A bright spot is appearing in the alternative energy industry and solar exchange traded funds (ETFs) could be the ones benefiting from all the light.

Why?

• Solar energy is becoming cheaper and more efficient to make through advances in solar panel technology. The industry is developing a new thin-film panel technology that will soon replace the limited capacity produced from polysilicon panels. Panel efficiency is currently around 9%, but efficiency should reach 18% to 20% in a few more years, which will likely make solar panels the cheapest source of energy.

• Government subsidies are enticing more citizens to begin residential solar installations, writes David Fessler for Investment U.

• Retailers are also experimenting with solar panels to cut down costs by placing panels over large stores and warehouses. Wal-Mart (NYSE: WMT) is one such retailer experimenting with this, and if it goes as planned the store could become one of the largest U.S. power producers.

• China is still aiming to become one of the world’s solar leaders. First Solar Inc. (NasdaqGS: FSLR) and Ordos City agreed to build a 2-gigawatt solar installation in Inner Mongolia city, reports Patrick O’Grady for Sacramento Business Journal. The deal will start off as a 30-megawatt demonstration unit starting in June and additional phases will be online by 2014 and 2019.

Ordos officials have allotted 65 square kilometers of land for the project and they will be working in construction and financing with First Solar. The company will be operating the plant under China’s feed-in tariff, which guarantees prices paid for renewable energy.

• Market Vectors Solar Energy (NYSEArca: KWT): up 6.1% year-to-date; FSLR is 8.8%

• Claymore/MAC Global Solar Energy (NYSEArca: TAN): up 12.4% year-to-date; FSLR is 10.8%

For more information on solar power, visit our solar category.

Max Chen contributed to this article.

Tags: Alternative Energy, Energy, Green ETFs, KWT, Sector ETFs, Socially Responsible ETFs, Solar, TAN