By all accounts, the Australian solar industry enjoyed a vintage year in 2012.

The Australian Solar Council estimated there was just under 1 gigawatt of solar energy installed, mainly through the use of photovoltaic panels. However, this figure was slightly inflated towards the back end of the year as a result of Queensland moving to scrap feed-in tariffs for users.

"In Queensland they announced that they'd be closing it, but they left it open for a period of time and there was a huge influx," ASC chief executive John Grimes told EnergyNewsPremium.

"The response to that was that the people who wanted to participate tried to get in while they could. So that created somewhat of a ramp-up and contributed to that record result last year."

Grimes said the solar industry at large had been seeking to wean itself from the teat of government subsidies, with the industry insisting that while subsidies helped, the unpredictability of government policy did not make for good underlying economics.

"In the past, government policy dictated the outcome for the solar industry, and it was a very frustrating period where we went on what's called the ‘solar coaster' of solar policy," Grimes said.

"We had various levels of government all doing their own thing and changes were made almost on a daily basis. That created a whole lot of uncertainty for the public and the industry, and led to repeated to boom and bust cycles."

Finally, Grimes said, the industry was able to offer a product that made sense economically to end consumers.

"The economic fundamentals of solar are robust. We now have a situation where increasingly, solar is becoming the logical choice particularly for distributed energy is the cheapest form of energy," he said.

"It's a no-brainer to replace diesel gen-sets in rural and remote communities, or at least augment them with solar. There's a huge cost-saving in that.

"Even in cities where we're competing with retail electricity prices, planned out over 20 years, you might be paying between 15 and 20 cents per kilowatt hour for the electricity produced … there's nowhere in Australia where you can buy electricity that cheap."

However, there has been one blinding factor that has driven the cost down in Australia - the increasing supply of cheap panel imports from China. By some estimates, the cost of solar panels has gone down 75% in recent years.

Currently, the vast majority of solar photovoltaic panel supply comes from China, which has gone hammer and tong to try and undercut the global market to deliver market share. In fact, it's effectively put businesses in other countries out of business.

Last year the US government, responding to domestic industry charges that China was offering artificially subsidised solar panels onto the market, moved to lump anti-dumping subsidies onto Chinese imports.

The US Commerce Department slapped SunTech, a leading Chinese manufacturer, with a 31.18% tariff while other companies such as Trina and Yingli also drew the ire of the US.

"About four or five years ago the Chinese government made a strategic decision to move into solar PV products. They invested a tremendous amount in propping up new companies in this area, and as a result they're really the leading producers globally," Grimes said.

"A lot of it has to do with volume and economies of scale. So while there are still some European brands, Japanese brands, American brands, by far the greatest volume of PV is now coming out of China."

The US has now flagged its intention to start to claw back some market share, with US president Barack Obama alluding to the effort in his recent State of the Union Address while discussing the end of petroleum subsidies.

"Some technologies don't pan out; some companies fail. But I will not walk away from the promise of clean energy… I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here. We have subsidized oil companies for a century," Obama said.

"It's time to end the taxpayer giveaways to an industry that's rarely been more profitable, and double-down on a clean energy industry that's never been more promising. Pass clean energy tax credits and create these jobs."

It's all shaping up as a nice little trade war, with both trying to drive innovation, and perhaps more importantly achieve the economies of scale required to drive prices lower.

Grimes said that he didn't expect China to cede power any time soon.

"That oversupply will continue into this year, and for a few years yet," he said.

The net benefit being that the continued low cost of solar panels will only be a benefit to the industry in Australia.

But there is a darker side to the healthy rivalry that could undermine solar's green credentials.

There have been whispers that Chinese solar companies and their suppliers have been attempting to cut corners in order to keep costs down, and this involves a few environmental "irregularities".

A key component in the construction of solar panels is polysilicon, which by and large is produced in China. A report from Greenpeace last year found that of the 70 producers in China, just 20 had to pass the "National Polysilicon Industry Entry Requirements", which stipulates the safe disposal of waste associated with production.

Press reports ranging back to 2008 have pointed the finger at polysilicon producers for releasing waste, including silicon tetrachloride, improperly and ruining the land surrounding.

While plants in the western world often recycle to compound and put it back into the production process, there are concerns Chinese companies have been put off by the enormous energy requirements and time needed to do so.

This perception isn't helped by a lack of public disclosure from companies involved in the solar panel supply chain.

"This indicates a lack of understanding in regards to clean production from Chinese enterprises, with pollution control efforts being superficial at best," Greenpeace said.

"Consequently violations frequently occur, with enterprises taking advantage of various loopholes in the pollution control system."

Greenpeace charges that the cost of incompliance is far below the cost associated with doing the right thing, and there is insufficient training in place in regards to hazardous chemical handling.

While these problems do have technical solutions, with the US and China about to embark on a race to the bottom, can China be relied upon to tighten up environmental standards and potentially add costs onto an industry enjoying an advantage due to low pricing?

While solar is most definitely environmentally friendly in terms of carbon-dioxide output through the whole lifecycle of solar panels, it is regrettable that a trade war is set to kick off, and there's little hope of alternative suppliers acting as a circuit breaker.

Even the US, which is somewhat ironically relying on shale gas to drive its renaissance in manufacturing, has its problems.

According to a recent Washington Post report, the industry is worried about its own green credentials being undermined by the fact that to get rid of waste associated with production, it has to truck or ship its waste hundreds and in some cases thousands of miles away.

With these transport methods still reliant on fossil fuels, solar may not be entirely green after all. But, it's hard to tell. Few full lifecycle assessments have been done on the subject, and the few that have been done have not taken this into account.

For his part, Grimes said that he was unaware of such problems, but said that it would be impossible for Australian producers to supply the Australian market.

"I think through the 1970s, 80s and 90s, organisations such as ours were saying to the government ‘we've got the jump on the rest of the world'," Grimes said.

"We had some of the best solar technology in the world and we think the nation should make a strategic investment into developing and encouraging a local manufacturing capability, and that investment has not been forthcoming.

"So repeated governments chose not to back solar in that way, and the Chinese government did. So it's all a bit late…the Chinese government essentially controls the world solar market because they invested in it."

So the Australian solar market is deriving its success from cheap Chinese imports and that's a situation that won't be changing any time soon.

The increasing uptake of solar in Australia should not be construed as anything but a positive for the environment, but manufacturing practices in China could just put a dark cloud on a very sunny story.