Installed Cost of Solar Photovoltaic Systems Declines



Berkeley, CA – Dec. 16, 2010 —
Researchers at the Department of Energy’s Lawrence Berkeley National Laboratory
(Berkeley Lab) 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
,” says report co-author Ryan Wiser of
Berkeley Lab’s

Environmental Energy Technologies


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


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
, 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

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 report “Tracking the Sun III:
The Installed Cost of Photovoltaics in the United States
from 1998–2009,” by Galen Barbose, Naïm Darghouth, and Ryan Wiser, may be
downloaded from
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.


Berkeley Lab is a U.S. Department
of Energy national laboratory located in Berkeley, California. It conducts unclassified
scientific research and is managed by the University of California. Visit our website at

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