Cost of Solar Dips to All-Time Low in US

Solar installation costs are projected to fall even further in 2010, study finds.

A complex mix of market forces and policy incentives contributed to a historic low for the average cost of installing solar panels in the U.S. in 2009, according to a new study. But perhaps the most important finding of the study is that decreases in the cost of solar module production, which traditionally lag behind a few years before they are passed on to the consumer, are contributing to a “significant decline in average installed costs” for 2010.

“This trend, along with the narrowing of cost distributions, suggests that PV deployment policies in the U.S. have achieved some success in fostering competition and spurring efficiencies in the delivery infrastructure,” the report’s authors at Lawrence Berkeley National Laboratory write.”Tracking the Sun III: The Installed Cost of Photovoltaics in the U.S. from 1998-2009″ (pdf) examined cost data for approximately 78,000 residential and non-residential PV systems installed in the U.S. through 2009 (70 percent of U.S. grid-connected PV capacity) and found that the average cost for a residential PV installation after incentives was $4.10 per watt, a figure 24 percent below the 2008 average.

For commercial PV systems, the cost remained relatively flat as compared to the year before, coming in a bit lower at $4.00 per watt.

Because of sharp differences in state-level incentives, net installation costs varied widely. In Texas, thanks to relatively generous incentives, lower installation and other non-module costs, average solar installations cost $2.40 per watt, the nation’s lowest. On the other end of the spectrum was Minnesota where solar panels cost $5.50 per watt to install after incentives.

It should also be noted that while net installation figures include state and federal tax incentives, they do not include additional incentives available to some customers like state and utility cash rebates or the sale of renewable energy credits (RECs), both of which can lower final costs even more.

Most of the 2009 decreases in cost were a direct result of the lifting of the dollar cap on the federal investment tax credit for residential PV installations.

From 2008 to 2009, average pre-incentive installed costs remained flat at $7.50 per watt. And while comparing pre-incentive costs from year-to-year may be a better way to gauge the health of the industry and the effectiveness of policies aimed at lowering the cost of solar, important implications can be obscured by doing so. For example, the report suggests drops in wholesale solar module costs lag two to three years before they reach the consumer. The authors explain:

Starting in 2008 and continuing into 2010, wholesale module prices began a steep downward trajectory, in response to expanded manufacturing capacity and the global financial crisis. These reductions in module prices, however, did not translate into a noticeable reduction in average installed costs for PV systems in 2009, perhaps reflecting a natural lag between the time that PV system installation contracts are signed and when systems are installed.”

Overall, the report suggests the cost of installing solar PV in the U.S. has hardly bottomed out, especially if the solar industry can continue to scale up as it did in Germany and Japan, where installed costs are much lower. In Germany the average solar PV installation cost is $4.70 per watt and in Japan it is $5.90 per watt. But the major factor contributing to the scaling up of the German solar industry was a policy called a feed-in tariff which guarantees a premium rate for anyone putting renewable energy on the grid — a policy that hasn’t really been embraced in the U.S. and possibly never will be.

Article by Timothy B. Hurst, appearing courtesy Earth & Industry.

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