A new study on the installed costs of solar photovoltaic (PV) power systems in the U.S. shows that the average cost of these systems declined significantly from 1998 to 2007, but remained relatively flat during the last two years of this period. Researchers at the Department of Energy's Lawrence Berkeley National Laboratory said the overall decline in the installed cost of solar PV systems is mostly the result of decreases in non-module costs, such as the cost of labor, marketing, overhead, inverters and 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,” according to the paper, by Ryan Wiser, Galen Barbose, and Carla Peterman of Berkeley Lab’s Environmental Energy Technologies Division.

The study examined 37,000 grid-connected PV systems installed between 1998 and 2007 in 12 states. It found that average installed costs, in terms of real 2007 dollars per installed watt, declined from US $10.50/watt (W) in 1998 to $7.60/W in 2007. This is equivalent to an average annual reduction of $0.30/W, or 3.5 percent per year in real dollars.

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 kilowatts (kW) in size averaged $9.00/W, while systems larger than 750 kW averaged $6.80/W.

Installed costs were also found to vary widely across states. Among systems completed in 2006 or 2007 and less than 10 kW, average costs range from a low of $7.60/W in Arizona, followed by California and New Jersey, which had average installed costs of $8.10/W and $8.40/W, respectively, to a high of $10.60/W in Maryland. Based on these 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 in California completed in 2006 or 2007, those systems installed in residential new construction cost $0.60/W less than comparably-sized systems installed in 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 investment 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, a near-record high based on the data analyzed in the report.  Total after-tax incentives for residential systems, on the other hand, averaged $3.1/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—it was $3.90/W in 2007, compared to $5.90/W in 2001, a reduction of 32%, thanks in large part to the federal ITC.

“Solar will be big when it is cheap. This report demonstrates that local market development plays a key role in bringing solar costs down,” said Adam Browning, executive director of Vote Solar. “Competitive markets make for quality installers and service providers, which then lead to lower costs and more demand for solar: a virtuous circle.”

The report Tracking the Sun: The Installed Cost of Photovoltaics in the U.S. from 1998–2007 can be downloaded by clicking here.