Solar Panels Have Low Efficiency? Yes, But It Does Not Matter
9th May 18
Cameron Quin

Solar photovoltaic panels are sometimes criticised for having a low conversion efficiency from sunlight to electricity. This is technically true, since the most efficient solar modules in the market operate slightly above 20% efficiency, but you have to consider that their energy input is free and extremely abundant.

The efficiency of an energy generation system affects the kilowatt-hour price when the energy input also has a cost. For example, coal-fired power plants operate slightly above 30% efficiency, which means most of the heat from coal combustion is released along with emissions. On the other hand, natural gas power plants can exceed 50% efficiency when they combine a gas turbine and a steam turbine. Efficiency is very important in these cases, since both coal and natural gas have a price tag: they must be extracted from underground and transported to the point of consumption.

Compare the efficiency of solar panels with that of fossil fuel power plants can be misleading. With solar power, the project owner does not pay for sunlight and there are no emissions during operation. While it is true that solar module manufacturing and project construction have an environmental impact, it stops once the project is operating, unlike a fossil fuel power plant that produces emissions for decades.

Why Efficiency Does Not Affect the Cost of Solar Power

When you see data on kilowatt-hour costs for solar power, there is no energy input in the calculation, and this has allowed prices below 2 cents/kWh in some parts of the world. Since there is no paid input, the main expenses that determine electricity cost are:

  • The upfront investment in solar panels and other equipment, along with the labor cost of deploying the installation.
  • Interest payment, since solar power developers often take loans to avoid a dent in their cash flow.
  • Operation and maintenance expenses, which are typically below 1% in utility-scale installations. The main responsibilities are keeping the installation clean and making sure there are no malfunctioning panels or connections.

The efficiency of commercial solar arrays would only be important if you had to pay for sunlight, but this is not the case. In addition, Australia alone gets enough sunshine to meet its energy demand 10,000 times.

There are experimental photovoltaic cells that operate above 40% efficiency, but their cost is still too high for use in commercial solar power systems. If these cells were deployed, the cost per kilowatt-hour would be much higher even if the technology is more efficient; both capital requirements and maintenance expenses are increased dramatically if you use experimental technology.


Although only a fraction of sunlight is converted to electricity by solar modules, it doesn’t matter because sunlight is free. If you need more generation, a cheap and simple solution is using a larger photovoltaic array. High-efficiency solar cells are still too expensive to be commercially viable, although this could change in the future.

In commercial solar power, efficiency becomes important only when the available area for photovoltaic panels is limited. The advantage of high-efficiency modules is allowing more watts of capacity per square meter of available space, but this only counts if space is a limitation.

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Cameron Quin

9th May 18
Cameron Quin

Cameron Quin has been heavily involved in business development from an early age. After founding and selling two online companies, Cameron found a strong passion for renewables and the opportunities it brings for the commercial and industrial sector. Sharing the possibilities of solar and the knowledge from the Solar Bay team is his favourite pastime.