Cost of installed solar photovoltaic systems drops significantly

A study titled ‘Tracking the Sun: The Installed Cost of Photovoltaics in the US from 1998–2007’, prepared by the US Department of Energy's Lawrence Berkeley National Laboratory, shows the average cost of solar photovoltaic (PV) power systems declined significantly from 1998 to 2007.

Ryan Wiser, co-author of the report and researcher at Berkeley Lab, says that the overall decline in the installed cost of solar PV systems is mostly the result of decreases in non-module costs, such as labour, marketing, overhead, inverters and the balance of systems: “This suggests that state and local PV deployment programs — which likely have a greater impact on non-module costs than on module prices — have been at least somewhat successful in spurring cost reductions.

“Installations of solar PV systems have grown at a rapid rate and governments have offered various incentives to expand the solar market, a goal of which is to help drive the cost of PV systems lower. One purpose of this study is to provide reliable information about the costs of installed systems over time.”

The study examined 37,000 grid-connected PV systems installed between 1998 and 2007. It found that average installed costs, in terms of real 2007 dollars per installed-watt, declined from $10.50/W in 1998 to $7.60 in 2007, equivalent to an average annual reduction of $0.30/W or 3.5% per year in real dollars.

Researchers found that the reduction in non-module costs was responsible for most of the overall decline in costs. According to the report, this trend, along with a reduction in the number of higher-cost ‘outlier’ installations, suggests that state and local PV-deployment policies have achieved some success in fostering competition within the industry and in spurring improvements in the cost structure and efficiency of the delivery infrastructure for solar power.

Other information about differences in costs by installation type emerged from the study. The cost reduction over time was largest for smaller PV systems, such as those used to power individual households. Also, installed costs show significant economies of scale. Systems completed in 2006 or 2007 that were less than 2 kW in size averaged $9.00/W, while systems larger than 750 kW averaged $6.80/W.

Based on the data and on installed-cost data from the sizable Japanese and German PV markets, the authors suggest that PV costs can be driven lower through sizable deployment programs.

The study also found that the new construction market offers cost advantages for residential PV systems. Among small residential PV systems completed in 2006 or 2007, those systems installed in residential new construction cost $0.60/W less than comparably sized systems installed as retrofit applications.

The study also found that direct cash incentives provided by state and local PV incentive programs declined over the 1998–2007 study period. Other sources of incentives, however, have become more significant, including federal incentive tax credits (ITCs). As a result of the increase in the federal ITC for commercial systems in 2006, total after-tax incentives for commercial PV were $3.90/W in 2007, an all-time high based on the data analysed in the report. Total after-tax incentives for residential systems, on the other hand, averaged $3.10/W in 2007, their lowest level since 2001.

Because incentives for residential PV systems declined over this period, the net installed cost of residential PV has remained relatively flat since 2001. At the same time, the net installed cost of commercial PV has dropped — $3.90/W in 2007, compared to $5.90 in 2001, a drop of 32%, thanks in large part to the federal ITC.