Photovoltaic (PV) cells are made of semiconducting material-most commonly crystalline silicon of the same type used in computer chips-that produces electricity when struck by sunlight. Photovoltaic modules (i.e., solar panels) are composed of multiple PV cells. Two or more interconnected panels make an array. Solar arrays can be placed individually on home rooftops, connected by the thousands in desert solar farms, or any combination in between. The two keys to turning PV into a viable energy source are efficiency (the portion of the light striking a cell that's converted to electricity) and cost. Both are headed in the right direction.

Efficiency

Over the years, the efficiency of commercially available solar cells has crept from 6% of the original 1954 Bell Labs prototype to between 14% and 21% today, depending on the design. That's not far from silicon's theoretical limit of 29%, though other materials (both alone and in combination with silicon) are producing results in the 40% range.

Cost

Longer solar cell production runs generate economies of scale, making each panel less costly. As demand increases, solar panel makers have built new factories and refined their manufacturing processes, and costs have declined by 3% to 5% a year in the past decade. Looked at another way, the price of solar power has decreased 20% for every doubling of capacity. And with the industry now doubling its capacity every few years, the result is a nice, steady decline in manufacturing costs. The average cost of PV fell from nearly $100 per watt in 1975 to around $4 per watt in 2006. Since then, a shortage of silicon has increased the price of that crucial input and slowed the decline in manufacturing costs. But that's a temporary blip. With silicon supplies rising in response to higher prices, the cost of PV is generally expected to resume its decline in 2009, falling to an average of $2 per watt by 2012.