World solar prices will keep dropping, but U.S. costs will stay relatively high -- report

The installed price for solar photovoltaic (PV) systems is likely to continue its precipitous decline, but the speed and scale of that decline will depend on fixing solar's "soft costs," according to a report out this week from the Department of Energy's Lawrence Berkeley National Laboratory.

Installed prices for commercial and residential PV systems in 2012 fell by about 6 to 14 percent from the prior year, depending on the size of the system, according to the report, the third year in a row with significant price reductions in the United States.

The recent price reductions are primarily due to steep reductions in the price of PV modules, the report found. From 2008 to 2012, annual average module prices on the global market fell by $2.60 per watt, representing about 80 percent of the total decline in prices for the smallest PV systems over that period.

The report analyzed installed price trends of grid-connected PV systems in the U.S. from 1998 through 2012, with preliminary data for 2013.

Despite these steep declines, U.S. prices are still significantly higher than those of some international markets. In Germany, Italy and Australia, the price of small residential PV systems installed in 2012 was roughly 40 percent lower than in the U.S.


The reason behind America's inability to keep pace are unchanging nonmodular, or "soft," costs, the report found. These costs -- which include inverters and panel-mounting hardware, labor, taxes, and permitting and fees -- have been declining in Europe much faster than they are in the United States.

Lack of a national market

Germany's advantage, for example, is that the country has a single national market with standardized processes and regulations, with a feed-in tariff that helps stabilize prices (ClimateWire, July 22).

Galen Barbose, a scientific engineering associate at the Berkeley lab and a co-author of the report, noted that some European markets provide "a much more stable, predictable value proposition."

The U.S., on the other hand, has a much more fragmented regulatory system, with different states and jurisdictions having different laws, policies and permitting requirements.

"All that adds a certain amount of uncertainty and complexity from the installers' perspective and the customers' perspective," Barbose said.

A recent report from Clean Power Finance, a residential solar industry financial services and software company, found that a third of U.S. solar installers say permitting requirements limit growth.

Ken Johnson, vice president of communications at the Solar Energy Industries Association, said larger companies even have dedicated staff members who "do nothing but run paperwork from one place to another."

"Unfortunately, some jurisdictions are just so cumbersome, installers won't even work in them, it's just not worth the effort," Johnson added.

Regional standards forming

Solutions may be on the horizon, however.

The Washington, D.C., Department of the Environment is meeting with experts this week to review an internal draft the department is working on to expedite solar permitting, according to Scott Sklar, president of the Stella Group Ltd., a renewable technology company.

Sklar, who is also an adjunct professor at George Washington University, said the changes are overdue. "It was just as necessary five years ago, but the industry wasn't big enough then, so it wasn't, in their view, worth their time."

There are attempts underway to create regional conformity in Eastern states like New Jersey, Pennsylvania and Maryland, and Western states like Oregon, California and Arizona, Sklar said. Ultimately, it will be the role of state and local governments to standardize solar regulations, he said, not the federal government, because only counties and municipalities have control over permitting.

"That's sort of growing pains," he added. "The good news is they're thinking about it."

The report concluded that achieving soft cost reductions may require a combination of incentive programs, targeted policies, and research and development.

Federal incentives expire in 3 years

Reductions in soft costs will be even more important going forward as incentive programs across the country are phased out, the report stated.

Most of these incentive programs are at the state and utility level, and both Barbose and Sklar said the one remaining federal incentive program, the popular investment tax credit (ITC), will be needed in the short term to sustain solar's price reductions.

Barbose said the ITC, which covers 30 percent of the installed cost of a solar PV system, is the kind of nationwide policy that can help the U.S. imitate Germany's solar development.

"There has to be a way so that a customer who installs a solar PV system gets compensated for it," he said.

Still, both Barbose and Sklar think the ITC should be phased out soon as well. The program is currently scheduled to expire at the end of 2016 and has been instrumental in the solar industry's growth since it was introduced in 2006 (Greenwire, July 24).

"It shouldn't go forever, like we have done for the oil industry [subsidies]," Sklar said, "but it definitely needs an extension, probably for another five years, then some kind of scale-down to zero."

Barbose thinks prices will continue to drop simply by virtue of market growth. A glut of manufacturing in recent years has hurt solar's profitability, but the report concludes that the right combination of market forces and government forces can help overcome these obstacles, diffusing tensions that contributed to the U.S. and the European Union waging recent trade wars with China (ClimateWire, Aug. 2).

"As long as there is still demand, there will be continued learning that takes place, and cost reductions will come by greater experience and volume," Barbose said. "In some sense, things are progressing as planned and hoped."

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