After Solyndra's ugly fall, can solar industry still shine?

Solyndra's fall was an ugly one. Not only did the bankrupt solar panel maker burn through more than half a billion dollars in government loans, but its top officers took the Fifth when called to testify before Congress.

Its failure became a rallying cry for those who say the US solar energy industry will never be competitive or profitable, and for political forces opposed to government loans to the sector in the name of creating jobs.

What's worse, Solyn­dra isn't alone. It is one of at least three solar companies and five manufacturing plants to close their doors in the United States since early last year – and they won't be the last, industry watchers and independent analysts say.

Solyndra's fate, however, is not that of the entire industry, say the analysts. Its failure was part of an unpleasant but inevitable global shakeout in solar manufacturing that also brought down solar panel makers Evergreen Solar and Spectrawatt last month. The end result, they say, will be a more robust and cost-effective industry, while in the short term, the same conditions that spelled Solyndra's demise are a boon to consumers.

Solyndra's belly-flop was due mostly to production costs that were just too high to compete in a market where panel costs, profit margins, and global sales all have fallen faster and further than many expected. With Chinese solar panels gushing into world markets, there is now a global solar panel glut, leaving huge factories running at a fraction of their capacities.

That's bad news for high-cost manufac-turers like Solyndra. But it's good news in the long run for big, low-cost US manufacturers, many analysts agree, and for American consumers who have seen solar panel prices drop 30 percent from a year ago even as domestic demand has risen nearly 70 percent. SunPower and First Solar, two big US solar panel companies, are still holding their own, the analysts note.

"Keep in mind that Solyndra was a unique, highly publicized case that suffered from the same market conditions as its peers," Matt Feinstein, a solar analyst at Lux Research in Boston, wrote in an October e-letter to clients. "But its own inability to compete should not discount the prospects of other US solar players, nor should it be seen as an indicator of the broader demand market in the US."

It's unquestionably a brutal market right now. One illustration: US production capacity for solar panels rose 34 percent from the fall of 2010 through this summer, the Solar Energy Industries Association (SEIA) reports. But actual production, which jumped 14 percent in the first six months, later fell so much that it is up just 1 percent for the period.

Plowing into such waves, at least 27 new solar manufacturing facilities will have begun operations in the US between the beginning of 2010 and the end of this year, SEIA reported last month. Some 51 US solar manufacturing facilities in 21 states are making components for photovoltaic panels, and the sector employs 100,000 US workers, it found.

"There are a lot of small companies in solar now – and a lot of those are going to go away with only the biggest surviving and persisting," says Travis Bradford, president of the Prometheus Institute, a Chicago-based energy think tank.

"A lot of companies aren't going to make it," he says. "In the end, there's going to be a half-dozen companies that matter in the United States. There's going to be a small number that will do it really well."

Reese Tisdale, director of solar energy analysis for IHS Emerging Energy Research in Cambridge, Mass., says government support for the solar industry is needed because China has "flooded the market."

"Their government is providing low-interest loans to their manufacturers," he says, "and they've scaled up rapidly."

Despite cutthroat competition and weak international sales, domestic demand is still relatively strong, with the US expected to be the world's largest solar market in 2014, SEIA reports.

Among the positives for the industry, according to SEIA: Solar is the fastest growing US energy sector, on track to become the largest source of new electric capacity.

Stion, Calisolar, and Solopower are among the US manufacturers now expanding. Stion opened a new Mississippi factory earlier this month – bringing 1,000 jobs and a $500 million investment. Calisolar announced this month a new $600 million factory that will employ 1,000 workers, also in Mississippi. In August, Solopower announced a new $340 million factory in Portland, Ore.

First Solar is one that will be a winner in the long run, Mr. Bradford predicts. The Tempe, Ariz.-based maker of "thin film" solar panels uses innovative raw materials to reduce costs and make it more competitive with Chinese producers. The company also makes them on a large scale – with plants not only in the US, but also Malaysia and Germany.

Other big players like SunPower are doing well – while others wait for just the right timing. In April, General Electric said it would build a facility capable of producing 400 megawatts of modules per year – larger than any existing US solar panel plant. It still hasn't announced a site, however. Has the tough market given it pause?

"We still have the same plan and strategy for our solar business," says Millissa Rocker, a GE spokeswoman. "An announcement will come soon."

Despite the controversy over US loans to firms like Solyndra, the impact of that support has been positive, says Bradford, by accelerating a market free-for-all that is inevitably driving solar power costs down so low they will one day compete even with the cheapest fossil fuel used in electricity generation – coal.

"Eventually the small companies drop away and you'll see big companies – like First Solar and GE's solar division – companies with good technologies and big balance sheets succeeding," he says. "It's all part of the normal cycle."

[Editor's note: The original version of this story misspelled Mr. Feinstein's last name.]