The Federal Government has announced a $1.86 million grant to help Melbourne’s Semitech Semiconductor develop technology to reduce the cost of photovoltaic systems, making them more affordable and practical for homes and businesses.

Federal Minister for Industry and Innovation, Greg Combet, announced the grant that will help the company develop an innovative, single-chip micro-inverter designed to help solar power become more competitive and reliable for the smaller market.

The grant is part of the Federal Government's $200 million Clean Technology Innovation Program, funded by revenue from the carbon price.

A micro-inverter converts direct current electricity to alternating current which in turn can be fed into an existing electrical grid. This new technology will increase the power generated by solar power systems by up to 10 per cent without the increased costs usually associated with micro-inverters.

Micro-inverters solve the problem of shade on one solar panel dramatically reducing the effectiveness of the entire array - but they can be up to 35 per cent more expensive than conventional central inverters.

Semitech Semiconductor's technology eliminates the need for peripherals such as additional processing chips, a modem or a separate controller. It is an integrated circuit that contains the resources to perform the functions of a micro-inverter and smart grid communication.

"The global clean energy market is growing rapidly and it is important that Australian innovations are commercialised so we can export our expertise to major markets including China and the United States," said Mr Combet.