TODAY’S STUDY: SOLAR PV IN 2012

Tracking the Sun V; An Historical Summary of the Installed Price of Photovoltaics in the United States from 1998 to 2011

Galen Barbose, Naïm Darghouth, Ryan Wiser, November 2012 (Lawrence Berkeley National Laboratory)

Executive Summary

As the deployment of grid-connected solar photovoltaic (PV) systems has increased, so too has the desire to track the installed price of these systems over time and by location, customer type, and system characteristics. This report helps to fill this need by summarizing trends in the installed price of grid-connected PV systems in the United States from 1998 through 2011, with preliminary data for 2012. The analysis is based on project-level data for more than 150,000 individual residential, commercial, and utility-scale PV systems, totaling more than 3,000 megawatts (MW) and representing 76% of all grid-connected PV capacity installed in the United States through 2011.

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It is essential to note at the outset the limitations inherent in the data presented within this report. First, the installed price data are historical, focusing primarily on projects installed through the end of 2011, and therefore do not reflect the price of projects installed more recently (with the exception of the limited set of results presented for systems installed in the first half of 2012); nor are the data presented here representative of prices currently being quoted for prospective projects to be installed at a later date. For this reason and others (see Text Box 1 within the main body), the results presented in this report likely differ from current PV price benchmarks. Second, this report focuses on the up-front price paid by the PV system owner; as such, it does not capture trends associated with PV performance or other factors that affect the levelized cost of electricity for PV. Third, the underlying data collected for this report include third party owned projects where either the system is leased to the site-host or the generation output is sold to the site-host under a power purchase agreement. In some cases, installed prices reported for third party owned systems may be based on an appraised value, rather than on a purchase price paid to an installer. To the extent possible, projects for which reported prices were deemed likely to represent an appraised value were removed from the sample, whereas other third-party-owned systems were retained in the data sample (see Section 2 and Appendix A for further details). Nevertheless, some residual number of appraised-value systems may remain in the data sample, though any bias introduced by these projects is unlikely to have skewed the installed price trends presented here.

The report describes installed price trends for residential and commercial PV systems, and another set of trends for utility-scale PV. In all cases, installed prices are identified in terms of real 2011 dollars per installed watt (DC-STC), prior to receipt of any direct financial incentives or tax credits.

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Key findings for residential and commercial PV are as follows:

• Installed prices continued their precipitous decline in 2011. Among projects installed over the course of 2011, the median installed price was $6.1/W for systems ≤10 kW in size, $5.6/W for systems 10-100 kW, and $4.9/W for systems >100 kW. This represent a year-over- year decline of $0.7/W (11%) for systems ≤10 kW, $0.9/W (14%) for systems 10-100 kW, and $0.8/W (14%) for systems >100 kW.

• Partial data for the first six months of 2012 indicate that installed prices have continued to fall, with the median installed price of projects funded through the California Solar Initiative declining by an additional $0.2/W to $0.4/W during the first half of 2012, depending on the system size range, amounting to a 3-7% drop relative to systems installed in 2011.

• The recent decline in installed system prices is largely attributable to falling module prices, which fell by $2.1/W from 2008 through 2011 (based on Navigant Consulting’s Global Power Module Price Index), and have fallen further still in 2012, with spot prices falling by roughly $0.3/W from January to September 2012. Movements in global module prices, however, do not necessarily translate into an immediate, commensurate change in the price paid by the system owner; in some cases, system prices may lag changes in module prices.

• Over the long-term, installed system prices have fallen also as a result of reductions in non-module costs (which may include such items as inverters, mounting hardware, labor, permitting and fees, customer acquisition, overhead, taxes, and installer profit). From 1998-2011, non-module costs declined by approximately $2.0/W (30%), constituting more than one-third of the reduction in total installed system prices over that period.

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• Although this report focuses on describing trends in median installed prices, the distribution of installed prices across projects is quite wide. For example, among ≤10 kW systems installed in 2011, roughly 15% of systems had an installed price less than $5.0/W, while a similar percentage was priced above $8.0/W. The price distribution has narrowed somewhat over time, though no discernible narrowing has occurred in recent years.

