The solar world woke up this morning to news that Solyndra, a startup company pioneering a new kind of solar module, was preparing to file for bankruptcy. Many were surprised by the news because Solyndra was a recipient of a $535M DOE loan guarantee in 2009 and their facility was used by President Obama as a setting for a 2010 press event.

It would be a mistake to generalize from Solyndra’s failure to indict the solar industry and solar policy as a whole. This is about one company failing in a market that has exceeded all expectations on cost reduction. There are two important lessons to be gained that are worth stating very clearly.

First, Solyndra failed because conventional PV technology succeeded in dramatic cost reduction. Conventional solar panels cost 1/3 of what they cost 2 years ago. Solyndra’s technology just couldn’t get down the price curve fast enough to remain competitive in that kind of environment. We should be celebrating PV’s wild success rather than lamenting the failure of one company.

(As an aside, the announcement from Solyndra blamed an oversupply of cheap Chinese solar panels for the company’s demise. Yes, it’s clear that China has chosen to take a leading global position in manufacturing renewable energy technology. I don’t think that’s a bad thing. As I’ve argued elsewhere, lower cost solar equipment means lower cost solar electricity. Declining solar electricity prices mean expanding markets for all that help our planet get ever closer to cost-competitive clean energy.)

Second, not all solar policy faces the same kinds of risks as the DOE loan guarantee program (LGP). So let’s not paint all government policy with the same brush. The LGP was at the riskier end of the policy spectrum. It bet taxpayer money on individual technologies and companies. This kind of attempt to ‘pick winners and losers’ is typically the domain of venture capital and private equity–the type of investors who know that several companies in every portfolio will fail.

Other government policies like the Investment Tax Credit, 1603 treasury grant program, and state-level renewable standards are much less risky policies. They are ‘company agnostic’ and create competitive markets in which the best technologies win. Rather than betting on the success of one player, they align taxpayer interest with the success of the market overall. Those policies have resulted in resounding success and we need to recognize and reinforce their support.

Bottom line, I’m sad to see Solyndra fail and feel immense sympathy for the 1,100 employees who are now out of work. But in the bigger picture, Solyndra’s failure underscores just how successful the PV industry has been at cost reduction–and highlights the risks when governments try to pick winners and losers in highly competitive markets.

This post also ran on National Geographic’s The Great Energy Challenge Blog curated by Planet Forward.

Quarterly earnings numbers are out for many publicly-traded solar manufacturing companies and you’d be forgiven for thinking the solar industry is in trouble. Why? Because the global price of solar panels is falling, putting pressure on profit margins, and that spells bad news for manufacturers’ earnings.

This is a reminder that what is good for a market isn’t necessarily good for all market participants. Declining prices mean only those with the lowest manufacturing costs (and business models that work on much thinner margins) will earn the profits necessary to survive. Those that can’t will fall by the wayside.

The recent news about Solyndra is a case in point. Solyndra had a compelling technology when solar modules cost $3.25/Watt. But the technology didn’t prove out in a world where costs are rapidly approaching $1/Watt. This is the Darwinian process by which markets reward innovation and starve stagnation. And it is this process that will ultimately deliver cost-effective solutions to climate change.

A 70% decline in solar panel prices over the last 24 months has many in the industry forecasting a brutal shakeout ahead. I’d argue that this picture misses an important point. It’s myopic to focus solely on earnings of one segment of the industry. There’s a silver lining for the world in declining solar prices: cheaper solar power.

The less solar power costs, the more favorably it compares to conventional power, and the more attractive it becomes to utilities and energy users around the globe. Utility-scale solar power can now be delivered in California at prices well below $100/MWh ($0.10/kWh) less than most other peak generators, even those running on low-cost natural gas. Lower solar module costs also stimulate demand from consumer markets where the cost of solar compares very favorably to retail electric rates.

Bottom line: declining prices mean ever growing demand for solar power. That means an ever bigger role for solar in our generating mix and an increasing impact addressing climate change.

Many may see today’s handwringing about solar stocks as an indication we need to go back to past policies of rich direct subsidies for solar. The reality is “the way things used to be” isn’t a viable option. Government appetite for direct solar subsidies is waning and the industry must make the transition to electricity market demand.

That’s not necessarily a bad thing. Just as there’s a silver lining to declining module prices, there’s also an important upside to the broader changes happening in our industry: the companies that emerge successfully from our shifting subsidy landscape will be the very companies that help usher us into an era of grid parity, where solar competes on equal footing with gas, coal, and other traditional power sources.

