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Installed Cost of Photovoltaic Systems Continues to Drop in the U.S.


Every year, the Lawrence Berkeley National Laboratory (Berkeley Lab) publishes “Tracking the Sun,” a report that follows the cost of installed photovoltaic power systems. This report is now in its sixth edition. The latest report from the Department of Energy’s Berkeley Lab shows decisive reductions in installed costs in 2012, as well as for the first half of 2013.

Specifically, 2012 installed PV system costs declined approximately 6-14% percent compared to the previous year. Costs are still highly dependent upon the size of the system, so the costs fall across quite a range — from $0.30/W to $0.90/W.

Cost reductions continue to occur year after year. “This marks the third year in a row of significant price reductions for PV systems in the U.S.,” observes Galen Barbose, one of the report’s co-authors. In the first half of 2013, installed PV system costs in California have been reduced another 10-15%. Therefore, the report suggests that reduced system costs are likely to maintain the established pace throughout the remainder of 2013.

Installed system costs have declined largely because of reductions in module costs. The report estimates that about 80% of system cost reductions in recent years are the result of module cost reductions. Meanwhile, other costs, like those for inverters, system design, installation labor, permits and inspections, and customer acquisition have remained fairly constant in recent years. The result is that non-module costs are now a sizable portion of the overall costs of installed systems.

This phenomena has now garnered the attention of both policymakers and those in the industry. The other co-author of the Berkeley report, Ryan Wiser, writes: “There simply are limits to how much further module prices can fall, and so it stands to reason that continued reductions in PV system prices will need to come primarily from the soft cost side.”

The issue of non-module costs is highlighted by comparing the U.S. market with the markets in Germany, Italy, and Australia. In these countries, the non-module costs are approximately 40% lower than they are in the United States. Therefore, so-called “soft” costs and the costs of inverters and hardware will have to come down in the U.S. for further significant reductions in PV system costs.

Berkeley’s Naim Darghouth expresses confidence that the United States can respond in this area when he states “These international experiences suggest that deep near-term reductions in soft costs are attainable in the United States.” Darghouth further suggests that the solar energy markets in countries like Germany and Italy have grown and matured faster than in the U.S., and that the natural growth of the American market should help to generate these near-term cuts.

To some degree, decreased system costs have been masked by declining incentives in the U.S. market. Incentives offered by states and utilities have declined precipitously over the past decade, according to the report. During that period, incentives declined approximately 85%. From 2011 to 2012 alone, median cash incentives fell from $0.40/W to $0.60/W.

The report reasons that states and utilities are reducing incentives in part to promote further price reductions by the industry. The notable emergence of solar renewable energy certificate (SREC) markets in some states has also led to reduced incentives from the traditional sources.

The report from the Berkeley Lab highlights how much installed system costs have declined in the past few years. However, it cautions that module costs have contributed as much as 80% of those reductions. The report suggests that future cost decreases will have to come from non-module costs, including inverter costs and so-called “soft” costs in areas like labor, system design, and customer acquisition. Given the fact that non-module costs are as much as 40-percent lower in some other countries, the possibility for near-term deep cuts in the cost of U.S. systems still remains.

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