MiaSolé was once one of the country's most promising solar start-ups. But this bright light flickered out when MiaSolé CEO John Carrington announced in early January that he sold the company to Chinese energy juggernaut Hanergy Holding Group. The salt in the wound: Hanergy reportedly purchased MiaSole for just one-tenth of the $1.2 billion asking price.

It was a disappointing end for a company that once promised to drastically reduce the cost of solar technology with its thin-film solar panels, an alternative to traditional solar panels. And yet, it's a story that's all too familiar for solar manufacturers in the U.S. Introducing new technology to the solar market has been largely a losing battle for entrepreneurs. According to industry analysts, it's time to give up the fight and start looking for different ways into the industry.

"I think the age where a start-up has an exciting, disruptive new technology, can actually raise money, take it to scale, and do it on their own like Solyndra and MiaSolé wanted to do, those days are over forever," says Shyam Mehta, a senior analyst with the energy research firm GTM Research. "Start-ups need to adjust their expectations from hoping to become one of these large players to hoping to be sold to one of these large players for at least enough money to live comfortably, but not to become a millionaire."

One Industry, Many Hurdles

There are two seemingly insurmountable obstacles plaguing solar manufacturers right now: silicon prices and China. First, the prices. When most of the solar start-ups that are now going bust or getting bought were founded in the mid-2000s, the price of solar grade silicon was about $400 per kilo, Mehta says. Today, that price has dropped to $15 per kilo, slashing the key cost driver for solar panels. That prices have dropped is, in the big picture, a good thing for the proliferation of solar. Lower prices make solar more accessible to consumers. The problem is how fast prices have dropped. "Cost reductions have not been able to keep pace," Mehta says. "The result is that profit margins have collapsed, since prices are now close to or below manufacturing costs for most suppliers."

That's where China comes in. With its famously low manufacturing costs, China has further buoyed its solar panel manufacturers with a flood of government subsidies in recent years. As a result, The New York Times reports that solar production in China has grown by a multiple of 17 over the last four years. It's grown so fast, in fact, that even China is grappling with its own overcapacity. As for U.S. manufacturers, scale of that kind has been impossible to match, considering venture capital investments in solar shrunk by half in 2012. "Scale is an important driver of reducing costs in this industry," says Mehta, but because U.S. start-ups don't have the investment upfront, even the most cost-efficient technology never scales to a point where those cost reductions are realized.

Combined, the price of silicon and the rise of Chinese manufacturing, pose a whole new threat to manufacturers like MiaSolé. Alternative technology has lost its luster. Once upon a time, entrepreneurs searched for these alternatives to traditional solar panels in order to drive down costs when silicon prices were high and manufacturing output was low. Now, that the opposite is true, Mehta says, the value proposition of investing in alternatives is significantly diminished. "At this point, the solar industry is almost at a point of 'ain't broke, don't fix it,'" Mehta says. "There's an argument to be made for focusing on making the dominant technology more cost competitive than these illusory innovations."

Outsourcing Isn't the Answer

For better or worse, outsourcing is a staple of U.S. innovation. So why can't Apple's model of designing groundbreaking technology onshore and manufacturing it offshore work in solar? "In theory, it makes sense," Mehta says, but in reality, there is a multitude of challenges, the first being branding. No Chinese smartphone company, for instance, can compete with Apple's iPhone branding. By contrast, two of the world's top solar brands, Yingli and Suntech, are Chinese. It's one of the few industries, says Mehta, where Chinese companies are not just manufacturers; they're global brands, themselves.

Energy is also a commodity, not a consumer product, and cost is king when it comes to commodities. "There's less customer stickiness, because there's a much higher sensitivity to prices," Mehta says. If a solar panel is cheaper from China, consumers tend to ignore quality concerns.

Finally, he says, there are so many technical snags in the early lifecycle of a solar company that putting thousands of miles between an R&D facility and a manufacturing plant could pose serious logistical problems. "I can't imagine many Silicon Valley-based technologists being amenable to that," he says.

Who's Left Standing

There's no denying that the state of the solar industry has made life grim for small companies, but Mehta says all is not lost. Entrepreneurs who feel compelled (for altruistic reasons or otherwise) to enter the market should be encouraged by consumers' increasing demand for solar in the U.S. That's good news for solar installers, software companies, and other start-ups operating in the so-called "downstream" market. The San Mateo, California-based leasing company SolarCity, for instance, is the industry's champion fighter at the moment. The company, which recently went public, makes solar accessible to the masses by leasing panels, rather than selling them, defraying the often prohibitive upfront cost. Its success, Mehta says, is due in large part to the fact that SolarCity doesn't make its own panels. "So far, so good," Mehta says of SolarCity's model. "That's more than can be said for any other solar company."

Meanwhile, Mehta says, major corporations like Dupont and Applied Materials do have the deep pockets necessary to invest in solar and are using them to acquire smaller start-ups with promising technology. In 2011, Dupont acquired Innovalight, which developed silicon ink to increase the efficiency of solar panels. Mehta says the company originally planned on making solar modules themselves, but soon realized competing with the Chinese was futile. Instead Innovalight fashioned itself as a vendor and caught the attention of Dupont. "I heard it wasn't a particularly fantastic valuation, though," Mehta says. "I think those days are over."

That is, at least for the existing technologies. Thin-film solar, which both MiaSolé and Solyndra specialized in, is not the groundbreaking technology it once appeared to be. The production cost isn't drastically low anymore, and it's less, not more, efficient, than traditional panels. The few companies still landing funding for thin-film solar, the dominant alternative on the market, are coupling those investments with deep cost cuts. One such company, Stion, recently announced a $25 million investment and a round of layoffs. And that is thin-film's silver lining. The rest of the picture is more dreary.

For solar innovation to have a true comeback in the U.S., entrepreneurs will need to develop technology that's either drastically more efficient or radically cheap to make. Mehta says a few such technologies, like organic photovoltaics and quantum dots, are currently in the development stage in research labs, but are far from commercialization.

"Innovation isn't over. There's technology out there that ideally should be adopted, but no one has the money to pay for them," Mehta says. "I hope that soon, the industry obtains some balance, companies start making money again, and when they're making money again, they can finally think long term. It's a virtuous cycle."