Tracking The Sun, The Installed Cost Of Photovoltaics In The U.S. From 1998 to 2007
Berkeley National Lab, Feb 2007
Executive Summary (Notes: Bold type emphasis is my own, and all figures are in U.S. dollars)
As installations of grid-connected solar photovoltaic (PV) systems have grown, so too has the desire
to track the installed cost of these systems over time, by system characteristics, by system location,
and by component. This report helps to fill this need by summarizing trends in the installed cost of
grid-connected PV systems in the United States from 1998 through 2007.1 The report is based on
an analysis of installed cost data from nearly 37,000 residential and non-residential PV systems,
totaling 363 MW of capacity, and representing 76% of all grid-connected PV capacity installed in
the U.S. through 2007.
Key findings of the analysis are as follows:2
Among all PV systems in the dataset, average installed costs in terms of real 2007 dollars
per installed watt (DC-STC) and prior to receipt of any direct financial incentives or tax
credits declined from $10.5/W in 1998 to $7.6/W in 2007. This equates to an average
annual reduction of $0.3/W, or 3.5%/yr in real dollars.
The overall decline in installed costs over time is primarily attributable to a reduction in
non-module costs, calculated as the total installed cost of each system minus a global annual
average module price index. From 1998-2007, average non-module costs fell from $5.7/W
to $3.6/W, representing 73% of the average decline in total installed costs over this period.
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.
Average installed costs have declined since 1998 for systems <100 kW, with systems <5 kW
exhibiting the largest absolute reduction, from $11.8/W in 1998 to $8.3/W in 2007. Cost
reductions for systems >100 kW are less apparent, although the paucity of data for earlier
years in the study period may limit the significance of this finding.
The distribution of installed costs within a given system size range has narrowed
significantly since 1998, with high-cost outliers becoming increasingly infrequent, indicative
of a maturing market.
Both the decline in average costs and the narrowing of cost distributions halted in 2005, with
average costs and cost distributions remaining essentially unchanged from 2005-2007.
PV installed costs exhibit significant economies of scale, with systems <2 kW completed in
2006 or 2007 averaging $9.0/W and systems >750 kW averaging $6.8/W (i.e., about 25%
less than the smallest systems).
Average installed costs vary widely across states; among systems <10 kW completed in
2006 or 2007, average costs range from a low of $7.6/W in Arizona (followed by California
and New Jersey, which had average installed costs of $8.1/W and $8.4/W, respectively) to a
high of $10.6/W in Maryland.
International experience suggests that greater near-term cost reductions may be possible in
the U.S. The average cost of residential PV installations in 2007 (excluding sales/value
added tax) in both Japan ($5.9/W) and Germany ($6.6/W) was significantly below that in
the United States ($7.9/W). Variations in average installed cost across states, as well as
comparisons with Japan and Germany, suggest that markets with large PV deployment
programs often tend to have lower average installed costs for residential PV.
The new construction market offers cost advantages for residential PV; among 1-3 kW
systems funded by Californias Emerging Renewable Program and completed in 2006 or
2007, PV systems installed in residential new construction cost $0.6/W less than
comparably-sized residential retrofit systems (or $0.8/W less if focused exclusively on rackmounted
systems).
Somewhat surprisingly, among systems <10 kW and installed in 2006 or 2007, those with
thin-film modules were found to cost $0.5/W more, on average, than those employing
crystalline modules. Among larger systems completed in 2006 or 2007, average installed
costs did not differ substantially between crystalline and thin-film systems.
The limited component-level cost data that are available (for systems <100 kW only)
indicate that, on average, module costs represent just over 50% of total installed costs, while
inverter costs represent just under 10%. Smaller residential systems are faced with higher
overhead, regulatory compliance, and other costs (on a $/W basis) than are larger systems.
State and utility cash incentives for PV declined significantly, on average, from 2002
through 2007 across all system size categories. Among systems <5 kW, for example, pretax
incentives declined from 2002-2007 by an average of $1.9/W (from $4.3/W to $2.4/W).
As a result of the increase in the Federal investment tax credit (ITC) for commercial systems
in 2006, however, total after-tax incentives for commercial PV (i.e., state/utility cash
incentives plus state and Federal ITCs, but excluding revenue from renewable energy
certificate sales and the value of accelerated depreciation) were $4.0/W in 2007, an all-time
high. Total after-tax incentives for residential systems, on the other hand, averaged $3.1/W
in 2007, their lowest level since 2001. These trends may partially explain the shift towards
the commercial sector within the U.S. PV market over this period. Starting in 2009,
however, residential PV is likely to receive some gain in overall incentive levels with the
lifting of the dollar cap on the Federal residential ITC.
Due to the overall decline in total after-tax incentives for residential PV from 2001-2007, the
net installed cost of residential PV (installed cost minus state/utility cash incentives and tax
credits) averaged $5.1/W in 2007, just 1% less than in 2001. The net installed cost of
commercial PV, however, averaged $3.8/W in 2007, a near-record low and 32% below
average net installed costs in 2001.
Financial incentives and net installed costs diverge widely across states. Among residential
PV systems completed in 2007, the combined after-tax incentive ranged from $2.5/W in
Maryland to $5.7/W in Pennsylvania. These two states also represent the bookends in terms
of net installed costs for residential PV, which averaged $3.2/W in Pennsylvania and $7.7/W
in Maryland. Incentives and net installed costs for commercial systems varied similarly
across states.
Although average installed costs remained flat from 2005-2007, recent developments
portend a potentially dramatic shift over the next few years in the customer-economics of
PV. Most industry experts anticipate an over-supply of PV modules in 2009, putting
downward pressure on module prices, and presumably on total installed costs as well. In
addition, the lifting of the cap on the Federal ITC for residential PV, also beginning in 2009,
will further reduce net installed costs for residential installations, potentially leading to some
degree of renewed emphasis on the residential market in the years ahead.
1 Although the report is intended to portray national trends, with 12 states represented within the dataset, the overall
sample is heavily skewed towards systems in California and New Jersey, where the vast majority of PV systems in the
U.S. have been installed.
2 Unless otherwise noted, the results reflect all system types (e.g., rack-mounted, building-integrated, tracking, nontracking,
crystalline, non-crystalline, etc.).
My own Executive Summary Notes:
The smallest systems (<2 kW) exhibit the highest average installed costs ($9.0/W), while the largest systems (>750 kW) have the lowest average cost ($6.8/W, or about 25% below the average cost of the smallest systems). Interestingly, the economies of scale do not appear to be continuous with system size, but rather, most strongly accompany increases in system size up to 5 kW, and increases in system size in the 100-750 kW range. In contrast, the data do not show evidence of significant economies of scale within the 5-100 kW size range.
Full study here.
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