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Where Did All the Solar Start-ups Go?

First it was hot, then after Solyndra's collapse... it was not. But solar is still a growth industry--if you know what you're getting into.

Solar panel installations have been on a general upswing in the U.S. for at least two and a half years, according to GTM Research. PV, or photovoltaic, as the industry calls it, is currently a growth industry for residential, commercial, and utility segments. (Click on the chart to the left to see for yourself.)

But then, of course, there was the big to-do over the bankruptcy of Solyndra. The company made innovative cylindrical solar panels and received $528 million in federal loan guarantees... until it collapsed under competitive pressure.

So, is solar a good or bad bet for an entrepreneur to consider? The answer is a bit of both, actually.

It's Complicated

The solar industry is complicated and there are many paths. Choose the wrong one and you could quickly find yourself on the "repeat entrepreneur" queue. Choose right, and there is significant money to be made.

For example, GTM Research shows an increase in PV installations (i.e., putting the panels into place). That's good news for companies that specialize in such areas as physical installation, designing retrofit systems for existing buildings, and creative approaches to financing solar systems.

But domestic companies that actually make panels have little to celebrate, as they find themselves under the same pressures as Solyndra. In a word, the biggest problem is China. Solyndra had focused on how to make more efficient use of PV technology, putting it into a new shape calculated to increase the amount of energy you could get from a PV array.

However, Solyndra's problems started as China ramped up PV manufacturing production at prices that completely undercut the market. At that point, the Solyndra panels no longer enjoyed the promise of enough efficiency to make them cost competitive. The bottom had been kicked out from under the company. Even with better performance, it could no longer deliver energy at a competitive cost.

Was it some brilliant innovation in manufacturing? No definitive answers yet, but consider that the EU is investigating China for alleged PV panel dumping. In other words, there are serious allegations that China has been selling panels at below market prices, probably losing money on every sale.

That would mean the country was effectively underwriting its industry in a hope to dominate the sector, drive competitors out of business (Solyndra isn't the only one), and then have the luxury of raising prices without significant competition.

Whether China is dumping or actually makes panels that much more cost-efficiently isn't the main issue for entrepreneurs. Instead, the important point is to understand where a market opportunity truly exists.

The Opportunities

Backers of a new manufacturing technique that depends on a given market cost should also consider whether prices could significantly drop, either through breakthrough technology or from market intervention by some entity that can afford to lose a lot of money.

If the R&D aspect excites more than getting involved somehow with the installation process, then look at where else research could pay off. Maybe it's developing techniques to increase the efficiency of the underlying cells, which could pay off even if panels drop in price. Or perhaps it's researching ways to literally print panels with an industrial printer. You might develop your own technology or enter a partnership with a university to exploit its research.

As in any industry, success is largely about identifying market gaps, where customer need and prevailing conditions meet, and where they cannot be easily upset by industry volatility.

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Last updated: Sep 24, 2012

ERIK SHERMAN | Columnist

Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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