February 20, 2009
Long Term Solar Price Decline Trend Seen

Most of the decline in photovoltaic installation costs came from declines in nonmodule (i.e. non-solar cell) costs.

Berkeley, CA — A new study on the installed costs of solar photovoltaic (PV) power systems in the U.S. shows that the average cost of these systems declined significantly from 1998 to 2007, but remained relatively flat during the last two years of this period.

Researchers at the Department of Energy’s Lawrence Berkeley National Laboratory (Berkeley Lab) who conducted the study say that the overall decline in the installed cost of solar PV systems is mostly the result of decreases in nonmodule costs, such as the cost of labor, marketing, overhead, inverters, and the balance of systems.

The flat costs in 2006 and 2007 might be because of large government subsidies that drove up module costs.

The decline averaged 3.5% per year. I expect the 2009 decline to be much larger due to the contracting economy.

The study examined 37,000 grid-connected PV systems installed between 1998 and 2007 in 12 states. It found that average installed costs, in terms of real 2007 dollars per installed watt, declined from $10.50 per watt in 1998 to $7.60 per watt in 2007, equivalent to an average annual reduction of 30 cents per watt or 3.5 percent per year in real dollars.

The researchers found that the reduction in nonmodule costs was responsible for most of the overall decline in costs. According to the report, this trend, along with a reduction in the number of higher-cost “outlier” installations, suggests that state and local PV-deployment policies have achieved some success in fostering competition within the industry and in spurring improvements in the cost structure and efficiency of the delivery infrastructure for solar power.

The full 42 page report is downloadable as a PDF. The report says that total installed costs are lower in Japan and Germany. Germany has bigger government incentives for installations that probably created economies of scale in installation. Japan is cheapest with only 3/4ths US cost. Both module and non-module costs flattened in the 2005-2007 period.

These cost reductions, however, have not occurred steadily over time. From 1998-2005, average costs declined at a relatively rapid pace, with average annual reductions of $0.4/W, or 4.8% per year in real dollars. From 2005 through 2007, however, installed costs remained essentially flat. During this period, U.S. and global PV markets expanded significantly, creating shortages in the supply of silicon for PV module production and putting upward pressure on PV module prices. As documented in the next section, however, silicon shortages are not the sole cause for the cessation of price declines during 2005-2007, as average non-module costs also remained relatively flat over this period.

Non-module costs are almost half of total costs. So when we read about declines in PV module costs keep in mind even if module costs went to zero the total cost for residential solar PV would remain pretty high.

As shown, capacity-weighted average costs declined from $10.5/W in 1998 to $7.6/W in 2007, equivalent to an average annual reduction of $0.3/W, or 3.5%/yr in real dollars.

Using this method, the decline in total average PV installed costs since 1998 appears to be primarily attributable to a drop in non-module costs, which fell from approximately $5.7/W in 1998 to $3.6/W in 2007, a reduction of $2.1/W (or 73% of the $2.9/W drop in total installed costs of this period). In comparison, module index prices dropped by only $0.8/W from 1998-2007, and increased somewhat from 2003-2007.13 As with the trend in total installed costs, however, average non-module costs remained relatively stable from 2005-2007.

The overall 3.5% yearly decline rate means progress has been slow. Will it continue to be slow. Or will we reach a critical mass where price declines become much more rapid?

Share |      Randall Parker, 2009 February 20 12:08 AM  Energy Solar

David Govett said at February 20, 2009 1:03 AM:

And yet, solar never is cost competitive, despite endless price drops and efficiency improvements.

Joe said at February 20, 2009 8:18 AM:

Solar is cost competitive, just for very small markets. Currently in the free market as opposed to subsidized market, Those mobile electric road signs are solar powered, they could be powered with a small generator, but apparently solar is better. Remote location are a common users of solar power, it is true that currently solar is mainly cost competitive against expensive infrastructure or bureaucratic costs, I've seen bus stops lighted with solar right next to a power pole. but the market is real, 20 years ago these uses didn't exist. Eventually we will see say Tucson using a lot of solar power, when that happens it still won't make sense in Seattle. Not that that will keep Seattle politicians from pushing for it in the name of being green.

Nick G said at February 20, 2009 10:59 AM:

"large government subsidies that drove up module costs"

A better way of saying it is that "subsidies that drove up module prices".

Like most industries, installation and BOS costs are in many cases are based on a markup of the wholesale price of the underlying product, the panels. When the panel prices are high, margins are under little competitive pressure. When they fall, that makes it much harder to maintain pricing on the rest of the package.

Nevertheless, at some point we'll have to really focus on reducing installation and BOS costs.

Randall Parker said at February 20, 2009 5:59 PM:

David Govett,

Solar started at such a high price point that at this slow rate of price decline it takes a long time. But 3.5% year after year really adds up over a couple of decades.

Module prices are going to drop much faster this year. I wonder if installation costs will drop as fast. Probably not.

Nick G,

The big cost cut for installation will come when solar panels replace roof shingles. Then the incremental installation cost will get paid out of the existing cost of just putting on a roof. That'll still leave accessory electronics costs for converting DC into something useful.

