The NY Times is carrying a story on the tight supply of PV cells in the world right now (registration required):
The good news is there's a large increase in factory production capacity coming on-line in 2006. The bad news is that polycrystalline Si-cells are made from microprocessor industry waste Silicon. Once the PV industry runs out of waste Silicon to buy on the cheap and has to zone refine and grow its own crystal, the cost will increase permanently.
This is a good example of Germany "picking the winner" technology, even though it might not be economical. The Danes have 'picked' wind power for example. If they didn't have Norway's hydropower to tap into they would be screwed right now; the rest of their electricity production is cogeneration coal which can't load-follow worth a damn.
Government and politicians picking environmental power technologies is a good way to give environmentalism a black eye over creditability. In the future, this PV craze may hurt the economy of California and Germany through a poor return on investment. Photovoltaic could suffer the same credibility failure of nuclear that was going to be "too cheap to meter."
Subsidies should be directly aimed at CO2 and other pollutant emissions, not particular technologies. Let engineering and the economy sort out the winners and the losers on their own.
EDIT (August 8th):
I don't think I made my point very clear in my original post.
What I want to say is that these cost inefficient silicon solar cells have no long term potential for on-grid applications. They are way too expensive. Only novel photovoltaic and solar thermal projects have the potential to produce economical electricity.
These subsidies do nothing to encourage corporations to invest in solar power innovation. Instead, they only encourage companies like BP Solar and Sharp to over invest in Si-photovoltaic production capacity. There is no long term value in this investment.
If you want an example of how screwy government subsidies can stifle innovation look at how Boeing and Lockmart operate in the US aerospace industry.
Once publicly traded corporations start feeding at the public trough they are loathe to stop.