As consumers, utilities, and commercial businesses begin to seriously consider the benefits of going solar, there are a few decisions they need to make. You have to choose an installer and a financing option. Then, of course, you have to choose which solar panels you install.

One factor to consider is whether or not you want to go with commodity solar panels or a more expensive high-efficiency panel. The decision isn't as easy as you may think, as efficiency may have a different impact on your energy costs.

Solar power cells beneath a setting sun.

Image source: Getty Images.

What makes a solar panel different
Most of the solar panels made today are very similar because they're made from similar materials. I'm talking about the commodity multi-crystalline silicon panels made by manufacturers you may have heard of such as Trina Solar, Yingli Green Energy, and JinkoSolar. These are the panels installed by SolarCity (NASDAQ:SCTY.DL) and Vivint Solar (NYSE:VSLR) on residential rooftops, and by SunEdison (OTC:SUNEQ) in utility-scale projects.

But mono-crystalline, high-efficiency panels are increasing in popularity as costs come down, and they may be worth considering. SunPower (NASDAQ:SPWR) currently makes the most efficient solar panel at 21.5% efficient, versus 14% to 16% efficiency for a commodity panel.

Not surprisingly, more efficient panels cost more money -- or they would be the standard panel -- but they may actually be worth the price.

How a more expensive panel makes cheaper energy
Consider the table I've laid out below. I'm comparing a single rooftop installation of the same physical size, or number of panels. On the commodity side, I've taken SolarCity's reported total installation cost of $2.90 per watt, its sale price of $4.35 per watt, average panel cost of $0.65 per watt, and then I've broken out the components' total cost. Balance of system (BOS) would be costs like sales, wiring, permitting, and labor, which would be similar for a home installation of similar physical size.

The high-efficiency example uses a much higher cost per watt of $1.00, as an example based on the known production cost of SunPower's panels, and assumes the balance of system and profit components would stay the same.


Commodity Panels

SunPower 21.5% Panels


5 kW

7.2 kW

Panel Cost

$0.65/watt = $3,250

$1.00/watt = $7,200

BOS Cost

$2.25/watt = $11,250



$1.45/watt = $7,250


Total Cost



Cost per Watt



Source: SolarCity and author's own calculations.

Not surprisingly, the overall cost of the high-efficiency system is higher, but the cost per watt is significantly lower. To put some figures to that, the system's overall cost is 18% lower per watt even though the panels are 54% more costly per watt.

Compounded into this is the fact that mono-crystalline solar panels degrade more slowly. Over time, they will produce more energy than the commodity panels -- meaning even lower cost per unit of energy.

SunPower's cell construction makes it fundamentally different than competitors. Image source: SunPower.

The industry's focus is now on high efficiency
For years, the solar industry has been focused on cutting costs as quickly as possible. But costs can only go so low; as you see above even a 5% or 10% reduction in cost won't have a big impact on a solar system's total cost -- at least in the residential side of the business.

SunPower is the clear efficiency leader with a 21.5% efficient solar panel already in production. As upgraded manufacturing facilities are completed, management says that figure will increase to 23%.

SolarCity jumped on the high-efficiency bandwagon when it acquired Silevo last year. The start-up claims it can produce 21% efficient cells, which would make a panel that's around 18% efficient. In time, they hope to increase cell efficiency to 24%, reducing the number of panels needed for a standard installation by about 25%. 

Last year, SunEdison introduced its PERC technology that delivers module efficiency of 17.4%, and is hoping to make further improvements with "zero white space" solar-module technology. Together, these technologies could improve efficiency without completely redesigning standard solar modules.

These are just a few examples of how companies are pushing to increase efficiency, and the bottom line is that efficiency matters. You can see above that even a small change in efficiency can lower the cost of solar energy, and as competition gets tight in the solar industry, companies will push to squeeze every bit of energy they can out of an installation.

Even more important than having industry-leading efficiency may be not falling behind the efficiency curve. Low costs are great; but at a certain point, with balance of system costs included, even a free solar panel would make energy at a higher cost than a solar panel with higher efficiency. Efficiency matters in solar -- more than you might think.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.