Our financial system is fairly unstable at the moment, no secret there. Nor is the market’s effect on the solar industry breaking news, but after the boisterous boom of recent years the economic decline is hitting the solar industry on all fronts. And the front lines—the manufacturers, contractors, and installers out there in the field—may not be the hardest hit after all. The most dramatic toll may come as a lack of venture funding and the subsequent inability to achieve much needed technological advancements that could permanently bring high costs down and put solar energy well past grid parity. According to the New York Times, funding for the solar industry plummeted over the winter. Again, no big surprise right? Jobs, loans, and funding disappeared from industries across the board. Yet the scale of the solar industry drop is stunning: an 84% decline from the last quarter of 2008 to the first quarter of this year. In just a few months venture capital fell from $971 million (in 67 startups) to $154 million (in 33 companies). Photo Credit: bkusler Okay, so it is a stormy day for the solar industry, but is that all it is, just a brief respite—perhaps a needed one—from the money-tossing hysteria and high energy costs of recent years? Perhaps, but many solar startups remain positive, weathering the current storm with an unwavering eye toward the future and resurgence. Investors and venture capitalists are very leery nonetheless. Investment in established solar companies may be one thing, but venture funding is another, much more volatile choice. The problem is that solar is still a wide open field with a multitude of proposed innovations and solutions all competing against each other. In some ways solar entrepreneurs and investors see the downturn as a good thing, a chance to weed out the less sensible technologies. As Michael Goguen, a venture capitalist for Sequoia Capital, put it to the Times; “Slamming on the brakes was a good, healthy thing. It served a Darwinian function.” Many believe that solar will come out of this a more mature and viable industry. Although when industries are forced to consolidate under such duress, how can we feel confident that the right technologies fall prey to the Darwin effect? The fact that a slew of innovations will be lost in the mix is a bit disturbing. But the fact of the matter is that, when it comes to capital and investment, whoevers left holding the most cash will be the likely winner. That is an inherent risk in combining money markets and essential services, such as energy: when a bubble bursts, as we saw last fall, capitalists will reach for the money above all else, and hoard that cash with avarice. By the time the panic subsides, who knows what may have been lost in the metaphorical dust bowl that swept the industry. For instance, conventional silicon PV cells are currently ruling the solar market, with second generation thin-film cells expected to rise over the next few years. Now enter third generation technology, promising to combine the best of its predecessors into one low cost, efficient package. Yet most of this technology is still in the research and development phase; where does it go from here? Photo Credit: kevindooley Regardless of which technology wins, or which startups falter (as some surely will) while waiting for investment to rebound, I can see little reason to think that solar industry as a whole will decline. The reason being that solar power has the advantage of transcending the financial markets by addressing environmental, economic, and energy needs. There is a need to do that; find clean, cheap (even free), and effective energy sources. If the solar industry has anything to fear in the long run it will come from other energy industries, which also accomplish those goals (i.e. wind, geothermal and others). Although considering the Earth’s incredible diversity of climate, all renewable players in the energy sector should get their day in the sun—much may depend on how well we can share.