U.S. Cost of Installed PV Continues Its Decade-Long Downward Trajectory

published: 2011-10-25 10:21 | editor: | category: Analysis

According to a study released by the U.S. Department of Energy's Lawrence Berkeley National Laboratory ---“Tracking the Sun IV: The Installed Cost of Photovoltaics in the U.S. from 1998-2010,” the installed cost of solar-powered plants in the U.S. continue to decline. The study covered 42 states and examined over 116,500 residential, commercial, and utility-scale photovoltaic systems.

The solar power plants, installed between 1998 and 2010, represent 79 percent of systems installed through 2010. The electricity-generation capacity of the units exceeds 1.68 gigawatts.

Berkeley Lab U.S. Department of Energy's Lawrence Berkeley National Laboratory state, an average solar power system fully installed drop 17 percent on a year to-year basis. This decrease represents the largest year-to-year percentage drop over the entire evaluation period.

Between 1998 and 2010, the solar power systems costs declined at a 4.6 percent annual rate. The figures include both residential and commercial systems. Furthermore, the decline was due to two components: lower prices for solar panels and a reduction in balance of system or non-module costs.

When Berkeley Lab conducted a similar assessment several years ago, researchers analyzed 37,000 grid-tied solar systems installed from 1998 to 2007. They calculated real cost of system declined an average of 3.5 percent a year. However, researchers attribute the price reduction mostly to non-module costs.

Researchers attributed this outcome to the success states had in promoting competition to reduce costs and improve the overall efficiency of solar system infrastructures.

Modules Oversupply

Co-author of the report, Galen Barbose, states the continuous drop in the wholesale cost of solar panels, and subsequent “upstream cost reductions,” have matriculated to end users. According to the report, the wholesale cost for solar panels dropped from $4.9/W (watt) in 1998, to $2.4/W in 2010.

This equates to a total decline of 52 percent over the period. From 2008 to 2010, modules prices dropped 37 percent or another $1.40 per watt. The market dynamics at play have become familiar to most industry watchers. Well-financed Chinese solar module manufacturers have been flooding the U.S. and other markets with low-cost panels. This factor continues to exert downward pressure on solar panel pricing intoQ2 2011.

The study revealed systems with mono, or multi-crystalline, panels had lower average installed costs than thin-film panels for plants 100 kilowatts or less. However, power plants “within the 100 kW range” have similar installed costs, regardless of the type of module installed.

Non-Module Costs

Balance-of-system costs consist of inverters, hardware, permitting, shipping, labor, taxes, and overhead. These costs have also declined between 2009 and 2010 played a significant part in the downward track of installed solar power systems.

Another report co-author Ryan Wister categorized the decline in non-module cost as critical because these costs respond the most to government polices, which promote rapid “deployment “ of technology and removal of “market barriers.” Wister states R&D has the primary objective of pushing modules prices lower.

The report outlines the fact that it's difficult to establish the “actual non-module costs as paid by PV system owners,” and the “short-term movement” of balance-of-systems costs because of the lag.

Nonetheless, over the long-term, the numbers show consumers have benefited from price reductions. The figures show a sizable drop in cost from 1998 to 2010 -- $6.1/W to about $3.8/W.

 Incentives

The U.S. Department of Energy has the stated mission of driving down the cost of installed solar power systems. Although the U.S. does not have a comprehensive national policy for solar energy development, a combination of policies and incentive programs offered by utility companies, state, and federal entities supports the industry.

Photovoltaic incentives programs include Investment Tax Credit (ITC) schemes offered by states and the federal government. The U.S. Department also provides grants, instead of the ITC, which provide developers with cash faster.

Solar system end users did not fare as well in the study when it comes to cash incentives. According to the report, the average incentive level for residential and commercial installations in 2010 was 35% and 46%, respectively. Cash incentives depend on a solar power plant's energy generation capacity, a portion of the actual installed cost, or estimated yearly energy production.

The average direct cash incentive for installing PV systems has steadily declined since 2002. Gross installed cost reductions before incentives were $1.00 (USD) per watt for residential units, and $1.50 (USD) for commercial systems, at the end of 2010. After applying incentives, cost only dropped to $0.40/W for residential units. Commercial systems installed cost fell to $0.80/W.

In 2006, the federal government increased the ITC, from 10 to 30 percent, but capped residential solar cost at $2,000. Congress lifted the cap in 2008. The ITC has been instrumental in driving the net installed costs to “historic lows” for residential and commercial solar power plants, in 2010.

Net installed cost need to continue its decline to make up for the reduction in incentive programs offered by utility providers and federal and state governments.

Utility-Scale Installed Costs

The Berkeley study examines sample of 20 utility-scale projects completed in 2010. Balance-of-system costs fell 18 percent from 2009 to 2010, according to the Berkeley study. The development range in costs from $2.9/W to $7.4/W. Some factors that account for the variation includes the size of the plant -- one megawatt to more than 34 MW. Fixed- systems versus tracking and so on.

For systems with more than 5,000 kilowatts, installed cost varied from $2.90/W to $6.20/W. The “prototypical” utility-scale solar system plant installed cost range from $3.80/W to $4.40/W for photovoltaic power plants.

The small sample size, and variations in system size, makes it difficult to extrapolate much information from the limited data.

Conclusion

The decade-long decline in cost of installed photovoltaic systems shows no signs of subsiding. Data for the first half of 2011, from a variety of sources, indicates prices continue in a downward spiral. This trend bodes well for the future growth of the U.S. solar market because incentive programs may have a difficult time making it through Washington's budget battles.

Germany, which has the lowest installed costs, has proven the figures can go even lower. The report authors believe carefully formulated policies, and continued investment in research and development, will drive cost reductions over the long-term.

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