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As a solar professional, it’s important to be able to explain the process of how a solar photovoltaic system produces electricity. This process seems mysterious to many and misconceptions abound among those unfamiliar with solar energy. In this article, we get back to basics with an overview of how solar installations provide electricity and how the process works for the customer. 

How Does a Solar Photovoltaic System Work?

Solar panels convert the energy of photons (light particles) into electricity (as we discuss in The Beginner's Guide to Solar Energy). This process is called the photovoltaic effect. When a photon hits a photovoltaic (PV) device, its energy is transferred from the photon to the local electrons in the material. These excited electrons begin to flow, producing an electric current.

Solar cells (within solar panels) produce direct current (DC) electricity, which is typically converted to alternating current (AC) electricity by an inverter. This allows it to be sent back to the electric grid, which operates with AC electricity, as well as used to power appliances in the customer’s home (or commercial building, in the case of commercial solar installations). In summary, the process of how solar panels works involves three primary steps:

  1. Solar cells within solar panels absorb light from the sun, which causes electric current to begin flowing. 
  2. An inverter converts DC electricity to AC electricity. 
  3. This electricity is used to supply current energy demands in the customer’s building and excess electricity beyond what the customer can use is exported to the grid. 

What Happens with the Energy a PV System Produces?

Most solar customers in the U.S. have grid-connected solar installations. Their home is connected to the electric grid, which allows them to use energy supplied by their electric utility when they need more than their solar installation is producing (such as on a rainy day or at night). It also means that whenever their PV system is producing more than they need, that excess energy can be sent to the grid for others to use. 

A policy called net metering, common throughout the U.S., compensates solar customers for this excess energy, so that they can offset the cost of future electricity they use from the grid.

Net metering has played a significant role in making solar energy cost-effective. However, around the country, we are beginning to see some changes in how utility companies implement net metering, many of which reduce the value that solar customers receive from their solar installations. 

Feed-in tariffs are another way of compensating solar customers for the electricity they send to the grid in some areas. 

What are the Parts of a Photovoltaic System?

A simple PV system contains two basic types of components:

  • Solar Modules: Solar modules contain solar cells that convert sunlight into electricity.
  • Inverter(s): An inverter converts DC current to AC current. It can also perform other functions that are beneficial to the electricity grid (see our article on smart inverters, which are now required in California). 

Diagram of a simple PV system from Aurora Solar softwareDiagram of a simple PV system. Source: Aurora Solar.

It is common practice to refer to all components of a PV system besides the modules as balance of system (BOS) components. Examples of BOS components include inverters, disconnects, racking, and wiring.

Of course, this is just a basic overview of the parts of a solar installation and how they fit together. Explore some of our related articles for a deeper dive into the ways that solar panels and inverters can be wired together (stringing) and some alternatives to traditional inverters, known as module-level power electronics (MLPE)

Aurora solar gives companies the tools to design and sell commercial AND  residential solar projects more efficiently and accurately! See what our  customers are saying.

What Factors Affect Solar PV System Efficiency

It is important to note that the process of producing electricity from solar energy is not 100% efficient. Environmental factors—such as temperature, soiling, and shading—as well as losses in the electrical components, can affect the efficiency of a PV system (for a deep dive on these losses see our PV System Losses Series). Typical loss categories include:

  • Temperature: Solar panel efficiency varies with temperature. High temperatures have a negative impact on performance.
  • Soiling: Material that accumulates on the surface of PV panels can block light from reaching the solar cells, thereby reducing the generated power. The power loss due to soiling is highly variable, depending on the type of soiling (such as dust or snow), and how frequently the panel is cleaned.

Soiling, such as dust, on PV modules reduces power outputSoiling, such as dust, on PV modules reduces power output.

  • Shading: Shading is the obstruction of irradiance due to trees, buildings, terrain, and other objects in the environment. The effect of shading on the power output of a solar installation is highly variable. (To learn more about  the causes and consequences of shading, this article and this section of our PV system losses series are great resources.)
  • Wiring and connections: Resistance in the electrical connections of a solar installation typically results in energy losses of a few percent.
  • Mismatch: Due to manufacturing variations, modules of the same type can have slightly different electrical characteristics. This mismatch between modules can lead to a performance loss.
  • Inverter Efficiency: Converting DC into AC current via an inverter is typically around 96-97% efficient. Inverters typically have higher efficiency when the DC input power is high. The conversion efficiency takes a big hit when the input power is much less than the inverter's rated power.
  • Age: Solar panels produce less energy the older they get. Typically the decrease in performance is assumed to be around 0.5% per year.
Term Typical Value
Temperature -0.5%/°C above 25°C
Inverter Efficiency 96.5%
Mismatch 98%
Wiring/Connections 98%
Soiling 95% (highly variable)
Age -0.5%/year
Shading Highly environment-dependent
Typical solar efficiency values for different PV system loss types. 

The above factors are combined in a coefficient called the system derate factor to represent the overall losses of a solar installation. For instance, PVWatts, an NREL supported PV system energy production calculator, uses a default system derate factor of 86%. 

However, depending on the system design or environmental conditions, this value can be higher or lower. Advanced solar design software like Aurora can ensure that you accurately determine PV system losses and how much energy your PV system will produce. 

Sign up for a demo to learn more about these features and see them in action.

Solar panel (module) efficiency denotes what portion of irradiance a module converts into electricity under standard test conditions (STC; irradiance of 1000W/m2, ambient temperature of 25°C). As a general rule of thumb, you can estimate a PV system’s efficiency in converting irradiance into electricity (under STC) using the following formula:

$$\text{Overall System Efficiency} = \text{Module Efficiency} \times \text{Derate Factor}$$


It is important to note that these are merely back-of-the-envelope calculations. To get a comprehensive energy production analysis, you need a software application, such as Aurora, that incorporates all of a PV system’s environmental, mechanical, and electrical characteristics.


About Solar PV Education 101

How a Photovoltaic System Produces Electricity is part of Solar PV Education 101, a six-article series that serves as an introductory primer on the fundamentals of solar PV for beginners.

Article 1: The Beginner's Guide to Solar Energy
Article 2: How a Photovoltaic System Produces Electricity
Article 3: Reading Your Electricity Bill: A Beginner’s Guide
Article 4: How to Size a PV System from an Electricity Bill
Article 5: Shade Losses for PV Systems, and Techniques to Mitigate Them
Article 6: The Basic Principles that Guide PV System Costs

Editor's Note: This article was originally published on October 7, 2016. It was updated in December 2019 for freshness, accuracy, and comprehensiveness.

  • arrays
  • components
  • derating
  • efficiency
  • modules
  • photovoltaic system
  • PV system
  • solar cells
  • Solar Primer
  • Solar PV Education 101

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