Rhone Resch stood at the microphone in a conference room in Cambridge, Mass., and asked for a show of hands. “How many people here,“ he demanded, “have a solar system on the roof of their house or their business?” Not more than a dozen people responded. “Now, how many people want to have a solar system on the roof of your house or your business?” This time every hand went up, accompanied by some sheepish chuckling.

“People want to have solar,” explained Resch, the president of the Solar Energy Industries Association, based in Washington, D.C. “There’s an incredible untapped demand here.”

To judge by the discussion at MIT’s Energy 2.0 Conference, held in early March, the public could well get its way. The conference brought entrepreneurs and inventors together with financiers to discuss not just advances in renewable fuels but in unconventional oil, hybrid cars, and climate change policy. Though at times the conference seemed uncertain about the prospects for other renewable fuels, its forecast for solar power was surprisingly sunny.

Most of the interest centered on using photovoltaic cells to directly convert sunlight into electricity. Manufacturers are still struggling to wring more electricity from a given stretch of silicon on such a cell. Still, they have cut the cost of the cell itself by just over 80 percent since 1980, to US $4 per watt. And to hear industry officials and analysts tell it, the costs are falling so fast that they will sooner or later reach parity with the costs of electricity from the grid.

In the past two years alone, SunPower Corp., in San Jose, has reduced the amount of silicon per watt from 12.5 grams to just 7, according to the company’s president and chief technical officer, Richard Swanson. “Over the past five years, we’ve pulled half of the silicon out of the process,” he says, “and we expect that to continue.”

One reason for the push to economize on silicon has been the global silicon shortage that arose in 2005, due in part to increased demand in Germany for solar energy. This was actually a blessing in disguise, says Swanson, because it forced companies like his to make do with less raw material. Resch predicted that suppliers will triple the capacity dedicated to solar applications by 2010, allowing “almost unlimited growth for the solar industry in the next decade.”

Meanwhile, the business has started attracting big players from other industries—firms that “spend a billion dollars per year on R&D,” as Charles Gay, corporate vice president and general manager of Applied Material’s newly formed Solar Business Group, put it. He ought to know, because Applied Materials, in Santa Clara, Calif., is itself the world’s largest supplier of machinery for making semiconductors. Gay recalled that when he opened his first solar factory in 1980, the total production of each of the plant’s two lines could generate just half a megawatt a year. By 2000, a single factory line’s output could generate 5 MW a year, and by 2005, the number reached 50 MW.

“At 50 MW a year, a whole new family of tools has become available—equipment from the flat-panel display industry, from the glass-coating industries, and from other industries that previously were not relevant to solar,” he says, because they worked on such a large scale. Gay showed a photograph taken a few weeks earlier of an enormous machine appropriated from flat-panel display fabrication that applies a thin silicon coating to a 5-square-meter sheet of glass.

“Every three days, one of these systems is shipped out of our facilities in northern California,” he says. “Every three days, this would have the throughput of about 50 MW. We buy more aluminum each year than Boeing does to build airplanes to make these kinds of tools.”

One continuing problem is that it costs as much to install the panels as it does to make them. Installation costs thus constitute “the low-hanging fruit in this whole thing,” Swanson says. In the United States, he explained after the conference, the installation industry is fragmented among small firms whose costs are high because their volumes are low. “There’s a lot of sales-related overhead. There are a lot of installation inefficiencies.”

SunPower, for one, has packaged its panels into a kit. “Everything you need on-site—all of the conduit, wires, connectors—is in one box,” Swanson says. The next generation of panels, he adds, will be simpler to mount on a variety of roofs. He says that installation costs will be halved by 2016.

By then, he claims, solar electricity will cost the end user 13 to 18 cents per kilowatt-hour, depending on the region, on how the project is financed, and on the assumption that the panels will have a 25-year life. That’s equal to or even cheaper than the cost of electricity delivered across the grid. (The U.S. Department of Energy, however, predicts that grid electricity will cost just under 9 cents per kilowatt-hour in 2015, a little less than it does today.)

An added advantage of a photovoltaic unit mounted on a roof is that it insulates the end user from network disruptions, such as those that struck the Northeast in the summer of 2003. “Ultimately, my bet is that the infrastructure doesn’t get fixed fast enough,” says General Electric chairman and CEO Jeffrey Immelt. “So if I had one dollar to invest in infrastructure versus distributed technology, it goes to distributed technology.”

Unfortunately, distributed power requires the consumer to make a big up-front investment. “Solar is the ultimate capital good, and historically the way we’ve been selling solar panels is to ask the customer to basically pay their utility bill for the next 30 years all at once,” Gay says.

That’s where people like Jigar Shah come in. In 2003, Shah founded SunEdison, in Beltsville, Md., a firm that installs and manages solar arrays for governments and businesses. Customers pay only for the solar power they use over a 20-year term, at fixed rates no higher than they paid for grid electricity at the outset. SunEdison owns the panels and covers all the costs.

With backing from New York City–based Goldman Sachs Group, among others, SunEdison has put solar systems on the roofs of over a hundred Staples, Sure Save Supermarket, and self-storage warehouses, mainly in California and New Jersey.

Shah said the financial markets are already responding. “The cost of capital that SunEdison is able to get today is less than the cost of wind farms, far less than the cost of natural gas, and far less than the cost of coal,” he says. “And the reason for that is because I don’t have variability. If you’re a guy who’s investing in mortgage-back securities right now because you want a low-risk, stable rate of return, are you going to invest in natural gas power plants?”