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While most people associate Albert Einstein's place in history with relativity and physics, his Nobel Prize was for the photo-electric effect, which was one of the founding discoveries of quantum mechanics, and is the germinal science behind photovoltaic cells.
How Photovoltaic Cells Work
A photovoltaic cell has a semiconductor substrate that has "potential wells" caused by impurities. The most common semi-conductor used is single crystal silicon, though others are being researched and worked on. When a photon hits a photovoltaic cell, it knocks an electron free from the semiconductor, which, through the impurities in the material, races towards one of the two contacts on the cell (the other contact completes the circuit).
There are two other important components in photovoltaic cell construction: The first is the anti-reflective coating; this helps ensure that more of the photons that hit the cell are actually knocking electrons loose. A recent technological advance is using nanoscale engineering to make a photovoltaic trough - think of each element of silicon in the cell being laid down in a trough of mirrored surfaces, while the underside of the anti-reflective coating also has a reflective surface - sunlight that strikes the cell but doesn't hit the silicon wafer is reflected back up to the underside of the anti-reflective coating, which reflects it back down at the wafer itself. This nanoscale reflector technology has increased the efficiency of solar cells by significant amounts since its widespread adoption in 2011.
Current Efficiency Limits
The dawn of commercial photovoltaic systems started in the 1980s, when some of the manufacturing techniques used to make computer chips migrated over to making solar panels. These cells managed to get between 12 and 13 percent efficiency, and it's roughly this time frame that you started seeing both solar roofing units and solar powered calculators.
Advances in materials science came slowly - while there are Gallium Arsenide solar arrays with efficiencies in the 39 to 40 percent range, they're so expensive that only NASA uses them on space telescopes and the International Space Station. Low production yields and expensive manufacturing techniques have kept exotic materials like Gallium Arsenide out of the commercial photovoltaic sector. However, improvements in silicon cells have incremented as we've gotten better at laying the boron and phosphorous impurities with better regularity - prior to integrates solar trough cells, silicon cells had crept up to 17 percent efficiency; with current generations solar troughs, they're over 20 percent, and manufacturers are making production prototypes that are 25 percent efficient.
Broadly speaking, there are three families of photovoltaic cell materials. Single-crystal silicon wafers offer the best overall performance. With single-crystal silicon photovoltaic cells, the silicon medium is sliced as a single layer off of a single-crystal silicon wafer. The next most efficient, and most common due to great reductions in cost, is polycrystalline silicon wafer cells. For most residential and single-business commercial applications, polycrystalline photovoltaics are the go-to solution.
A new category of even cheaper photovoltaics have recently entered the market, made off of amorphous silicon as the base material. These cells have the advantage of being, in effect, "printable" and flexible, but they have much lower conversion efficiencies, in the realm of 7 to 9 percent. They also have a significant efficiency reduction, particularly in the first month or two.
Overall efficiency is important, because the more efficient a panel system is, the smaller it can be and the more flexibility you have in deploying it. Also, as photovoltaic efficiency improves, the cost-benefit calculation, including series resistance (how much energy is lost linking solar panels into series to get a decent voltage out of them) and total cost of ownership makes them much more appealing.
The cost per kilowatt-hour of electricity in the U.S. is roughly 11.5 cents as a nationwide average. It's lower in some parts of the country, and a little higher in others, but the median price is that 11.5 cents. The cost of electricity from photovoltaic cells was 24 cents per kilowatt-hour in 2011. By the midpoint of 2014, it's dropped to 12 cents per kilowatt-hour, a reduction of 50%.
If you're using photovoltaics, you need to have at least one piece of additional equipment, a DC to AC inverter. Solar panels generate DC power, and most of your household appliances run on AC for safety reasons. Most of your personal electronics, like your cell phone and laptop run on DC - this is why they have the big blocky AC to DC converters as part of their plugins. The AC converter will be included in the installation and equipment costs needed to put the panels in place.
What to do with the electricity generated is another question entirely; photovoltaic electrical panels are great cover helping to power your air conditioning on the hottest day of the summer, but there will be times when the panels are generating power, and nothing in your house can use it. Some municipalities and public utilities have an electricity buy-back program. When your photovoltaic systems are generating more power than you're using, the excess is sold back to the utility company...at wholesale rates, which are about a quarter of what you pay the utility company. This is usually handled by just running the electric meter backwards and it shows up as a credit on your bill, or just as a reduced bill.
Another alternative is to have a battery bank. Battery banks are series of marine batteries (or car batteries) that get charged up by the photovoltaic system when the sun shines, and discharge to power household devices. This kind of setup is essential if your goal is "off-the-grid" living, but usually costs more (and incurs battery replacement costs) than just using utility reverse-metering. Owners of plug-in hybrids, or fully electric vehicles, tend to use their cars as the battery bank with a solar system.
Installation & Positioning
One of the biggest innovations in photovoltaics for home use isn't technical - it's financial. More companies are getting creative in setting up financing programs to spread out the large up-front capital investment of putting photovoltaic panels in place into regular monthly payments. If the high entry price on photovoltaic systems was holding you back, that may be a solved problem at this point in time.
Another concern for people installing photovoltaics is location - in the U.S. and anywhere else in the Northern hemisphere, you want your solar panels facing to the south for optimum efficiency with no shade obscuring the sun. You'll lose some conversion efficiency the farther north your installation is, and even if you can't get a due south orientation, you can still get reasonable effectiveness with a southeastern or southwestern facing.