TODAY’S STUDY: SOLAR THIS YEAR

Tracking the Sun VIII: The Installed Price of Residential and Non-Residential Photovoltaic Systems in the United States

Galen Barbosde and Naim Darghouth, August 2015 (Lawrence Berkeley National Laboratory)

Executive Summary

Now in its eighth edition, Lawrence Berkeley National Laboratory (LBNL)’s Tracking the Sun report series is dedicated to summarizing trends in the installed price of grid-connected solar photovoltaic (PV) systems in the United States. The present report focuses on residential and nonresidential systems installed through year-end 2014, with preliminary trends for the first half of 2015. As noted in the text box below, this year’s report incorporates a number of important changes and enhancements. Among those -changes, this year's report focuses solely on residential and nonresidential PV systems; data on utility-scale PV are reported in LBNL’s companion Utility-Scale Solar report series.

Installed pricing trends presented within this report derive primarily from project-level data reported to state agencies and utilities that administer PV incentive programs, solar renewable energy credit (SREC) registration systems, or interconnection processes. In total, data were collected for roughly 400,000 individual PV systems, representing 81% of all U.S. residential and non-residential PV capacity installed through 2014 and 62% of capacity installed in 2014, though a smaller subset of this data were used in analysis.

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Important to note is that the data analyzed within this report:

• Represent the up-front price paid by the PV system owner, prior to receipt of incentives

• Are self-reported data provided by PV installers to program administrators • Differ from the underlying cost borne by the developer and installer

• Are historical and therefore may not be indicative of prices for systems installed more recently or prices currently being quoted for prospective projects

• Exclude third-party owned (TPO) systems for which reported installed prices represent appraised values, but include TPO systems for which reported prices represent the sale price between an installation contractor and customer finance provider (see Text Box 2 within the main body of the report for further details)

Key findings from this year’s report are as follows, with all numerical results denoted in real 2014 dollars and DC watts:

Installed Prices Continued their Rapid Descent through 2014 and into 2015. National median installed prices in 2014 declined year-over-year by $0.4/W (9%) for residential systems, by $0.4/W (10%) for non-residential systems ≤500 kW, and by $0.7/W (21%) for non-residential systems >500 kW. Preliminary data for the first half of 2015 indicate that installed price declines have persisted into 2015 and are on pace to match those witnessed in recent years.

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Recent Installed Price Reductions Have Been Driven Primarily by Declines in Soft Costs. Installed price reductions over the 2008 to 2012 period were a steep drop in global prices for PV modules. Since then, however, module prices have generally flattened, while installed prices have continued to fall as a result of a steady decline in non-module costs. From 2013 to 2014 specifically, residential non-module costs fell by $0.4/W, representing virtually the entire year-over-year decline in total installed prices. Recent non-module cost declines can be partly attributed to reductions in inverter and racking equipment costs, but are primarily associated with reductions in PV soft costs, which include such items as marketing and customer acquisition, system design, installation labor, permitting and inspection costs, and installer margins. Soft cost reductions are partly due to steady increases in system size and module efficiency, though likely also reflect a broad and sustained emphasis within the industry and among policymakers on addressing soft costs.

Installed Price Declines Have Been Partially Offset by Falling Incentives. Cash incentives (i.e., rebates and performance-based incentives) provided through state and utility PV incentive programs have fallen substantially since their peak a decade ago. Depending on the particular program, reductions in cash incentives over the long-term equate to roughly 70% to 120% of the corresponding drop in installed prices. This trend is partly a response to installed price declines and the emergence of other forms of incentives, but it has also been a deliberate strategy by program administrators to provide a long-term signal to the industry to reduce costs, and is likely among the many drivers for recent declines in solar soft costs.

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National Median Installed Prices Are Relatively High Compared to Other Recent Benchmarks, Particularly for Residential and Smaller Non-Residential Systems. Across all systems in the data sample installed in 2014, the median installed price was $4.3/W for residential systems, $3.9/W for non-residential systems ≤500 kW in size, and $2.8/W for non-residential systems >500 kW. By comparison, a number of other recent benchmarks for PV system prices or costs range from $2.8/W to $4.5/W for residential systems, and from $1.7/W to $4.1/W for non-residential systems. Differences between national median prices and these other benchmarks reflect the diversity of underlying data sources, methodologies, and definitions. For example, national median prices are historical in nature, represent prices not costs, are heavily impacted by several large and relatively high-priced state markets, and in some instances may be subject to inconsistent reporting practices across installers. These national median prices presented in this report thus should not necessarily be taken as indicative of “typical” pricing in all contexts, and should not be considered equivalent to the underlying costs faced by installers.

Installed Prices in the United States Are Higher than in Most Other Major National PV Markets. Compared to median U.S. prices, installed prices reported for residential systems and nonresidential systems ≤500 kW in size are substantially lower in a number of other key solar markets – most notably Germany, China, and Australia. These pricing disparities are primarily attributable to differences in soft costs.