• Third party owned systems were screened out of the data sample in cases where reported installed prices were deemed likely to represent appraised values; the median installed price reported for these systems was significantly higher than for host customer owned systems (e.g., $8.0/W vs. $6.2/W, among ≤10 kW systems completed in 2011). In contrast, installed prices reported for other third party owned systems that were retained in the sample were similar to those reported for host customer owned systems.

• Installed prices exhibit significant economies of scale, with a median installed price of $7.7/W for systems ≤2 kW completed in 2011, compared to $4.5/W for commercial systems >1,000 kW. The installed price of utility-scale systems is even lower, as discussed further below. To a limited extent, these economies of scale help to explain the long-term decline in median installed prices, as typical PV system sizes have grown over time.

• Installed prices vary widely across states. Among ≤10 kW systems completed in 2011, for example, median installed prices range from a low of $4.9/W in New Hampshire to a high of $7.6/W in Washington D.C., potentially reflecting a number of differences in state and local factors (e.g., market size, permitting requirements, the competitiveness of the installer market, labor rates, sales tax exemptions, and incentive levels).

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• International experience suggests that greater near-term price reductions in the United States are possible, as the median installed price of small residential PV installations in 2011 (excluding sales/value-added tax) was just $3.2/W in Germany, $4.0/W in Australia, $4.5/W in Italy, and $5.4/W in France, compared to $6.0/W in the United States.

• Installed prices for systems installed at tax-exempt customer sites are moderately higher than for similarly sized systems at residential and for-profit commercial customer sites. Among 2011 systems, for example, the median price of tax-exempt systems was $0.2/W to $0.5/W higher than residential and commercial systems, depending on the system size range.

• Among systems ≤10 kW, installed prices have generally been somewhat higher for building integrated PV (BIPV) than for rack-mounted systems, with a median price differential of $0.3/W to $0.9/W in each year from 2007-2010 (though median prices were nearly identical for systems installed in 2011).

• The installed price of small residential PV has historically been lower in new construction than in retrofit applications. Over the 2007-2009 period, the median installed price of 2-3 kW systems installed in new construction was $0.3/W to $0.5/W less than comparably sized residential retrofit systems, depending on the year (or $0.8/W to $1.2/W less if comparing only rack-mounted systems). The same trends did not persist in 2010 and 2011, which may potentially be an artifact of the slowdown in the residential housing market.

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• Installed prices have generally been higher for ground-mounted systems than for similarly sized rooftop systems, and higher for systems with tracking than for fixed-tilt systems. For example, among ≤10 kW systems installed in 2011, the median installed price was $8.0/W for ground-mounted systems with tracking, $6.3/W for fixed-tilt ground-mounted systems, and $5.9/W for rooftop systems.

• Reductions in cash incentives and falling solar renewable energy certificate prices have offset recent installed price reductions to a large extent. Among systems installed in 2011, the median pre-tax value of cash incentives provided by state and utility PV incentive programs ranged from $0.9/W to $1.2/W, depending on systems size, representing a 21% to 43% drop from 2010 and a roughly 80% decline relative to the historical peak in 2002.

This report separately summarizes installed price data for utility-scale PV projects, defined for the purposes of this report to include all ground-mounted projects larger than 2 MW. Several additional limitations are worth noting with respect to the utility-scale PV project data. First, the sample size is small (80 projects in total, including 49 projects installed in 2011), and includes a number of relatively small projects (i.e., 2-10 MW) and projects with “atypical” characteristics that have installed prices that are likely higher than for many of the larger utility-scale PV projects currently under development. Second, the installed price of any individual utility-scale project may reflect component pricing one or even two years prior to project completion, and therefore the reported prices of the utility-scale projects within the data sample may not fully capture the steep decline in module prices that occurred over the study period.

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With these important caveats in mind, key findings for utility-scale PV are as follows:

• The installed price of utility-scale systems varies significantly across projects. Among the 49 projects in the data sample completed in 2011, for example, installed prices ranged from $2.4/W to $6.3/W, reflecting the wide variation in project size (from 2 MW to 35 MW), differences in system configurations (e.g., fixed-tilt vs. tracking and thin-film vs. crystalline modules), and the unique characteristics of individual projects.

