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Solar panels use light energy (photons) from the sun to generate electricity through the photovoltaic effect (this is the photo-electric effect). The majority of modules use wafer-based crystalline silicon cells or a thin-film cell based on cadmium telluride or silicon. Crystalline silicon, which is commonly used in the wafer form in photovoltaic (PV) modules, is derived from silicon, a commonly used semi-conductor.

In order to use the cells in practical applications, they must be:

* connected electrically to one another and to the rest of the system
* protected from mechanical damage during manufacture, transport, installation and use (in particular against hail impact, wind and snow loads). This is especially important for wafer-based silicon cells which are brittle.
* protected from moisture, which corrodes metal contacts and interconnects, (and for thin-film cells the transparent conductive oxide layer) thus decreasing performance and lifetime.

Most modules are usually rigid, but there are some flexible modules available, based on thin-film cells.

Electrical connections are made in series to achieve a desired output voltage and/or in parallel to provide a desired amount of current source capability.

Diodes are included to avoid overheating of cells in case of partial shading. Since cell heating reduces the operating efficiency it is desirable to minimize the heating. Very few modules incorporate any design features to decrease temperature, however installers try to provide good ventilation behind the module.

New designs of module include concentrator modules in which the light is concentrated by an array of lenses or mirrors onto an array of small cells. This allows the use of cells with a very high-cost per unit area (such as gallium arsenide) in a cost-competitive way.

Depending on construction, the photovoltaic can cover a range of frequencies of light and can produce electricity from them, but sometimes cannot cover the entire solar spectrum (specifically, ultraviolet, infrared and low or diffused light). Hence much of incident sunlight energy is wasted when used for solar panels, although they can give far higher efficiencies if illuminated with monochromatic light. Another design concept is to split the light into different wavelength ranges and direct the beams onto different cells tuned to the appropriate wavelength ranges. This is projected to raise efficiency by 50%. Also, the use of infrared photovoltaic cells can increase the efficiencies, producing power at night.

Sunlight conversion rates (module efficiencies) can vary from 5-18% in commercial production (solar panels), that can be lower than cell conversion.

A group of researchers at MIT has recently developed a process to improve the efficiency of luminescent solar concentrator (LSC) technology, which redirects light along a translucent material to PV-modules located along its edge. The researchers have suggested that efficiency may be improved by a factor of 10 over the old design in as little as three years (it has been estimated that this will provide a conversion rate of 30%). Three of the researchers involved have now started their own company, called Covalent Solar, to manufacture and sell their innovation in PV-modules.

The current market leader in efficient solar energy modules is SunPower, whose solar panels have a conversion ratio of 19.3%. However, a whole range of other companies (HoloSun, Gamma Solar, NanoHorizons) are emerging which are also offering new innovations in photovoltaic modules, with a conversion ratio of around 18%. These new innovations include power generation on the front and back sides and increased outputs; however, most of these companies have not yet produced working systems from their design plans, and are mostly still actively improving the technology. As of August 26, 2009 a world record efficiency level of 41.6% has been reached.

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