A common narrative in solar energy is that solar modules have become a commodity, and that the space is dominated by Chinese solar manufacturers. In some ways, that's true, but it doesn't tell the full story of solar manufacturing in 2017. 

Manufacturers are busy upgrading their manufacturing capacity to create differentiated products that can compete for customers based on more than cost alone. And I think the companies that are able to innovate and differentiate in solar modules will have a long-term competitive advantage. 

Solar panels on a roof with a sunny sky in the background.

Image source: Getty Images.

What is a solar module?

First, I should lay out what a solar module is. It's really a connection of solar cells, primarily into 60- or 72-cell modules. When electrons are excited within a solar cell, they travel to conductors on the cell and the module level, which creates the electricity solar modules are known for. It's like connecting together dozens of tiny power plants to create a bigger and bigger flow of electricity.

How the cell and module are constructed will tell you a lot about how much the product will cost and how efficient it will be. Here are the main types of modules to watch in solar today: 

  • Traditional silver bus bars: The silver lines that run across the front face of traditional solar cells are conductors that take electrons shaken loose by the sun's light and turn them into an electrical current. The closer together bus bars are located, the more electricity can be gathered from the portion of the cell exposed to the sun, which has to be balanced with the shading that comes with increasing the number of bus bars. This is the construction of a vast majority of solar modules produced today by Canadian Solar (CSIQ 3.06%), JinkoSolar (JKS 4.75%), JA Solar (NASDAQ: JASO), and Hanwha Q Cells (HQCL). Efficiencies for traditional solar modules are typically 15% to 17%, but advanced cells can create efficiencies up to 21% (at higher cost). 
  • Back contact solar cells: To eliminate the loss from shading on the front of a solar cell, back contact solar cells place the conductor on the back side of the cell and then connect cells together on the back of the module. SunPower (SPWR 5.04%) is the leader in both performance and manufacturing capacity for back contact solar modules, producing cells that exceed 25% efficiency and modules that are over 23% efficient. 
  • Shingled solar modules: Another product that SunPower makes that's slightly different from traditional modules is the shingled module, known as P-Series. Commodity solar cells are shingled, connecting to neighboring cells, packing more energy production into a smaller area. SunPower is currently the only company to scale this technology, but others may follow. 
  • Thin-film solar modules: Thin-film modules aren't built with silicon cells like most modules; instead, a substrate like glass is coated with a thin film of material. First Solar (FSLR 10.78%) is the only major manufacturer to scale thin-film solar technology. 

Traditional silver bus bars have long been the cheapest way to produce silicon solar modules, and equipment has been readily available for manufacturers looking to expand. That's why Chinese solar manufacturers have leveraged their scale to expand this manufacturing method and dominate the industry. 

Differentiated products like the ones made by SunPower and First Solar have their own advantages and disadvantages. SunPower has always made the most efficient solar modules at scale but has fought a higher cost structure for back contact modules. And First Solar's costs and efficiencies have fallen behind commodity solar modules periodically, forcing technology manufacturing upgrades to keep up with commodity modules. 

What's the future for solar modules?

We're reaching a point in the solar industry where it's becoming very difficult to cut costs at a rate of 20% or 30% per year, which used to be a regular occurrence. A traditional 1-by-2-meter solar panel costs only about $100 today, so it's hard to see massive cost reductions in the future. Instead, manufacturers are focusing on increasing efficiency to leverage the costs that are out of their control in a solar module (glass, aluminum, etc). New cell technologies, like PERC, or new module constructions, like SunPower's P-Series, are some examples of the ways manufacturers are adapting at the cell and module level to mitigate cost pressures. Keeping up with upgrades to modules will be key for solar companies in the future, and those that can scale superior products will likely be financial winners over the long term.