The installed cost of solar photovoltaic (PV) power systems in the United States fell substantially in 2010 and into the first half of 2011, the latest edition of an annual report released by the U.S. Department of Energy’s Lawrence Berkeley National Laboratory (Berkeley Lab) reveals.

The study—the fourth in Berkeley Lab’s “Tracking the Sun” series—examines more than 115,000 residential, commercial, and utility-sector PV systems in 42 states installed between 1998 and 2010, representing roughly 78 percent of all grid-connected PV capacity in the United States.

The average installed cost of residential and commercial PV systems completed in 2010 fell by roughly 17 percent from the year before and by an additional 11 percent through the first six months of 2011. Those reductions are attributable in part to dramatic reductions in the price of PV modules, Galen Barbose, of Berkeley Lab’s Environmental Energy Technologies Division and co-author of the report, explained.

“Wholesale PV-module prices have fallen precipitously since about 2008, and those upstream cost reductions have made their way through to consumers,” Barbose said.

The report indicates that non-module costs—such as installation labor, marketing, overhead, inverters, and the balance of systems—also have fallen.

“The drop in non-module costs is especially important, as those are the costs that can be most readily influenced by solar policies aimed at accelerating deployment and removing market barriers, as opposed to research-and-development programs that are also aimed at reducing module costs,” report co-author and Berkeley Lab scientist Ryan Wiser said.

According to the report, average non-module costs for residential and commercial systems declined by roughly 18 percent from 2009 to 2010.

Turning to utility-sector PV, costs varied over a wide range for systems installed in 2010, with the cost of systems greater than 5,000 kw ranging from $2.90 per watt to $6.20 per watt, reflecting differences in project size and system configuration, as well as the unique characteristics of individual projects. Consistent with continued cost reductions, current benchmarks for the installed cost of prototypical, large utility-scale PV projects generally range from $3.80 per watt to $4.40 per watt.

Costs Differ by Region and by Size and Type of System

The study highlights differences in installed costs by region and by system size and installation type. For example, the average cost of PV systems less than 10 kw in size installed in 2010 ranged from $6.30 per watt to $8.40 per watt, depending on the state. The report also found that PV systems installed on new homes had significantly lower average installed costs than those installed as retrofits on existing homes.

The report shows that PV installed costs exhibit significant economies of scale. Among systems installed in 2010, those smaller than 2 kw averaged $9.80 per watt, while large commercial systems greater than 1,000 kw averaged $5.20 per watt; partial-year data for 2011 suggests that average costs declined even further in 2011. Large utility-sector systems installed in 2010 registered even lower costs, with a number of systems in the $3-per-watt-to-$4-per-watt range.

Cost Declines for PV-System Owners in 2010 Were Offset Partially by Falling Incentives

The average size of direct cash incentives provided through state and utility programs has declined steadily since their peak in 2002. The dollar-per-watt benefit of the federal investment tax credit (ITC) and Treasury grant in lieu of the ITC, which are based on a percentage of installed cost, also fell in 2010 as a result of the drop in average installed costs.

The reduced value of federal, state, and utility incentives in 2010 partially offset the decline in installed costs. Therefore, while pre-incentive installed costs fell by $1 per watt and $1.50 per watt for residential and commercial PV, respectively, in 2010, the decline in “net” (or post-incentive) installed costs fell by 40 cents per watt for residential PV and by 80 cents per watt for commercial PV.

The report, “Tracking the Sun IV: An Historical Summary of the Installed Cost of Photovoltaics in the United States from 1998 to 2010,” by Barbose, Naïm Darghouth, and Wiser, can be downloaded here.

The research was supported by funding from the U.S. Department of Energy’s Office of Energy Efficiency & Renewable Energy and by the Clean Energy States Alliance, a nonprofit coalition of state clean-energy programs.