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. But 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 (Nasdaq: FSLR) and SunPower (Nasdaq: 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 (NYSE: 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:

Solar Energy Chart

Source: Ryan Cunningham.

LDK Solar (NYSE: LDK) and Suntech Power (NYSE: STP), despite a combined loan offer of $18 billion, took in less net income combined last year than unsubsidized First Solar. Even JA Solar (Nasdaq: 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 unprofitability of its manufacturing process. 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 that 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 less than 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 (NYSE: 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.