What Is the Photovoltaic Effect in Simple Terms?

Introduction—Sunlight, a Powerhouse in Your Hands

Every time you use a solar-powered calculator or see a rooftop covered in shiny blue panels, you’re witnessing one of the most fascinating scientific miracles—the photovoltaic effect. This process converts sunlight directly into electricity—no moving parts, no fuel, just pure physics.

Today, India stands as the world’s third-largest solar power generator, producing over 100 GW of solar capacity as of January 2025—proof that this phenomenon isn’t just science; it’s big business. And for businesses, investors, and policymakers, understanding the PV effect is not just academic—it’s strategic.

Understanding the Photovoltaic Effect

At its core, the photovoltaic (PV) effect is the process where light photons strike a semiconductor material and free electrons, creating an electric current.

Think of sunlight as millions of tiny “energy bullets” (photons) hitting the surface of a solar cell. When they hit just right, they knock electrons loose. These electrons are then guided into a circuit, generating electricity.

Simple analogy: Imagine a crowded dance floor where sunlight “taps” certain dancers (electrons) and gets them moving toward the exit. Once they leave, they can be put to work—powering your home, charging your phone, or running a water pump.

A Brief History of the Photovoltaic Effect

• 1839 – Alexandre-Edmond Becquerel first observed that light could create electrical currents in certain materials.
• 1954 – Bell Labs developed the first practical silicon solar cell, with an efficiency of just 6%.
• 1970s–80s – Solar panels began appearing in satellites and remote Indian weather stations.
• 2010 onwards – India’s solar capacity boomed under the Jawaharlal Nehru National Solar Mission, aiming for 500 GW renewable capacity by 2030.

How Solar Cells Convert Light into Electricity

Converting sunlight into usable power may look like magic from the outside, but inside every solar cell is a finely engineered process rooted in physics. Here’s the step-by-step breakdown:

1. Light Absorption – Capturing the Sun’s Energy

When sunlight hits a photovoltaic (PV) cell, photons — tiny packets of solar energy — are absorbed by the semiconductor material, typically silicon in most panels.

• Why Silicon? It’s abundant, cost-effective, and has just the right atomic properties to interact with sunlight efficiently.
• Indian Context: India’s solar farms in Rajasthan and Gujarat receive some of the highest solar irradiation in the world, ensuring maximum photon capture for longer daily durations.

Note: Think of silicon like a sponge for sunlight — it soaks up photons instead of water.

2. Electron Excitation – Knocking Electrons Loose

Each photon carries energy. If it has enough energy, it can knock an electron free from the silicon atom it’s bound to. This creates an electron-hole pair:

• The Electron – A free particle that can move through the material.
• The Hole – A vacant spot that behaves like a positive charge.

Not all photons make the cut — only those with the right energy level (above the material’s band gap) can excite electrons.

Investor Insight: This is why panel efficiency matters. Higher-efficiency panels can convert a broader range of sunlight into electricity, meaning more output per square meter — critical for space-constrained industrial rooftops.

3. Electric Field Separation – Directing the Traffic

Solar cells are built with two layers of silicon:

• N-type (negative) – Rich in extra electrons.
• P-type (positive) – Lacking electrons, with more holes.

Where these layers meet, they form a p-n junction — a natural electric field. This field acts like a one-way gate, pushing electrons toward one side and holes toward the other.

• B2B Example: Just like a factory conveyor belt sends products in a specific direction for assembly, the electric field ensures all the freed electrons move toward the correct contact points.

4. Current Flow – Turning Movement into Usable Power

Once separated, the electrons are channeled through an external circuit. As they flow, they power whatever is connected — from LED lights to large industrial motors. After completing their work, they return to the cell, recombine with holes, and the cycle continues as long as sunlight is available.

India Example: In a 1 MW commercial rooftop system in Chennai, the flow of electrons generated each day can power thousands of ceiling fans, lighting systems, and computer units simultaneously, offsetting significant grid demand during peak hours.