Engineer-Poet said at February 20, 2009 7:29 PM:

There are already solar panels made with peel-and-stick adhesive backings for application to raised-seam metal roofing.  It's not much of a stretch to consider ordering pre-cut roofing with the panels pre-installed; the incremental cost could fall very low.

th said at February 21, 2009 6:38 AM:

When will the $25/megawh subsidy end?

K said at February 21, 2009 9:58 AM:

Not quite on topic, but there are promising developments in combining concentrators and PV units. IMO the combination will have to be much cheaper than a cell for a given area. Much, much, cheaper. And it will help if it is lighter in weight too.

The heat from concentrating must be shed somehow. Perhaps it could be used as ST to supplement the PV. Which leads to wondering if such concentrators won't help ST more than PV for utility scale installations.

Obviously new developments and the obvious applications are not obvious as all costs become understood.

Press information at: http://www.morgansolar.com/fulldescription.php

IMO they dismiss the heat and durability problems very casually. But hey! This is business.

th said at February 21, 2009 3:41 PM:

This is about as disgusting as it gets. This flake and his little comrades are getting at least 1.7 billion from the lefty loon's slop for the carbon dork's. The website for namaste says it sells panels made by Sunpower, Kyocera, and Sharp, no doubt stimulus money is going to the chinese who make this garbage. I think we can now say the alternative energy industry is no longer subsidized, it's now a permanent welfare fixture.

"Now, "Namasté" is a greeting of respect in Sanskrit. Now, the company Namasté will most likely benefit from all the president's energy incentives that are stuffed into this plan. This 2-year-old company needs all the money it can get. It can barely keep its 55 workers onboard.

But it's not just the company's financial distress that's got people thinking. It's these collective in-house rules of this solar company that are making people wonder why the president decided to associate himself with it.

So to start, all Namasté employees, no matter what their job description, are on the same pay scale, and a portion of everyone's salary goes to charity. Hmm. All major decisions are made by a consensus of all the company employees -- all 55. And everyone gets six weeks vacation a year." It's no wonder the company is struggling and needs financial assistance. But for many of us taxpayers, it seems odd.

Nick G said at February 21, 2009 6:22 PM:

"The big cost cut for installation will come when solar panels replace roof shingles. "

That certainly makes sense, but solar shingles exist now, and for some reason they're quite pricey - I'm not sure why.

That would be most true of new construction (after builders perfect the integration), as residential retrofits require a lot of custom work: evaluation of site, angle, and insolation and custom design, sizing, and wiring (including controls and inverter). Installation of wiring is going to be somewhat involved in most multi-story buildings, involving significant pulling of cable, with every installation requiring solving new problems. We only have 500K units/year of residential new construction lately, which would only get us about 2GW per year. Even at more normal construction rates, new residential isn't enough.

Industrial/commercial flat roofs are really the best place for retrofits: you tend to have unobstructed insolation (low-rise I/C districts, and few trees), flat roofs, much simpler wiring (conduit and cable chases designed for easy access and additional wiring) and much larger installations, which give you economy of scale. It's a nice fit with chains, like Walmart, that have access to a lot of buildings of similar design.

Tyson Champagne said at February 22, 2009 9:56 AM:

Hopefully there will soon be a "tipping point" when solar can take advantage of economy of scale (cost per unit falling as output rises). Also, with the subsidies given to the infrastructure necessary for other energy sources like nuclear, solar and other alternative energy sources seem like a better investment.

Lee Valentine said at February 22, 2009 7:40 PM:

The quoted cost per installed watt of capacity is a disingenuous at best.
That number is per peak watt, assuming direct noonday sun. The energy yield
integrated over a day is somewhere between one fourth and one eighth of the quoted number.
The reasons are lower performance because of the day night cycle, clouds, and the varying angle of the sun
during daylight hours.

As soon as the corrected, true, number is used, solar photovoltaic is at $30 to $80 per watt of installed capacity.

To yield baseload power, the solar option requires storage. Storage options basically double the cost.
Therefore, the total cost of the solar option for baseload power is on the order of $50.00 per watt at best.
The installed cost of a nuclear power station is between $1.50 and $5.00 per watt.
Prices must decline at 3.5% per year for eighty to one hundred years to make solar economically competitive
with nuclear, even at the higher quoted cost for nuclear. Nuclear costs appear to be declining, too.

My company uses solar to power computers and data acquisition at a remote test site, not because it is cheap,
but because running power lines an extra couple of miles is really expensive.

Randall Parker said at February 23, 2009 10:49 AM:

Lee Valentine,

$1.50 per watt for nuclear would be $1.5 billion for a 1 GW nuclear power plant. Show me one that cheap that has been built recently. The costs have been over $5 per watt.

Adam said at July 31, 2010 1:54 PM:

I think there is quitea bit to be said about both, the subsidies temporarily driving up module prices,and at the same time partially allowing homeowners to get into a solar system, so net net, it may very well have been a wash, right?

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