More and more companies are realizing that efficiency is key in rooftop solar.

What makes the residential solar market unique, and sets it apart from very large-scale solar projects in particular, is that it's more sensitive to differences in solar-panel efficiency. The costs associated with installing solar on a roof are mostly outside of the panel itself, so each bit of energy a panel can squeeze out will make the project more cost-effective. And customers are starting to realize the value of efficiency in rooftop solar, something investors need to keep an eye on.

The shift in solar preferences

One of the strange takeaways from the first half of the year in solar was that SolarCity posted relatively disappointing residential solar numbers and guidance, while SunPower (NASDAQ:SPWR) was becoming more bullish on the segment. The reason can be partly attributed to efficiency.

SunPower has long been the efficiency leader in solar, but it's been up against rapidly falling prices for commodity solar panels, which are what SolarCity installs. As panel prices fell, SunPower had to either lower its own costs or increase efficiency to keep up — or do both.

But the decline in panel costs won't make a big difference forever, at least not in the residential solar market. That's because as solar panel prices fall, a larger percentage of the cost of a residential solar system is in sales, labor, inverters, wiring, racking, and other costs. These costs don't change just because a panel is less expensive, but they can be offset by higher efficiency.

Here's a look at how this works.

Source: Why Efficiency Is Now King in Rooftop Solar Energy — The Motley Fool