• Discerning a time trend for the installed price of utility-scale PV is challenging, given the small and diverse sample of projects. As a rough measure, the capacity-weighted average installed price declined from $6.2/W for projects installed during 2004-2008, to $3.9/W for projects installed during 2009-2010, and to $3.4/W for projects installed in 2011.

• Larger utility-scale systems have lower installed prices. In particular, among projects installed in 2011, the installed price of projects larger than 10 MW generally ranged from $2.8/W to $3.5/W, whereas projects smaller than 10 MW span a broader range, with most priced between $3.5/W and $5.0/W.

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• Installed price trends according to system configuration are less evident. Among <10 MW utility-scale projects installed in 2011, systems using thin-film modules are relatively low priced, compared to crystalline systems with and without tracking. Among projects >10 MW, however, no clear differences in installed prices are observable either between crystalline and thin-film systems or between systems with and without tracking.

• Within the class of systems 2-10 MW in size, utility-scale systems (ground-mounted, by definition) generally have slightly lower installed prices than similarly sized commercial rooftop systems. Although median installed prices are similar between these two groups, the distribution is skewed lower for utility-scale systems, with one-third priced from $2.9/W to $3.5/W, whereas the lowest-priced third of the large commercial roof-mounted systems range from $3.6/W to $3.8/W.

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Conclusions and Policy Implications

The number of PV systems installed in the United States has grown 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. Efforts to drive cost reductions have also been led by the U.S. DOE’s SunShot Initiative, which aims to reduce the cost of PV-generated electricity by about 75% between 2010 and 2020.

Available evidence confirms that the installed price of PV systems (i.e., the up-front cost borne by the PV system owner) has declined substantially since 1998, though both the pace and source of those cost reductions have varied over time. Prior to 2005, installed price reductions were associated primarily with a decline in non-module costs. Starting in 2005, however, installed price reductions began to stall, as the supply-chain and delivery infrastructure struggled to keep pace with rapidly expanding global demand. Starting in 2008, global module prices began a steep downward trajectory, driving installed price reductions of 25-35% among residential and commercial installations by 2011.

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Non-module costs, in contrast, have remained relatively stagnant since 2005. Trends in non-module costs may be particularly relevant in gauging the impact of state and utility PV deployment programs. Unlike module prices, which are primarily established through global markets, non-module costs consist of a variety of cost components that may be more readily affected by local programs – including deployment programs aimed at increasing demand (and thereby increasing competition and efficiency among installers) as well as more-targeted efforts, such as training and education programs. Historical non-module costs reductions from 1998-2005 suggest that PV deployment policies have, in the past, succeeded in spurring cost reductions; however, the fact that non-module costs have remained largely unchanged since 2005 highlights the potential need to identify new and innovative mechanisms to foster greater efficiency and competition within the delivery infrastructure.

Preliminary data for California systems installed in the first half of 2012 indicate that installed prices have continued to decline. Notwithstanding this success, further price reductions will be necessary if the U.S. PV industry is to continue its expansion, given the expectation that PV incentive programs will also continue to ratchet down financial support. Lower installed prices in Germany and other major international markets suggest that deeper near-term cost reductions in United States are, in fact, possible and may accompany increased market scale. It is also evident, however, that market size alone is insufficient to fully capture potential near-term cost reductions, as suggested by the fact that many of the U.S. states with the lowest installed prices have relatively small PV markets. Targeted policies aimed at specific cost barriers (for example, permitting and interconnection costs), in concert with basic and applied research and development, may therefore be required in order to sustain the pace of installed price reductions on a long-term basis.

Finally, installed prices vary substantially across system sizes, market segments, technology types, and applications. Policymakers may wish to evaluate whether differential levels of financial support are therefore warranted (e.g., to avoid over-subsidizing more cost-competitive installations while providing sufficient support for promising but less mature technologies and applications).

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