But that’s only if we play our cards right, both as an industry and as a nation. As I’ve written before, changes to key policies — specifically, those that impact how projects are financed — are critical to developing a strong and competitive solar PV market. Ultimately, the leaders that overcome today’s crisis will be those that can tap the full potential of competitive demand, capturing massive scale as solar becomes a part of the mainstream energy supply.

This article also ran on Fortune’s Brainstorm Green site under the title The Answer to Obama’s Jobs Problem.

The White House announced that President Obama will address the nation on jobs after Labor Day. I have a suggestion for where the President could find part of the answer: by setting loose the 30-gigawatt (GW) buildup of U.S. solar projects bogged down in late stage development. Here’s the amazing part: he could do it without committing to spend a single additional federal dollar and the result would be net savings to the government through massive job creation and a wave of private investment in our nation’s infrastructure.

Let me first describe the situation on the ground. Over the past few years, rapidly declining solar costs and state Renewable Portfolio Standards (RPS) programs, which require utilities to generate a percentage of power from renewable energy sources, have combined to create 30GW of solar projects in the later stages of development. That’s enough solar to power about 6 million homes. To put that in perspective relative to other sources of electricity, solar has more megawatts in development than wind, coal, gas, or nuclear according to analysis by the American Public Power Association.

All those solar projects represent many tens of thousands of new construction jobs, plus a whole lot of engineering, finance, and service jobs as well. The only reason those projects and jobs aren’t happening now is because they’re held up by a gauntlet of permitting, interconnection and financing challenges. To set those jobs free, we need to do just three things:

1. Streamline environmental permitting,
2. Align interconnection policies with utility procurement plans, and
3. Expand the pool of eligible investors in solar projects

Environmental permitting is inefficient, rife with redundancy, agency overlap, and jurisdictional issues. Don’t get me wrong. We absolutely need strong rules to protect our environment and critical species. However, we can still have strong protection for our environment while streamlining rules and guidelines to make permitting more efficient. Net impact of reducing regulation: less government waste, less industry waste, more jobs.

Interconnection is a pretty technical issue but what’s needed is straightforward to understand. Interconnection refers to the process of connecting a generator to the electrical grid. Under the current system, interconnection is overseen by “independent system operators” who coordinate grid planning and decide who gets connected and when. Procurement – how utilities buy power – is overseen by utility commissions who determine whether the purchase complies with regulatory requirements. We need our political leaders to make it clear that interconnection should ‘follow’ utility procurement. Right now they’re treated as two separate processes, which is kind of silly when you think about it. This results in ridiculous situations where interconnection is granted to a generating resource utilities don’t want or interconnection is denied to a resource that the market deems important. Net impact of fixing interconnection: less government waste, less industry waste, more jobs.

The easiest thing President Obama can do is expand the pool of eligible investors in solar projects. None of the 30GW solar pipeline will be built if investment capital isn’t allowed to flow into projects. To be clear, I’m talking about good projects with proven technology, strong credit, and attractive returns. These kinds of projects should be easy to finance, but they’re not.

Let me try to explain the very complicated topic of tax oriented financing. Solar projects in the U.S. qualify for the Investment Tax Credit (ITC). But, neither the projects nor developers typically have big enough tax bills to make use of the credits on their returns. So, developers enter into a financial arrangement with an investor who does have a large tax bill. The investor puts money into the project and receives a combination of project cash flow and tax credits in return. The problem is that we have a shortage of investors eligible to participate in tax-oriented financings because the rules are overly restrictive. This problem was temporarily fixed by the 1603 Treasury Grant Program (TGP), which provides developers with the option to receive a cash grant in lieu of the tax credits. The TGP is scheduled to expire at the end of this year, leaving solar projects high and dry.

The fix is an adjustment to the rules that allow more private investors to participate in solar projects. There are three options for the President to accomplish this goal: 1) extend the Treasury Grant Program, 2) make the Investment Tax Credit refundable, or 3) allow Master Limited Partnerships (MLPs) structures (commonly used to finance real estate and oil/gas projects) for Investment Tax Credit Projects. Net Impact: no additional cost because the Investment Tax Credit is already on the books through 2016 and none of the above fixes would amount to a government spending increase.

Here’s what’s even more compelling. There’s strong logic that says the changes above would result in a net savings to government. A study from EuPD Research found that any cost of extending the 1603 TGP is more than offset by the avoided unemployment costs and additional income tax revenue generated by new jobs resulting from the extension. Read that again: the revenue and savings for the government from creating all those solar jobs would exceed the costs of the grant extension.

What are we waiting for, Mr. President?