Los Angeles -- The laws of physics might be catching up to cadmium telluride.

Thin-film solar panels made from the material might only ever achieve efficiencies of 12 to 13 percent, says Damroder Reddy, CEO of CdTe l start-up Solexant. First Solar is already producing solar modules at 11.2 percent and General Electric says it will be comparable or better than that when it comes out with its own CdTe solar panels next year. Solexant, which has raised over $41 million and plans to build a 100-megawatt factory in Oregon, will start to hit 12 percent efficiencies in late 2012.

While some analysts will grouse that efficiency isn't the most important metric to look at when evaluating a solar technology, it is important. Very important, in fact. Boosting efficiency increases the power output of panels and the overall productivity of a factory. High efficiency modules also command higher premiums. A plant that produces modules with a 15-percent efficiency will simply generate more cash than an equivalent one that churns out the same number of panels with a ten-percent efficiency.

Hitting an efficiency wall essentially takes away one of the tricks available to a company to undercut its competitors, so,  yes, this is a big deal. It's sort of like forcing a rodeo clown to wear a truss. In crystalline silicon, maximum efficiency is close to 25 percent. SunPower already produces modules at 23 percent. To get around this looming problem, the company has developed a concentrator which will effectively allow its high efficiency panels to generate more power. 3M has unveiled a film that can nearly double the power output of solar panels at a relatively cheap price and without some of the complexities of standard concentrators.

Cadmium telluride panels do not work well with concentrators, says Reddy.

Manufacturers of copper indium gallium selenide (CIGS) solar cells are already hitting efficiencies of 12 percent in production, and labs have developed CIGS cells that hit 20 percent efficiencies. Through a combination of factory improvements, mass manufacturing and efficiency increases, these companies hope to start hitting the 85-cents-per-watt price range soon and drop from there.

So what will happen? Cad tel manufacturers will have to focus on dropping the balance of systems and manufacturing costs. First Solar is down at 76 cents per watt on modules coming from the factory today. Solexant says it will make its cadmium telluride panels on flexible substrates instead of glass on roll-to-roll processes, which will be far cheaper. The capital costs for one of its 100 megawatt factories is $40 million: that's low compared to many other options. Glass-less panels also cut transportation costs.

When and if Solexant has enough capacity to produce 300 megawatts or more worth of modules a year, production costs could drop to 50 cents a watt, he said.

First Solar has shown that costs can be wrung out of manufacturing processes at a steady clip. It also says demand outstrips current supply for its products and that it will expand to 2.7 gigawatts by 2012. Business is good. But it does appear that the cadmium telluride industry could be entering a difficult era. Crystalline manufacturers and CIGS makers both seem to have headroom when it comes to their respective technologies. Cadmium telluride mostly will have to look down -- and there are only so many molecules you can skim out of the system.