First Solar's thin-film panels, though it hasn't yet proven it can beat First Solar on cost per watt.

Of course, GE is far from the only big dog in the fight. China's solar manufacturers have benefited enormously from their government's deep pockets:

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Source: Ryan Cunningham.

LDK Solar (NYS: LDK) and Suntech Power (NYS: STP) , despite a combined loan offer of $18 billion, took in less net income combined last year than unsubsidized First Solar. Even JA Solar (NAS: JASO) , receiving the low end of this outpouring of Chinese generosity, got eight times as much funding as Solyndra's $535 million federal loan guarantee. The backing helped them return to profitability from a disastrous 2009, but if Solyndra's tragic tale offers any wisdom, it's that funding a floundering company only delays the inevitable.

The more things change, the more they stay the same
Solyndra didn't fail because solar energy is just a "cute" diversion from real solutions, but because it made the wrong business decisions and pursued the wrong ideas. Instead of the typical flat panels you're used to seeing on your hippie neighbor's roof, Solyndra made cylindrical solar tubes. This strategy fell apart for a few reasons, all of which boil down to the fact that the manufacturing process was not profitable. The company booked a loss on their cost of goods sold, so they were already in the red before accounting for other expenses. In 2009, Solyndra's estimated cost to manufacture one watt of solar capture was $6.29. First Solar's is well under a dollar now.

Researchers recognized the same early struggles in the auto industry nearly five decades ago. They found that automobile production increased nearly 50,000% from 1899 to 1919, but the number of automakers declined by 77% in the same period. Many lesser companies were shaken out with such speed that the average automaker's life expectancy during this time was under six years. To keep things in perspective, Solyndra was founded six years ago.

There were plenty of detractors then, just as there are today. The president of the Michigan Savings Bank once told Henry Ford's lawyer, "The horse is here to stay, but the automobile is only a novelty." Oil and gas investors might want to believe that solar is a similar novelty, but history tells a different story. Worldwide solar power generation has increased 15,000% in the past 27 years.

Are things different now?
The political will to support solar is nowhere near that which won the Space Race, introduced the microchip to the public, and developed the Internet. It doesn't need to be. The modern solar industry is no Wild West. The technology is proven and improving, investors are funding multiple competitors, lumbering conglomerates are throwing their financial weight behind solar, and America is actually a net exporter of solar products, which doubled in the past year alone. GE's global research director believes that solar power will be cheaper than fossil fuel and nuclear power within five years, and the Department of Energy's solar program shares that goal. It's an attainable goal, and one that should have "old energy" corporations and utilities very worried.

Fool contributor Travis Hoium feels that continued Chinese subsidies for solar production are a global good, but American innovators are already showing that you don't need the government's bankroll to come up with great ideas. MIT researchers can now print solar cells onto ordinary paper or fabric. A California start-up is working on 3-D solar cells that promise to greatly improve light-to-energy conversion efficiencies. What happens next? The Law of Accelerating Returns suggests that the entire planet can meet its energy needs with solar power within 20 years. Imagine a world where BP (NYS: BP) doesn't risk oil spills because no one needs the oil. It sounds fanciful, but so did a world full of automobiles a century ago.

Do you think solar can take over the world? Let me know by leaving a comment.

There's a lot more to the technology revolution than solar energy, and the Motley Fool knows which companies are set to soar -- find out more about this transformation in our free report.

At the time this article was published Fool contributor Alex Planes has no financial stake in any company mentioned here. Motley Fool newsletter services have recommended buying shares of First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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ettucat

And Obama throws millions upon millions of American taxpayer dollars down the drain, trying to put an industry we aren't ready for, and do not want now, on the fast track. He spends our money like we have an unending source. He might have it made, we do not.

September 23 2011 at 10:43 AM Report abuse rate up rate down Reply
jmcblaze

I believe in the "ALL OF THE ABOVE" thinking. We need to start with "DRILL BABY DRILL". We have a lot of natural gas lets make use of what we have. Solar is on the list but it' not practical as it stands now. The same goes for wind. I use a lot of electricity at night and when winds are calm. They both take a lot of space. And what about the poor little dead birds? For now they are far down the list.That isn't to say that people shouldn't continue towork at it but the government should stay out of it.

September 23 2011 at 1:56 AM Report abuse +1 rate up rate down Reply
joe91898

As soon as I can afford to do so I will be going with a solar hot water system. This will cover my domestic hot water and will also be used for the hot water baseboard heat in my house. This will cover 80 to 90% of my heating and domestic hot water. Payback would be around 5 years in my case

September 22 2011 at 11:34 AM Report abuse -1 rate up rate down Reply
myfunball

Solar power is not a world take over. There any many places where it will never work including our own neighborhood. My whole idea here was to put in the panels and get off the grid. However the way it was explained to me if the grid went down your solar power would also be gone since the two are somehow connected. This is unacceptable. It would also take over ten years to recover your investment even with a tax credit. It is not investment wise. My neighbor dismantle his.

September 22 2011 at 10:36 AM Report abuse +1 rate up rate down Reply