THE EVER BETTER COST OF SUN

Cost of solar panels drops – but tax breaks dip too
Tiffany Hsu, October 20, 2009 (LA Times)

SUMMARY
First observation at Solar Power International 2009 in Anaheim and mixing informally with the pros who are building sun: The solar industry is determined to get the word out that there has never been a better time to install solar.

[Tracking the Sun II] from the Lawrence Berkeley National Laboratory (LBNL) verifies the industry’s message. According to study authors Ryan Wiser, Galen Barbose, Carla Peterman and Naim Dargouth, the average cost of solar photovoltaic power systems in the U.S. fell over 30% between 1998 and 2008 and 4% from 2007 to 2008. A simultaneous drop in total after-tax incentives in the 2007 to 2008 period may mean out-of-pocket expenses were probably slightly higher in 2008 but new federal incentives that kicked in at the start of 2009 makes today’s rooftop solar systems for homes and businesses the best bargains they have ever been.

The report is a thoroughly researched and documented survey of the installed cost of grid-connected photovoltaic (PV) systems in the U.S. from 1998, updating the 2007 report to cover 2008. Aiming to track the installed cost of solar PV systems over time and by location, customer type, system characteristics, and components, this report gathered data from 52,000+ residential and non-residential PV systems representing 566 megawatts of solar energy generating capacity in 16 states, which is ~71% of U.S. grid-connected PV.

The average cost of installation was $10.80 per watt in 1998 and fell to $7.50 per watt in 2008, a 3.6% per year drop.

Thanks to an oversupply of raw materials, excess solar panel inventory on warehouse shelves and the new federal tax incentives, prices fell even more precipitously in 2009.

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COMMENTARY
There is one word that best fits the solar energy industry’s recent years: Growth.

In the impressive growth year of 2007, the world installed 2,826 megawatts of PV. It then went out and installed 5,948 megawatts in 2008!

The U.S. was third in the world in 2008 installations (after Spain and Germany), with an estimated investment of $2.1 billion in 335 installed megawatts. 293 megawatts were grid-connected, 88% of the market.

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Growth like that demands careful tracking The LBNL team’s report shows it is up to the task. Using 2008 dollars and Standard Test Conditions (STC) ratings for system capacities, the paper provides enough data to get statisticians aroused. The authors stipulate some lag between available data and current market conditions, but that will just keep the statisticians courting until the 2009 update.

Though there is data from 16 states, most data came from California and New Jersey, the 2 leading PV-building states. The report includes all types of PV installations, including rack-mounted, building-integrated, tracking, non-tracking, crystalline and thin-film.

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Key findings:
1-2007 installed cost was $7.80 per watt and 2008 installed cost dropped to $7.50 per watt, a 3.8% drop, which is just about the 10-year average (3.6%) price drop.

2-Installed cost went up slightly (40 cents per watt) in California in 2009 because the California Solar Initiative state rebate fell as installations rose. Installed cost in New Jersey, the second most active solar installing state, went down 20 cents per watt with its still improving state rebates.

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3-The overall drop of PV’s installed cost from 2007 to 2008 was primarily attributable to falling solar module cost whereas before 2007 price declines were attributable to lower costs for inverters, other system electronics, hardware, labor, and overhead.

4-Costs fell most for systems ≤5 kW and the least significant cost drop was for systems systems ≤100 kW.

5- Indicative of a maturing market, the distribution of system prices in the post-2005 period was not as broad as it was between 1998 and 2005.

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6-The pattern of falling installed costs reflects increasing economies of scale. Systems ≤2 kW completed in 2008 averaged $9.20 per watt but 500-to-750 kW systems averaged $6.50 per watt, a ~30% better price for the purchase of the larger volume of watts. This is a vital improvement and bodes well for the long-dreamed-of attainment of grid parity through economies of scale.

7-Along the same lines, 2008 module costs for systems >100 kW were 70 cents per watt less than for systems ≤10 kW but non-module costs differed by less than 10 cents per watt.

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8-Based on the fact that average 2008 installed system costs in Japan ($6.90 per watt) and Germany ($6.10 per watt) are significantly less than the U.S. cost ($7.90 per watt), U.S. prices have room to fall farther. (And are falling, as the oversupply that was already evident in Japanese and German markets is being felt here.)

