“Dollar per watt” can be a misleading number. For those who aren’t familiar, if you sell a 150-watt module for $300, that’s $2/watt. Pretty simple.

However, even though it’s a common way to talk about pricing, it leaves a lot out of the equation. In particular, it doesn’t factor in the efficiency of the module. Lower-efficient modules require more space for the same amount of power output. That means more racking to hold them up, more labor to install them, and more land. I’ve heard people talk about a “penalty” for low efficiency, so I wanted to calculate what that would look like.

I put together a very simple model of a PV system. The PV modules, inverter, and wiring are all defined on a $/watt basis, while the racking and labor are defined on a price per square meter of solar modules. So, with lower efficiency modules, you need more of them – and the model grosses up the racking and labor in proportion.

Let’s work through a quick example. With the assumptions above, a developer would earn a 10% return if he installed 1MW of 15% efficient modules while paying $2.35/watt for the modules. On the other hand, he would also earn a 10% return if he installed 1MW of 10% efficient modules, paying $2.05/watt. In other words, he needs a $0.30/watt discount for the 10% efficient panels, because he needs to use that money to buy the extra racking and pay for the extra labor.

You can plot these points on a curve. Below, I show all the points at which a developer is indifferent, for efficiencies ranging from 5% to 20%. (Note that I flipped the price axis, so that the numbers get smaller as you go up. The consulting rule of thumb is that “good” is always up and to the right, and in this case, “good” is cheap.) The two points in my example above are shown as the red and purple boxes.

The interesting thing here is that the curve gets steeper as you move to the left. The difference between 20% and 15% efficiency is only $0.16/watt. Between 15% and 10% it’s $0.35/watt. Between 10% and 5%, the difference is a full $1.00/watt.

This is a big reason why so many people are pessimistic on amorphous silicon. With expected efficiency of only around 5-7%, they start with a $0.75 to $1.33 penalty versus a silicon panel that gets 15% efficiency.