Why This Matters for Decision-Makers

Understanding this process helps investors and business owners evaluate:

• Panel Efficiency – How many photons become usable electrons.
• Material Choice – Silicon vs. thin-film or next-gen perovskites.
• Installation Design – Maximizing photon capture through tilt and orientation.

Financing Models for Businesses in India – Making Solar Affordable

For many Indian businesses, the biggest hurdle to going solar isn’t interest — it’s capital availability. Thankfully, multiple financing structures now exist to make solar adoption possible for companies of all sizes, from MSMEs to large industrial complexes.

1. CAPEX Model – Maximum Returns, Full Ownership

In the Capital Expenditure (CAPEX) model, the business invests the full upfront cost of the solar plant.

• How It Works: The company owns the system outright, manages operations and maintenance (or outsources it), and enjoys the full savings from reduced electricity bills.
• ROI Insight: In India, CAPEX solar projects for commercial rooftops typically offer payback in 3–5 years, with a system life of 25 years or more.
• Best For: Cash-rich companies or investors seeking the highest lifetime returns and depreciation tax benefits (up to 40% accelerated depreciation in some cases).

Example: A textile factory in Tiruppur installing a 500 kW rooftop solar plant through CAPEX can save over ₹35–40 lakhs annually on electricity bills.

2. OPEX / RESCO Model – No Upfront Investment

The Operational Expenditure (OPEX) or Renewable Energy Service Company (RESCO) model is a pay-as-you-go solution.

• How It Works: A third-party investor builds, owns, and operates the solar plant on your premises. The business pays only for the power consumed, at a tariff lower than the grid rate.
• Benefit: Zero capital expenditure and no maintenance headaches.
• Best For: Businesses that want solar benefits without tying up funds in infrastructure.

Example: A commercial complex in Bengaluru under an OPEX model may pay ₹4.50 per kWh, compared to ₹7–8 per kWh grid tariff — immediate cost savings without any investment.

3. PPA (Power Purchase Agreement) – Long-Term Cost Stability

The PPA model allows a business to lock in a fixed electricity tariff for 10–25 years.

• How It Works: Similar to OPEX, but with a contracted price and duration, ensuring predictable costs even if grid tariffs rise.
• Advantage: Acts as a hedge against future tariff hikes, which have historically risen 3–5% annually in India.
• Best For: Businesses with long-term operational stability looking to secure energy costs over decades.

Example: An automotive plant in Pune signing a 15-year PPA at ₹4.20/kWh avoids paying ₹6.50/kWh grid tariffs — a 35% cost reduction, with savings growing as tariffs increase.

Characteristic	CAPEX	OPEX/RESCO	PPA
Upfront Cost	Full upfront investment	Zero upfront investment	Similar to OPEX
Ownership	Company owns the system	Third-party owns the system	Third-party owns the system
O&M	Company manages or outsources	Investor manages	Investor manages
Savings	Full savings from reduced bills	Lower tariff than grid rate	Fixed tariff for 10-25 years
Best For	Cash-rich companies seeking high returns	Businesses avoiding capital expenditure	Businesses seeking cost stability
Example	Textile factory saves ₹35-40 lakhs annually	Commercial complex pays ₹4.50/kWh	Hedge against future tariff hikes

Why This Matters for Decision-Makers:

By choosing the right model, even cash-strapped SMEs can move toward energy independence and sustainability without financial strain. In many cases, solar adoption is now a pure cost-saving decision, not just an environmental one.

The Indian Solar Story – Mega Projects & Impa

India’s solar sector has transformed from a niche industry into a strategic pillar of the nation’s energy security. With government-backed policies, investor-friendly regulations, and rapidly falling solar costs, India is now the world’s third-largest solar market — and aiming much higher.

Government Push – National Solar Mission

• Target: 280 GW of solar capacity by 2030, as part of the 500 GW non-fossil fuel goal under the National Electricity Plan.
• Policy Support:
  • Production Linked Incentive (PLI) schemes for domestic manufacturing of high-efficiency solar modules.
  • Renewable Purchase Obligations (RPOs) pushing DISCOMs and industries to procure clean energy.
• Why It Matters for Investors: Predictable policy frameworks reduce regulatory risk, enabling long-term ROI stability in utility-scale and C&I solar projects.

