The efficiency of a photovoltaic system is the measurement of how much of the available solar energy a solar cell converts into electrical energy. Most typical silicon solar cells have a maximum efficiency of around 15 percent. However, even a solar system with 15 percent efficiency can power the average home in a cost-effective way.

Energy in sunlight comes in packets called photons. These photons carry a specific amount of energy depending on their wavelength. As wavelength decreases, the energy of a photon increases. These photons excite electrons in the solar cell, which causes them to flow through the circuitry, creating electrical current. In order to free an electron in silicon, a photon needs at least 1.1 electron volts of energy. An electron volt is the amount of energy needed to move an electron through a one volt potential difference. If a photon has more than 1.1 electron volts, an electron will move through the circuit, but excess energy will be released as heat. This is one of the reasons that solar cells have such a low efficiency; they only need a very specific amount of energy in order to work.

The Sun provides a different amount of power depending on where you are on Earth and where it is in the sky. Solar panels are typically rated assuming standard conditions known as AM1.5. This stands for air mass 1.5, which is the accepted test condition for solar panels. At AM1.5, the sun provides 1,000 watts per square meter. However, the actual available solar energy varies with location, weather conditions, and time of day.

In order to understand the sun's power, we use a model of radiation called the blackbody spectrum. The blackbody spectrum tells us the energy distribution of objects at different wavelengths. Based on a blackbody spectrum, 23 percent of the energy from the sun has a wavelength too long to be useful to solar panels. Those photons will just pass through the cell. Other wavelengths have some excess energy. In fact, another 33 percent of the sun's energy is excess energy that is also unusable for silicon solar cells. Therefore, this leaves only 44 percent of the sun's energy available to silicon solar cells. More of this energy is lost due to reflection and other processes in the cell itself. Hence, while the theoretical maximum efficiency may be higher, the real efficiency of silicon cells is usually around 15 percent.

In order to increase solar panel efficiency, we can improve and diversify the materials we use to make them. Different materials require a different amount of photon energy to produce current. Therefore, hybrid panels can cover a number of different electron volt values in order to maximize the energy captured. One problem with this approach is the cost of manufacturing. The standard solar panel is made from silicon, which is widely available and well-understood. As the materials used in solar panels become rarer and more specialized, the cost of manufacturing rises. Therefore, an increase in efficiency comes at an increase in cost.