FORTUNE — When he founded Suntech 10 years ago, Dr. Zhengrong Shi never dreamed his solar panel company would rise so far so fast. Suntech (STP), based in Wuxi, China, builds high-quality, inexpensive solar panels that have been installed in 80 countries. The company, the biggest in the industry, estimates sales for 2011 of roughly $3.1 billion, up 7% from the year before. But obstacles abound. Fierce cost cutting has hurt all solar stocks, Suntech included. The U.S. Department of Commerce has recently accused Chinese solar companies of dumping. Even so, Dr. Shi sees a healthy solar industry ahead, especially as the domestic market in China heats up. He shared his views with Fortune’s Brian Dumaine at the World Economic Forum in Davos, Switzerland.

Q: Solar panel prices are dropping, yet growth is slowing. What’s going on?

A: In 2001 solar power was about $6 a watt; now it is $1. The drop in solar panel prices will slow to 5% to 10% a year. You can imagine it’s like a sponge. A lot of water has been squeezed out of the supply chain. The global photovoltaics industry grew 30% last year and will slow to about 20% this year. With the troubles in the eurozone, sales in Germany, one of the biggest markets, are slowing.

This price drop has hurt margins?

Yes. A year ago the industry enjoyed 30% margins, and that’s down to 13%. We should be able to maintain 10% margins, and with the big volumes we’re producing, it will be a good business.

The U.S. has accused Chinese solar manufacturers of using government subsidies to dump cheap panels on the American market.

I think it’s unfair to say that Chinese companies are squeezing out American companies. China has so many solar companies that are failing too. As for subsidies, we never got anywhere close to the $528 million loan the U.S. government gave to Solyndra before it went out of business. Nothing like that. If there’s a tariff, the price of solar goes up and many projects become unaffordable and new jobs aren’t created.

Where are the opportunities now?

After the Fukushima disaster, Japan shut down most of its reactors and said it would move to renewables. Until now, China has mostly exported solar panels but is turning toward domestic consumption. The market is really taking off and will eventually make the whole global market grow faster again. This year China will install an estimated four to five gigawatts [the rough equivalent of a nuclear power plant]. That’s a 10-fold increase from just two years ago.

How big can solar get?

Today it’s only about 1% of the global energy market. In many markets we already are price competitive. I think in five years’ time solar won’t need subsidies and that will help accelerate growth. By 2050, 25% of our electricity will come from solar.

This article is from the February 27, 2012 issue of Fortune.

Correction: An earlier version of this story incorrectly said the U.S. Chamber of Commerce has recently accused Chinese solar companies of dumping. It was the U.S. Department of Commerce.