Markets for customer-sited photovoltaic (PV) systems are expanding rapidly, albeit from a small base. Government incentives aimed at encouraging reductions in the cost of PV over time are the principal drivers for the recent worldwide growth in grid-connected PV capacity. This report provides an in-depth statistical analysis of PV system costs in California. Through mid-November 2005, a total of 130 MWAC of grid-connected solar capacity was installed throughout California,i making that state the dominant market for PV in the United States, though it still stands a distant third on a worldwide basis behind Germany and Japan. The results presented here are based on an analysis of 18,942 grid-connected PV systems totaling 254 MWAC, either installed, approved for installation, or waitlisted (approved but awaiting program funding) under what are currently the two largest PV programs in the state. This analysis provides insights on California's PV market by exploring cost trends, and by untangling the various factors that affect the cost of PV systems. Results also have important policy ramifications, as they address the interaction between incentive levels and installed costs, and the relative cost of different PV applications.