Dow Corning Polysilicon went from $400 a kilogram to $30, killing off Solyndra in the process

Here’s the truth about Solyndra, which is now suing a passel of Chinese companies for allegedly dumping subsidized solar panels on the US market: When you try to optimize for the wrong scarce resource, you’re dead.

Solyndra made tube-shaped solar collectors because they were good at optimizing what was, at the company’s inception in 2005, a scarce and extremely expensive good: the pure, crystalline polysilicon needed to make a solar panel. Solyndra’s “big idea” was to change the shape of the solar panel so that it could get the same performance using significantly less silicon.

At first, this seemed like the right bet: In 2008, the cost of polysilicon reached $400 a kilogram. Today that same kilo will cost you $30.

Companies that continued to make conventional, flat solar panels were able to reap the benefits of this collapse in price. And what brought about this price collapse was an explosion of US and global polysilicon manufacturing.

“Over the last several years, US industry leaders made massive investments in silicon production capacity that rapidly pushed down the price of silicon and therefore crystalline silicon solar panels,” says Walker Frost, a spokesperson for Suntech, one of the Chinese manufacturers currently being sued by Solyndra.

Globally, there are now more than 170 startups and established companies making polysilicon. The solar industry used to be dependent on the cast-offs from the microchip manufacturing industry, but the profits reaped by polysilicon manufacturers through 2008 were so large that capacity has since exploded. There’s now so many companies making polysilicon that industry analysts at GTM Research now predict that price pressure and consolidation will leave behind only a dozen survivors by the end of the decade.

All of this is really good news for the solar industry as a whole. Panel prices are now down to $0.70/watt, low enough that entire business models are being built around financing the rollout of these cheap panels across rooftops throughout the US. Standouts in this area include SolarCity, which may IPO soon and into which Google put $355 million of its own money. Of course, that IPO may be delayed by the 255% tariff the Department of Commerce just announced for solar panels manufactured in China.

The lessons of Solyndra are twofold: