Over the past decade, there's been a lot of change in the solar panel industry. Costs have come down dramatically, silicon panels have held off a slew of competing technologies, and most importantly, the market has become financially viable.

This is great progress, but there's a relentless need for the solar industry to cut costs, and that means companies are far from done innovating when it comes to solar panels. The next leap forward is already under way. 

Spwr Residential New Home Community

More and more communities, like this one, are finding it cost effective to go solar. Source: SunPower.

The next phase of solar panels
The technology solar manufacturers have added to solar systems in just the last few years is remarkable. When you get solar installed on your home, it's no longer just panels and a meter that spins both forward and backward for net metering with the grid (I'm simplifying, here). Today, a solar system can tell you if there's a problem and where it is, energy can be stored and used at a later time, and in the future, the solar system will even be at the heart of your home's energy management.

One step along that path is integrating more electronics into the solar panels themselves. This will allow manufacturers to move more component assembly from the field to highly efficient manufacturing plants and reduce the number of components shipped to a site. There's huge progress being made on that front right now.

Enphase Energy (NASDAQ:ENPH) has been one of the leaders in what's called microinverters, small inverters that are installed on the solar panel itself as opposed to a larger string inverter for the entire solar system. The microinverter means electricity coming from the solar panel will be alternating current (AC), which your house runs on, instead of direct current (DC). This should allow for easier installation and fewer components for installers to manage.

SunPower (NASDAQ:SPWR) recently bought micro inverter manufacturer SolarBridge Technologies to add capabilities to its high efficiency solar panels. Last week, management explained how the microinverter technology will help simplify the residential installation process.

Here's an image of the components SunPower uses today:

Residential Solar Components Today

Source: SunPower.

And this is an image of the residential solar system of the not so distant future. You can see that this will reduce inventory, complexity, and labor costs for each solar installation. 

Sunpower Residential Solar Components Future

Source: SunPower. 

An increasing amount of technology is being put into the solar panel itself, which will help lower costs and installation times. 

Just the beginning of panel innovation
Most of the integration of the solar panel and inverter is currently happening at the installation level, but in the future, solar panel manufacturers will integrate inverters into the panels themselves.

SolarCity (NASDAQ:SCTY) is building a manufacturing plant with technology acquired from Silevo. Given the company's focus on cutting costs and reducing installation steps I would be surprised if they didn't acquire microinverter technology in the near future and add that component to manufacturing plans. Greentechmedia recently predicted that SolarEdge Technologies would be its target and I also think Enphase Energy would make a lot of sense.

The other company who could benefit from a more seamless system is Vivint Solar (NYSE:VSLR), who uses Enphase Energy microinverters but uses a variety of solar panel manufacturers. If all panels came pre-assembled it would ease the installation process even further. 

Another advantage of microinverters is the ability to monitor a solar system on a panel specific level. As it stands today, centralized string inverters can monitor a system's performance but it's harder to tell you which panel is having issues or what's going wrong. Panel level electronics could do that.

The future of solar panels
Microinverters are a growing percentage of residential solar systems and in a few years I think they'll dominate the market. This will lower installation cost, reduce installation time, and improve operational functionality for solar consumers.

The vision is that solar panels of the future will be almost a plug and play proposition for homeowners, reducing the complexity of installing solar and making it cheaper to be a solar energy producer. That's good for the growth of the solar industry and opens a new markets to cost effective solar energy.

Travis Hoium manages an account that owns shares of SunPower and is personally long shares and options of SunPower. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.