New Berkeley Lab Report Shows that the Installed Cost of Solar Photovoltaic Systems in the U.S. Began a Steep Decline in 2010

Environmental Energy Technologies Division researchers at the Department of Energy's Lawrence Berkeley National Laboratory (Berkeley Lab) have released a new study on the installed costs of solar photovoltaic (PV) power systems in the U.S., showing that the average cost of these systems remained largely unchanged from 2008 to 2009, before beginning a steep decline in 2010.

The number of solar PV systems in the U.S. has been growing at a rapid rate in recent years, as governments at the national, state, and local levels have offered various incentives to expand the solar market. With this growth comes a greater need to track and understand trends in the installed cost of PV.

"A goal of government incentive programs and other policy support mechanisms is to stimulate demand for PV, and thereby drive down the cost of PV systems. One purpose of this study is to provide reliable information about the historical costs of installed systems in the United States," says report co-author Ryan Wiser of Berkeley Lab's Environmental Energy Technologies Division.

According to the report, the decline in PV installed costs seen by customer-owners of such systems in 2010 follows a significant drop in the wholesale cost for PV modules in 2009. As report co-author Galen Barbose explains, "Based on our data, average installed costs held steady at $7.50/W from 2008 to 2009, even though wholesale module prices dropped substantially over this period. However, that drop in module prices appears to have made its way to customers in 2010." Modules typically represent about half the installed cost of a PV system.

The report presents partial year data for systems installed in 2010 from the largest PV incentive programs in the country. In the California Solar Initiative Program, average installed costs dropped by $1.00/W between 2009 and the first ten months of 2010, and in New Jersey, costs dropped by $1.20/W between 2009 and the first six months of 2010.

"This reduction in installed costs marks an important departure from the trend of the preceding four years, during which costs seen by customer-owners of PV systems remained relatively flat as rapidly expanding U.S. and global PV markets put upward pressure on both module prices and non-module costs. This dynamic has now shifted, as expanded manufacturing capacity in the solar industry, in combination with the global financial crisis, led to a decline in wholesale module prices," says Naïm Darghouth, another report co-author.

Although the recent decline in PV installed costs appears to be primarily associated with reductions in module prices, the longer term trend towards lower installed costs is also the result of a decline in non-module costs, such as the cost of labor, marketing, overhead, inverters, and the balance of systems. According to the report, average non-module costs in the U.S. declined by $1.40/W from 1998 to 2009, while module costs declined by $2.50/W over the period from 1998 to 2007.

The study — the third in an ongoing series that tracks the installed cost of PV in the U.S. — examined 78,000 grid-connected PV systems installed between 1998 and 2009 in 16 states. It found that average installed costs, in 2009 dollars, declined by 30% from $10.80 per watt (W) in 1998 to $7.50/W in 2009, equivalent to an average annual reduction of $0.30/W, or 3.2 percent per year in real dollars. Focusing on two of the largest solar markets, California and New Jersey, costs in the first six to ten months of 2010 already dropped an additional 14% and 16%, respectively, relative to 2009.

Costs Differ by Region and Type of System

Differences in average costs by region and by installation type also emerged from the study. Additionally, installed costs show significant economies of scale — small PV systems completed in 2009 that were less than 2 kilowatts (kW) in size averaged $9.90/W, while large systems greater than 1,000 kW averaged $7.00/W.

Installed costs were also found to vary widely among states. Among those PV systems completed in 2009 and less than 10 kW in size, average costs ranged from a low of $7.10/W in Texas to a high of $9.60/W in Minnesota. Based on these data, and on installed cost data from the sizable German and Japanese PV markets, the authors suggest that PV costs can be driven lower through large-scale deployment programs, but that other issues are also important determinants to achieving cost reductions.

The study found that the new construction market offers cost advantages for residential PV systems. Among small residential PV systems in California completed in 2009, those systems installed on new homes cost $1.60/W less than comparably-sized systems installed in rooftop retrofit applications.

Cash Incentives Declined

The study also found that the average size of direct cash incentives provided by state and local PV incentive programs declined over the 1998-2009 study period. Other sources of incentives, however, such as federal investment tax credits (ITCs) and the Treasury Grant Program, have become more significant. For commercial PV systems, the average combined after-tax value of federal and state ITCs, plus direct cash incentives provided by state and local incentive programs, was $3.90/W in 2009, down slightly from its peak in 2006 but still a near-record-high. Total after-tax incentives for residential systems rose by more than a third to $3.90/W in 2009 due to the elimination of the $2,000 cap on the Federal ITC for residential systems that had previously been in place.

The increase in total after-tax incentives for residential PV from 2008 to 2009 resulted in a significant decrease in the net installed cost — that is, the installed cost facing a customer after receipt of financial incentives. On average, the net installed cost for residential PV was $4.10/W in 2009, down by roughly 24 percent from 2008 levels. In contrast, average net installed costs for commercial PV remained virtually unchanged from 2008 to 2009, at approximately $4.00/W.

The research was supported by funding from the U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy (Solar Energy Technologies Program) and by the Clean Energy States Alliance, a national nonprofit coalition of leading state clean energy programs that work together to advance renewable energy project deployment in their states and across the country.