I'm programming a game (in its early stages) similar to Escape Velocity, but it has dynamic lighting. Planets, engine glows, weapon fire, etc., can all illuminate ships. It does not use any 3D models (except inasmuch as they're used to create sprites).
I thought you guys might be interested in the way this works.
For each ship, I have 16 sprite images. These ship does not rotate in these images; rather, the light source revolves around the ship, so that in each image the ship is lit from a different direction.
Then a separate ship image is made for each light source. The angle between the ship and the light source is used to select a sprite image, then the brightness and color balance of that image is adjusted based on the color and intensity of the light source.
These images are added together with something very similar to Photoshop's "lighten" layer mode. Then the final image is rotated to the correct angle to display onscreen.
IMO, it looks very nice, though it is quite processor intensive. The final version of the game will probably have some option to ignore all but the brightest light source to ameliorate this somewhat, and I suppose also an option to ignore lighting entirely.
I guess one drawback is that you can't have ships rendered from odd angles or with solar panels, etc., that move around as you turn the ship. I might add something like this, but it would only work if directional lighting was disabled for that particular sprite (though brightness and color balance could still be adjusted).
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