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Residential, Commercial, and Utility-Scale Photovoltaic (PV) System Prices in the United States: Current Drivers and Cost-Reduction Opportunities

Alan Goodrich, Ted James, and Michael Woodhouse, February 2012 (National Renewable Energy Laboratory)

Executive Summary

The price of photovoltaic (PV) systems in the United States (i.e., the cost to the system owner) has dropped precipitously in recent years, led by substantial reductions in global PV module prices. However, system cost reductions are not necessarily realized or realized in a timely manner by many customers. Many reasons exist for the apparent disconnects between installation costs, component prices, and system prices; most notable is the impact of Fair Market Value considerations on system prices. To guide policy and research and development strategy decisions, it is necessary to develop a granular perspective on the factors that underlie PV system prices and to eliminate subjective pricing parameters. This report’s analysis of the overnight capital costs (cash purchase) paid for PV systems attempts to establish an objective methodology that most closely approximates the book value of PV system assets.

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The analysis shows the following benchmark 2010 U.S. PV system prices (cash purchase, before subsidy and considering reported target installer operating overhead and profit margins):1

• $5.71/WP DC – 5 kWP DC residential rooftop

• $4.59/WP DC – 217 kWP DC commercial rooftop

• $3.80/WP DC – 187.5 MWP DC fixed-axis utility-scale ground mount

• $4.40/WP DC – 187.5 MWP DC one-axis utility-scale ground mount.

Significant variation (standard deviations of 5%–8%) exists in these estimates due to regional and site-specific cost factors. Most notable is the impact that the wide range of U.S. labor rates and installer productivity (experience) factors can have on installation costs. This uncertainty analysis excluded the impact of system size, which can also play a significant role in determining installed system prices.

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Although the cost structure of PV systems designed for use in each market segment are very different, module price and performance remains a significant opportunity for future cost reductions across all PV sectors. In addition to the expected evolutionary cost reductions at the module level (price and efficiency enhancement), advanced installation methods, such as unitized construction techniques, are expected to provide considerable installation labor and materials-related cost benefits by 2020. As the U.S. market matures, competition among installers, as well as improved supply chain and regulatory costs, will likely contribute to significant cost reductions by 2020. This dynamic has been observed in the German PV market. The analysis shows the following 2020 evolutionary PV system price estimates, which are compared with the price targets for 2020 set under the U.S. Department of Energy’s SunShot Initiative:

• $2.29/WP DC – 5 kWP DC residential rooftop (SunShot target: $1.50/WP DC)

• $1.99/WP DC – 217 kWP DC commercial rooftop (SunShot target: $1.25/WP DC)

• $1.71/ WP DC – 187.5 MWP DC fixed-axis utility-scale ground mount (SunShot target: $1.00/WP DC)

• $1.91/ WP DC – 187.5 MWP DC one-axis utility-scale ground mount (modified-SunShot target: $1.20/WP DC).

As these results show, the evolutionary estimates of U.S. PV system prices fall short of the 2020 SunShot targets. This highlights the challenges that remain before solar energy can compete with incumbent electricity technologies without subsidy.

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Introduction

Unlike traditional energy-production technologies that have ongoing consumables costs, nearly all of the costs for photovoltaic (PV) systems must be paid at the beginning. Reducing those initial capital costs is crucial to reducing the cost of solar electricity. In addition to module price, many factors contribute to the price of a PV system, including installation labor, power electronics, permitting and other regulatory costs, and—in the case of ground-mount systems—site acquisition and preparation costs.

Under its SunShot Initiative, the U.S. Department of Energy (DOE) has established very aggressive system price targets for each of the three major PV market sectors: residential rooftop, commercial rooftop, and utility-scale ground mount. Achieving these targets will require total system cost reductions of approximately 75% by 2020. Industry stakeholders must understand the ever-changing PV system cost structure. As module prices continue to fall, the contribution of non-module costs to the cost of solar energy will increase. There are also critical relationships between system components, such as the relationship between module conversion efficiency and non-module area-related costs and the relationship between module configuration and installation methods. Research and development (R&D) managers, policymakers, system installers, and component manufacturers must understand the current cost of PV systems in adequate detail to allocate effectively the resources needed for further cost reductions and to design effective market policies. The resolution into PV system price drivers that is required for these decisions is difficult to attain from surveys of system prices, or by retrospective means. Results deviate based on regional, installer, and job-specific details, making accurate price comparisons between systems very difficult, unless conducted from the bottom up.

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This report presents detailed, bottom-up 2010 benchmark system prices for residential and commercial rooftop systems and utility-scale ground-mount systems. These results are intended to depict the installed price2 for U.S. PV systems in the second half of 2010, i.e., the unsubsidized cost (cash purchase) of the system from the owner’s perspective. For each system type, the major cost drivers are identified, and the sensitivities to key assumptions (e.g., module efficiency, system scale) are presented.

Following the benchmark system price analysis, this report presents results of a bottom-up analysis of potential PV system price reductions through 2020, assuming an evolutionary path of technological and market improvement. These projections are compared with the 2020 system price targets established under the SunShot Initiative. The difference between the evolutionary projections and SunShot targets highlights the need for innovative system designs and installation methods to complement module-level cost reductions.

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Conclusion: PV Price Reductions—the Road Ahead

Because of the rapid U.S. PV system cost reductions resulting from global module price declines, market price data have become insufficient for providing policy makers and industry stakeholders with an accurate and current understanding of system-price drivers. A time-lag effect and the dynamics of a nascent industry disconnect reported system prices from underlying system costs. This report shows an objective methodology for approximating the underlying costs of PV systems with the resolution necessary for understanding system price drivers. Comparing these objective values with market price data provides valuable insights into the U.S. PV market’s inefficiencies, which may be useful for developing policies and practices that address these inefficiencies. Understanding the forces driving PV system price reductions—and their limitations—is also important.

The price of U.S. PV systems has fallen by nearly 30% since the second half of 2010, and further near-term price reductions are likely as the U.S. market matures. Most PV system components are based on commodities that have global prices. Thus, installation costs are largely responsible for the disparities in PV system prices among different countries and regions. The diffusion of installation knowledge and expertise throughout the U.S. market, increased local competition, and consolidation of U.S. installation companies should reduce these disparities substantially. Based on evidence from the more mature German PV market, factors such as improved installer productivity, reduced installer overhead and profit (due to competition), lower supply chain costs, and lower regulatory costs could reduce 2011 U.S. benchmark PV system prices by an additional 40%.

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The tight polysilicon supply and high prices during 2007–2008 may also help reduce PV system prices in the near term. Polysilicon is the feedstock for the dominant c-Si PV technology. The recent price spike caused new entrants to build polysilicon production facilities, many of which are now coming online. The resulting overcapacity of polysilicon—along with weakening European demand for c-Si modules—has driven polysilicon contract prices down by more than half compared with contract prices in 2008. In addition, the 2007–2008 polysilicon shortage encouraged larger-scale production of thin film alternatives to c-Si PV, which also has contributed to lower global PV module prices. At the same time, the larger polysilicon production base has reduced the likelihood of another polysilicon shortage/price imbalance as severe as the one in 2007–2008.

The abovementioned factors likely will contribute to lower U.S. PV system prices in the coming years. This report provides detailed roadmaps to evolutionary c-Si PV system price reductions and performance improvements, including substantial reductions in module and non-module costs. By 2020, these roadmaps would enable U.S. PV systems to approach—but not meet—DOE’s SunShot Initiative price targets. To accelerate PV price reduction toward meeting these aggressive targets, revolutionary improvements to module and non-module system components and installation methods are needed.

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