Cost of Residential Solar Plunges 27.6%

San Francisco Chronicle/David R. Baker/February 20, 2009

The cost of installing solar panels on homes and businesses plunged 27.6 percent from 1998 through 2007, according to a new study that questions some of the conventional wisdom about solar power's price.

Researchers at Lawrence Berkeley National Laboratory examined the costs of 37,000 photovoltaic systems across the country and found the average price fell from $10.50 per watt in 1998 to $7.60 per watt in 2007. Those averages include residential systems as well as larger arrays installed on businesses and do not take into account financial incentives from the federal or state governments.

Smaller, home-size systems averaged $8.30 per watt in 2007, which was more than the average at commercial installations. At that price, a typical 3-kilowatt residential solar system would cost $24,900.

The study's findings, released Thursday, contain one surprise.

For several years, solar prices were widely believed to be rising, the result of a worldwide shortage of the silicon used in most photovoltaic panels. Indeed, Lawrence Berkeley researchers did find a slight increase in prices from 2005 to 2007. But the price hike was small, only about 20 cents per watt, said Galen Barbose, one of the report's authors. And it has probably ended, as the silicon shortage eased.

"In point of fact, the cost of these systems remained relatively flat," said Barbose, a staff research associate at the lab. "So the industry was able to absorb some of those (silicon) price increases."

The study found substantial differences in how much people in different states pay to install solar. Systems smaller than 10 kilowatts cost an average of $8.10 per watt in California, the second lowest average in the country, after Arizona. Maryland has the highest average price, at $10.60 per watt.

Solar power's popularity has grown as homeowners, businesses and governments turn to energy sources that don't produce greenhouse gases and contribute to global warming. But photovoltaic solar panels remain an expensive way to generate electricity. The solar industry has been trying hard to drive down the cost, using new materials, new production processes and streamlined installation techniques.

Severin Borenstein, director of the UC Energy Institute, last year published a study that concluded photovoltaic solar power still isn't economical. Borenstein, who did not participate in the Lawrence Berkeley lab report, said Thursday that he's pleased to see prices declining. But the average cost needs to fall below $5 per watt before photovoltaic solar power is truly competitive with other forms of electricity generation, he said.

"What we're seeing in small-scale solar are incremental declines, not breakthrough declines," Borenstein said. "And in order for solar to really make sense, we're going to need breakthrough declines."

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