There’s more to solar power than blue glassy panels shimmering on rooftops. Just as important are the inverters that convert DC power created by the solar panels into grid-ready AC power. Typically, all the panels in a rooftop PV system are connected to one large inverter mounted on the side of a house.

Startup Enphase Energy of Petaluma, CA, is now making the first micro-inverters. These smaller inverters can be bolted to the racking under each solar panel, to convert DC power into AC for each panel individually. The company claims that the devices will increase a PV system’s efficiency by 5 to 25 percent and decrease the cost of solar power.

Enphase has raised more than $20 million in its latest round of funding. The company has teamed up with various distributors and partners, including solar-module manufacturer Suntech Power Holdings and installer Akeena Solar, to bring its device to customers. The micro-inverters could be used on residential, commercial, or even utility-scale PV systems, says Todd Wilson, a general partner at RockPort Capital Partners, one of the leading investors in Enphase’s technology.

In addition to DC-to-AC conversion, inverters are in charge of getting the most power from solar modules. They have a logic circuit that constantly searches for the best voltage and current levels at which the panels can operate. (Power is the product of voltage and current.)

In a conventional PV system, solar panels are wired together in series, and their combined high-voltage DC power is fed to an inverter. Therefore, the inverter’s logic circuit optimizes the total current and voltage levels. But if one panel’s current drops, it limits the overall output of the system. “Something as simple as a leaf blowing over a module, or dust or debris or shade on one module, will affect the entire array of all those modules that are connected in series,” says Leesa Lee, director of marketing at Enphase.

Micro-inverters optimize the voltage-current levels at each panel individually. This squeezes the most power from each panel and then adds it together, increasing the system’s efficiency. “Any impact on a module is limited to that module alone,” Lee says. In addition, the equipment cost for micro-inverters is about 15 percent less than the cost for a traditional system, she says, because expensive DC components, such as signal combiners and disconnects, can be replaced with off-the-shelf AC parts.

The concept of small inverters has been around for more than a decade, but there have been technical challenges to making practical devices. “One of the biggest stumbling blocks to micro-inverter technologies in the past has been conversion efficiency,” says Marv Dargatz, Enphase’s senior director for systems. Enphase converted many analog parts in the circuits to digital to make the inverter smaller without sacrificing efficiency. The conversion efficiency of an individual micro-inverter is 95.5 percent, on par with efficiencies of traditional large inverters, which range from 94 to 96 percent.

Daniel Kammen, a professor of public policy specializing in energy at the University of California, Berkeley, says that the solar industry has held on to the convention of connecting solar panels in a string since the 1960s, when inverters were expensive. “It’s sort of crazy that we still hook solar panels together in series,” Kammen says. “You take what’s now the most expensive part of the system, the solar panels, and just by the way you string them together you cut down their output.”

Micro-inverters maximize the power output, but they also make the system very flexible, Kammen says. You can simply plug in more panels to your array if you need more power–“You can’t do that with a traditional system,” he says. “If you add more panels than the inverter can take, you’d have to go replace the second most expensive part of the system: the inverter.”

Semiconductor manufacturer National Semiconductor is taking a different approach to managing the power from a PV system. The company has made a power optimizer device for individual solar panels. The device only has the logic circuit for optimizing current and voltage levels–it doesn’t do the DC-to-AC power conversion. Ralf Muenster, vice president of renewable energy at National Semiconductor, says that the company was also considering making micro-inverters. Instead, it chose to make the power optimizer because it can work with a wider range of voltages than inverters can.

But the micro-inverters might have one added advantage. Because they get AC power out of a solar panel, they essentially turn each panel into a separate power source. Enphase’s micro-inverters also send data over the Internet to the company’s servers. Users can monitor their installation online, look at how much power each makes, and control where the power from each solar panel is consumed. “You might keep some of the panels for selling power and others to power your freezer,” Kammen says.