9-Variations in cost between states reinforce the idea that economies of scale are driving prices down and will continue to do so. 2008 ≤10 kW systems in Arizona were $7.30 per watt, $8.20 per watt in California and $9.90 per watt in Pennsylvania and Ohio, where there is much less PV deployment.

10- Residential systems are less expensive than comparable commercial systems (60 cents per watt less for 5-10 kW sizes and 30 cents per watt less for 10-100 kW sizes.

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11-New residential construction costs for standard 1-to-3 kW systems are lower (80 cents per watt) than retrofit residential costs.

12-Building-integrated PV systems were 90 cents per watt more in 2008 than rack-mounted systems.

13-Thin film systems, though small in number in the data, were $1.50 per watt less expensive than standard crystalline silicon systems in the 10-100 kW size and 60 cents per watt less for >100 kW sizes.

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14-Tracking capacity added 50 cents per watt to the cost of 10-100 kW systems over fixed-axis systems.

15-State and utility incentive programs rebated from $2.10-to-$2.40 per watt, depending on system size, a ~50% decline from the 2002 peak. (Incentive programs are designed to decrease with increasing volumes so this falling rebate level is inevitable and actually good news.)

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16- The 2008 average AFTER TAX value of state and utility incentives AND state and
Federal ITCs (excluding renewable energy certificate sales and accelerated depreciation) was $2.80 per watt for residential PV, the lowest level since before 1998. It was 30 cents per watt less than in 2007. For commercial PV, the total value was $4 per watt, not as much of a fall but still 20 cents per watt less than 2007. These trends indicate that where the incentives are most abundant, installation volumes are growing and the states that provide the incentives are cutting them back. The dramatic change in the 2009 ITC is expected to completely change these trends.

17-The 2008 average NET INSTALLED COST (installed cost minus after-tax incentives) was $5.40 per watt for residential PV and $4.20 per watt for commercial
PV. Both numbers were up slightly from 2007, 1% and 5%, because the fall in incentives was faster than the fall in costs. This will almost certainly be reversed in 2009 due to the new ITC.

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18-Incentives and costs range widely from state to state. The 2008 combined after-tax incentive in California was $2.50 per watt and $5.10 per watt in New York. The 2008 cost in New York was $3.50 per watt and $6.90 per watt in Vermont.

Bottom line, based on the LBNL report: (a) Growth is accelerating, (b) policies are working, (c) economies of scale are emerging and (d) GRID PARITY is coming.

Bottom line from the first day of Solar Power International 2009: It’s time to buy sun; tell a friend.

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QUOTES
- From the report’s conclusion: “The number of photovoltaic systems installed in the U.S. has been growing at a rapid pace in recent years, driven in large measure by government incentives. Given the relatively high historical cost of PV, a key goal of these policies has been to encourage cost reductions over time. Out of this goal arises the need for reliable information on the historical installed cost of PV…”

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- From the report’s conclusion: “…[T]he installed cost of customer-sited PV systems has declined substantially since 1998, though both the pace and the source of those cost reductions have varied over time. Prior to 2005, installed cost reductions were associated primarily with a decline in nonmodule costs. Starting in 2005, however, cost reductions began to stall, as the supply-chain and delivery infrastructure struggled to keep pace with rapidly expanding demand. In 2008, installed costs resumed their downward trajectory, as module prices began to fall in response to expanded manufacturing capacity and the global financial crisis. Preliminary evidence and industry expectations suggest that module price will continue to fall through 2009.”

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- From the report’s conclusion: “…[D]eclining installed costs, along with the narrowing of cost distributions, suggests that 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 PV delivery infrastructure. Moreover, the fact that states with the largest PV markets also appear to have somewhat lower average costs than most states with smaller markets lends some credence to the premise that state and utility PV deployment policies can affect local costs. Yet, even lower average installed costs in Japan and Germany suggest that deeper near-term cost reductions may be possible. Indeed, further cost reductions will be necessary if the PV industry is to continue its expansion in the customer-sited market, given the desire of PV incentive programs to
ratchet down the level of financial support offered to PV installations.”