If you want to forecast the long-term trends in the solar industry, then it always helps to have the end in mind. The end that the world solar industry wants is to drive costs of solar panels down to a level that make them competitive with conventional fossil fuel sources. That's an uphill battle, not least because some fossil fuels (read: natural gas) are becoming much cheaper.
One might expect costs to be driven by economies of scale in the long run - indeed, that's a very important aspect, and as early as 2004 I saw multiple insiders in the business comment that solar startups were particularly risky, as the industry would have to inevitably consolidate. To a large extent, that is still true. However, rather than economies of scale, what's been driving the dynamics of this industry for the last 8 years or so has actually been the cost and supply of raw materials for solar panels.
These days, the cost of the raw materials for a solar panel constitute maybe 35% of the installed cost of an on-grid solar panel home system. Not so long ago, this was closer to 65% (and it was a lot more in absolute terms, too). The raw materials in question are high-purity, solar-grade silicon and some rare earths. The remainder are casings, glass, switches, alternators, and a metering retrofit to allow selling to the grid - many of which have their own supply bottlenecks.
Polysilicon is used for two things: semiconductors and solar panels. These days, solar takes up more than 50% of global polysilicon supply. However, as I mentioned earlier, using polysilicon directly reduces the output of a solar panel. Crystal alignment ensures a good current. Getting crystals to align requires a long, drawn out refining process called the Czochralski process. This produces a better panel, but costs a lot more. A key to solar economics is which you choose to use, and why. The monocrystalline panel is essentially the solar panel you know from space stations, where performance considerations are paramount:
It is this distinction that is key to why Solyndra failed. Solyndra's technology depended on monocrystalline silicon. When it got that loan guarantee in 2009, the supplies of semiconductor-grade polysilicon were ridiculously tight. Suppliers were used to feeding only the semiconductor industry and were completely unprepared for the new demand from solar panel manufacturers. As a result, polysilicon prices were very high and the relative price of monocrystalline silicon - essentially, the price of polysilicon plus the cost of the Czochralski process - was low compared to polysilicon. Solyndra's competitiveness depended on polysilicon supplies continuing to be tight. That was stupid. Why the USDOE didn't catch that assumption, I'm not sure.
Polysilicon supply capacity increased massively around 2009, but prices were buoyed by high demand; following termination of renewable energy subsidies in Germany and in many other places, prices went way down and the relative price picture for Solyndra looked a lot worse. Even so, it had an advantage in terms of superior products. Ultimately, why Solyndra died was that polysilicon manufacturers managed to cut costs like crazy. This has less to do with general competitive pressure in the wake of the panic of 2008 than it has to do with China. Chinese companies have been literally given free land, no taxes, and guaranteed market positions by government intervention. Rather than the exception, free loans are the norm. So Chinese companies are able to cut costs like crazy and have very little equity in their businesses but still get guaranteed markets.
Ultimately, all that this extended explanation goes to show is that the issue is very much not black and white. And of course, aside from all of the technology, there's still the possibility of just straight bad management. Some evidence has arisen that the USDOE's due diligence people were duped by Solyndra, hence the recent raid based on misuse of Federal funds.
It also raises the interesting controversy around government support for infant industries. America really has not engaged in wholesale industrial policy since the late 1940s, and in a world where advantages in productivity, infrastructure and technology made any other country's industrial policy an insignificant blip, this was fine. These days, however, industrial policy is making bigger waves. It seems clear to me that China is trying to do some combination of cutthroat competition and clustering externality capture with its rampant subsidies, and that this seriously challenges the Bhagwati-ite view that protectionism in any form will shoot you in the foot.
The obvious solution in my eyes is to immediately refer Chinese support of solar manufacturers to the WTO, as some Americans have with wind power. The problem with this is that (a) this doesn't stop Chinese manufacturers from having access to one of the largest growing markets for solar energy and (b) antidumping tariffs imposed by the US wouldn't be of much use in a global market unless other countries slap on the tariffs as well. For two nations with companies competing to be global scale, the conventional WTO enforcement mechanism just won't work. And I have a realistic idea of how much America is willing to invest in government subsidies for the renewable industry - certainly not the $1 trillion over 10 years that China is giving them - so that's out.
My fear at this point is that when Chinese subsidies run out, it will already have captured the positive clustering externalities from solar manufacturing, by which time hopes for an American solar industry will be dead.