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Installed Prices Vary Widely Across Individual Projects. Although installed price distributions have generally narrowed over time, considerable pricing variability continues to persist. For example, among residential systems installed in 2014, roughly 20% of systems were priced below $3.5/W (the 20th percentile value), while 20% were priced above $5.3/W (80th percentile). Nonresidential systems ≤500 kW exhibit a similar spread, while the distribution for non-residential systems >500 kW is somewhat narrower. The potential underlying causes for this variability are numerous, including differences in project characteristics, installer characteristics, and local market or regulatory conditions.

Economies of Scale Occur Among Both Residential and Non-Residential Systems. For residential systems installed in 2014, median prices for systems in the 8-10 kW range are roughly 15% lower than for smaller 2-4 kW systems. Among non-residential systems installed in 2014, median installed prices for the largest class of systems >1,000 kW in size were 36% lower than for the smallest set of non-residential systems ≤10 kW. Even greater economies of scale may arise when progressing to utility-scale systems, which are outside the scope of this report.

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Installed Prices Differ Among States, with Relatively High Prices in Some Large State Markets. For residential systems installed in 2014, median installed prices range from a low of $3.4/W in Delaware and Texas to a high of $4.8/W in New York. Some of the largest state markets – California, Massachusetts, and New York – are relatively high-priced, which tends to pull overall U.S. median prices upward; pricing in most states is below the aggregate national median price. Cross-state installed pricing differences can reflect a wide assortment of factors, including installer competition and experience, retail rates and incentive levels, project characteristics particular to each region, labor costs, sales tax, and permitting and administrative processes.

Installed Prices Reported for Third-Party Owned Systems Are Generally Similar to Those for Customer-Owned Systems. This report does not evaluate lease terms or power purchase agreement (PPA) rates for TPO systems; however, it does include data on the dollar-per-watt installed price of TPO systems that are sold by installation contractors to non-integrated customer finance providers. Although prices for these TPO systems are not perfectly comparable to purchase prices paid for customer-owned systems, median prices for the two classes of systems are, in fact, quite similar, at least when comparing nationally. Within individual states, however, median prices for TPO and customer-owned systems can differ, in some cases substantially.

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Prices Vary Considerably Across Residential Installers Operating within the Same State. In examining four large residential markets (Arizona, California, Massachusetts, and New Jersey), installer-level median prices within each state differ by anywhere from $1.1/W to $1.4/W between the upper and lower 20th percentiles, suggesting a substantial level of heterogeneity in pricing behavior or underlying costs. Low-priced installers in these states – e.g., 20% of installers in Arizona have median prices below $3.0/W – can serve as a benchmark for what may be achievable in terms of near-term installed price reductions within the broader market. Interestingly, however, no obvious or consistent relationship is observed between installer volume and prices – i.e., highvolume installers are not associated with lower-priced systems.

Residential New Construction Offers Significant Installed Price Advantages Compared to Retrofit Applications. Within California, systems installed in residential new construction have been consistently lower-priced than those installed on existing homes, with a median differential of $0.7/W in 2014, despite the significantly smaller size and higher incidence of premium efficiency modules among new construction systems. If comparing among systems of similar size and module technology, the installed price of new construction systems was $1.4/W lower than for retrofits.

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Installed Prices Are Higher for Systems at Tax-Exempt Customer Sites than at For-Profit Commercial Sites. Tax-exempt site hosts include schools, government facilities, religious organizations, and non-profits, and these customers collectively represent a substantial share of the non-residential data sample. Systems at tax-exempt customer sites are consistently higher priced than similarly sized systems at for-profit commercial customer sites. In 2014, the median differential was roughly $0.3/W for systems ≤500 kW and $0.6/W for >500 kW systems. Higher prices at tax-exempt customer sites reflect potentially lower negotiating power and higher incidence of prevailing wage/union labor requirements, domestically manufactured components, and shade or parking structures.

Installed Prices Are Substantially Higher for Systems with High-Efficiency Modules. Roughly one-quarter of the 2014 systems in the data sample have module efficiencies greater than 18%, and installed prices for systems in this class have consistently been higher-priced than those with loweror mid-range module efficiencies (<18%). In 2014, the median differential was roughly $0.8/W within both the residential and ≤500 kW non-residential segments. These trends suggest that the price premium for high-efficiency modules in many cases has outweighed any offsetting reduction balance-of-system (BOS) costs associated with a smaller array footprint.

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Microinverters Have a Seemingly Small Effect on Installed Prices. Microinverters have made significant gains in market share in recent years, representing more than 35% of residential systems and roughly 20% of smaller (sub-500 kW) non-residential systems in the data sample installed in 2014. Microinverter costs are higher than standard string inverters, though the data suggest that the net impact on total system prices is smaller, potentially as a result of offsetting reductions in noninverter BOS and soft costs.

Installed Prices for Large Non-Residential Systems Vary with the Use of Tracking Equipment. Many of the large non-residential systems in the data sample have tracking equipment, including roughly 20% of systems installed in 2014. The median installed price of those systems was $0.4/W (15%) higher than fixed-tilt, ground-mounted systems and $0.5/W (19%) higher than roof-mounted projects. Although these pricing differentials are based on a relatively small underlying data sample, they are generally of a similar magnitude to the increased electricity generation associated with single-axis tracking equipment.

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