Solar Photovoltaic Development Costs

The Energy Information Administration (EIA) estimates the cost to install a typical utility-scale solar energy plant based on photovoltaic (PV) technology at just over $6,000/kW; such a plant will operate with an average capacity factor of around 25%. The installed costs are high, but every renewable generation technology will develop a niche, and solar is sure to gain a foothold in the sunny southwestern U.S.

A report released by researchers at Lawrence Berkeley National Laboratory (LBNL) in October titled “Tracking the Sun II: The Installed Cost of Photovoltaics in the U.S. from 1998–2008” (PDF) is perhaps the most comprehensive review of actual installed costs of PV systems. In 2007 and 2008, the period when about half of the survey population’s rated power capacity was installed, the installed cost for systems greater than 750 kW ranged from about $6.00 to $8.00/watt DC. Capacity-weighted average costs were $7.5/WDC in 2008. Electrical losses—from the panels, through the inverters to produce AC power, and to the grid—are typically about 20%, making these historic estimates consistent with the EIA estimates of the installed cost of PV systems. However, to hit the mainstream of utility-scale energy generation the installed cost must be driven even lower to be competitive with conventional power generation technologies.

Costs for large systems (greater than 2 MW), according to the report, range from about $5.5/WDC to as high as $7.6/WDC, averaging $7.1/WDC, thereby illustrating the value of scale. Plant economics are difficult to directly extrapolate from one project to another given the variable expected capacity factors (averaging about 20% to 25%); whether a system is a fixed-, single-, or double-axis design; the level of state and federal subsidies and tax credits available; the forecasted renewable energy credit revenue; and the terms of the power purchase agreement.

The report did quantify the distribution of installed costs: 6% was for the inverter, 54% for the modules, and the remaining 39% was for “other” costs, including overhead and transaction costs that don’t necessarily benefit from economies of scale. Project-specific costs, such as transmission, that can run up the real cost of the project much higher, were also omitted. In sum, the number of utility-scale projects reporting hard installation costs was nil.