Mega Projects – Scale that Inspires Confidence

• Gujarat Hybrid Renewable Energy Park – 30 GW capacity, blending solar and wind across 72,600 hectares. Expected to generate ~100,000 jobs and power millions of homes.
• Bhadla Solar Park, Rajasthan – World’s largest operational solar park at 2.25 GW, delivering energy at record-low tariffs (~₹2.14/kWh).
• Rewa Solar Project, Madhya Pradesh – Pioneered ultra-low solar tariffs for large-scale projects, attracting global investment.

Investor Angle: Large-scale projects create robust supply chain opportunities for EPC companies, module manufacturers, and O&M service providers.

Rural Electrification – Solar as a Development Engine

• In Rajasthan, solar microgrids are replacing costly diesel generators, cutting fuel expenses by 30–40% and enabling reliable power for irrigation and small businesses.
• Government programs like Saubhagya Yojana and PM-KUSUM are integrating solar for agricultural use, with farmers earning extra income by selling surplus power.

Impact: Beyond sustainability, rural solar projects unlock latent economic potential in villages — a market opportunity for microfinance, agri-tech firms, and decentralized energy startups.

Bottom Line for Decision-Makers:

India’s solar journey is no longer about “if” — it’s about “how big, how fast, and who captures the value”. Mega projects offer scale, while rural solar brings inclusivity — together forming a balanced growth model for the next decade.

Future of Photovoltaic Technology in India

India’s PV sector is on the brink of a technology leap — innovations that not only increase efficiency but also open new revenue streams for businesses.

• Bifacial Panels – Capture sunlight from both sides, boosting yields by 10–15%. Particularly effective in India’s high-albedo regions like Rajasthan’s desert areas and commercial rooftops with reflective surfaces. Investor Note: Lower Levelized Cost of Energy (LCOE) makes them highly bankable for large-scale C&I installations.
• Transparent Solar Glass – Turns windows and façades into power generators. Commercial Potential: Perfect for building-integrated photovoltaics (BIPV) in urban skyscrapers, malls, and IT parks where rooftop space is limited.
• AI-Powered Solar Farms – AI algorithms for predictive maintenance, fault detection, and tilt optimization can increase plant uptime by 2–5% annually. For Decision-Makers: Lower O&M costs and improved asset life translate to stronger IRR for utility-scale investors.
• Perovskite & Tandem Cells – Emerging lab-to-market tech offering 30%+ potential efficiency, lightweight build, and lower manufacturing costs — expected to disrupt traditional silicon dominance.
• Photovoltaic-Thermal (PVT) Hybrids – Simultaneously generate electricity and capture heat for industrial use, boosting total energy yield per square meter.

Quick Nogtes

The photovoltaic (PV) effect converts sunlight directly into electricity, and solar energy is an important energy-saving asset for India. The PV process can be explained simply — it starts with light absorption, followed by electron excitation, then electric field separation, and finally current flow.
Solar energy was first discovered in 1839, and in India, we have now reached over 100 GW of installed capacity. The blog also explains how using solar can bring strong ROI for businesses through different financing models such as CAPEX, OPEX/RESCO, and PPA. It also mentions how GST benefits and subsidies help make adoption easier.
Hybrid photovoltaic-thermal systems can generate both electricity and heat, adding more value. Key challenges such as grid integration, inverter efficiency, and state-specific net metering policies are discussed in detail. Growth opportunities in agriculture (solar pumps, cold storage) and EV charging infrastructure are also covered.
India’s solar transformation is highlighted with mega projects like Gujarat’s Hybrid Renewable Energy Park and Rajasthan’s Bhadla Solar Park, supported by national policies and incentives. The blog also explores future technologies like bifacial panels, transparent solar glass, AI-powered farms, perovskite cells, and PVT hybrids.

FAQs – Quick Answers