growing worldwide reaching almost 300 gigawatts (GW) with a huge increased new addition in 2016 (nearly 75 GW). Such numbers owe this exponential growth to two factors: policy determination and solar photovoltaic (PV) cost decrease.
The first factor is linked to global incentives, such as Production Tax Credits, Feed-in Tariff, Net Metering, and Auctions, activated by government agencies as a way to promote the development of this technology.
The second one is directly related to the feasibility of installing a solar power system at reasonable costs and eventually obtaining a positive revenue from such installation.
The latter statement has a lot of topics to cover as there are many factors influencing the cost of a solar system that vary by:
- technology type
- geographical location
- market size
- system size and design
- policy incentives
- local permits
- installer contractors
Solar PV costs also vary depending on the application of the solar system, whether it is for utility scale, commercial or residential purposes. In this article we will focus on the residential solar PV.
The main factors affecting the cost of a solar system
Several elements must be taken into account to achieve the best cost-efficient performance of a solar system. Some of them can be chosen by you (as a homeowner) while others cannot.
The first, is the selection of an off-grid or grid-connected system, such decision depends on three factors:
- The location of the installation;
- Reliability of the power utility;
- The importance of the load to be supplied by the panels.
If your house or the load has access to a reliable power grid electricity then probably the best technical-economical solution is a grid – connected PV system.
Such configuration allows maneuverability to use the grid electricity when prices are low and turn the PV system on when prices are high, thus can reduce capital costs as the load would not need to be totally supplied by the PV system at all times.
Once the selection of the system is established, then, comes the dimensioning of the energy load that needs to be supplied. This decision depends upon your request. The installer company should provide the best array system configuration to supply requested load.
Within the system, the installer must take into account:
- solar panels
- mounting racking system
- grid connection
- batteries (if necessary)
All of these components are generally defined as the hardware essential costs of a residential PV system.
Solar modules are the most important part of all PV system, they transform the solar energy into DC electricity. Currently, there are three major options on the market:
- Monocrystalline solar panels
- Polycrystalline solar panels
- Thin-film modules
The best option for your purpose depends on your budget, quality expectations and efficiency. The better performance you expect, the higher the costs will be.
In general, the low-cost modules are mainly made of polycrystalline solar panels, created by melting raw silicon which is way more economic and faster than manufacturing processes used to create monocrystalline panels. Polycrystalline panels will perform with an efficiency rate of nearly 14-18 percent and the lifespan of 23-27 years .
Monocrystalline panels come with higher efficiency (18-24 percent) and can be easily recognized for their homogeneous black look and rounded edges. These panels also have longer lifetime (25–40 years) compared to other types. Their biggest disadvantage is cost as they are the most expensive ones in the market
Finally, thin-film panels have the lowest market share at the moment, but they have potential to be more integrated as further developments take place. In general, they have around 7-14 percent efficiency rate and their costs are relatively low, you can easily recognize them as the flexible modules.
Selection of one or another module for your needs depends on your space availability, efficiency requirements and costs from manufacturers.
This decision will influence the total cost of solar system installation by nearly 20 percent.
Take into account that price per watt is not the only important parameter in the long-term. The lifespan is also significant as monocrystalline solar panel efficiency performance will last longer than polycrystalline or thin-film ones and therefore possibly providing better revenues.
Current average cost of solar panels is nearly USD $0.64 per watt in the United States .
Inverters transform the DC electricity obtained directly from solar panels or stored in batteries into the AC electricity that households use. Solar inverter options for residential purposes can be summarized as:
- String Inverters
- DC Power Optimized Inverters
Beyond specific technical differences, one important fact that affects the selection of one or another is the desired performance against the shading of one or a group of solar panels from the whole array. Shading is undesirable because it diminishes efficiency of the whole solar system.
When String Inverters are selected, PV modules are connected in parallel, under this configuration if one module is shaded, the whole inverter is affected.
On the other hand, DC Power Optimized and Microinverters allow independence on the performance of each solar panel and therefore achieve a greater total efficiency of the system .
Cost differences can be dramatic:
- String Inverter costs are generally around USD $0.15 per watt.
- AC and DC Power Optimized Inverters are around USD $0.17 per watt.
- Microinverters costs can go up to USD $0.40 per watt .
In most cases, DC Power Optimizer Inverters are preferable, as overall efficiency is much greater than String Inverters achieve and total costs are much more reasonable.
Average inverter cost contribution to solar systems is near USD $0.21 per watt in the United States .
For the classification of a mounting system is convenient to use the mobility of the module’s angle. There are:
- Tracking systems
The tracking system is the most expensive as it follows the arch of the sun, providing maximum efficiency.
Fixed and adjustable options are suited depending on location of the installation. Fixed mounting systems demand a continuous sunlight, while adjustable systems are best suited for varying season latitudes.
Overall cost for structural purposes is around USD $0.12 per watt in the US .
Hardware costs vs non-hardware costs?
Now, here is the interesting part.
The main reason of a greater solar adoption of solar energy in global markets is because of the reduction of the so-called Balance of System Hardware costs (mentioned above). All of these factors account for the hardware costs of a solar PV system, and according to the National Renewable Energy Laboratory (NREL), represent nearly the 40 percent of the total installation cost !
That means, that presently a huge expense on the solar systems is mainly related to the non-hardware costs, the so-called soft costs associated with:
- incentive application
- customer acquisition
- installation labor
- administrative procedures along with local taxes
Soft costs account for 60 percent of the installation cost on a residential PV system!
Labor costs account for nearly 10-15 percent of total installation costs.
The amount is different for every State. The reasons vary based on:
- the competitiveness between solar installers in the developed solar markets
- available solar resources
- State-level policies
- transportation costs
- market experience
In this sense, market value of a residential solar PV can change drastically from one State to another. Taking this fact into account, an overall cost of installation labor can be set at USD $0.3 per watt in the US .
Operation and maintenance costs (O&M)
One of the biggest advantages of renewable energy compared to traditional power plants are low O&M costs. That is why most people tend to think that solar PV technologies are free maintenance technologies.
Solar panels and mounting systems (especially fixed and adjustable systems) are very solid. Therefore, the necessary maintenance means cleaning solar panels two or three times a year. This is important as dirt or even snow can block or diminish solar module efficiency, and even reduce lifespan on the long term.
Costs of maintenance are around $USD 5-10 per panel per year. For a typical household system, this is not a big amount of money.
Among other operation costs are also monitoring and tracking systems – an interesting feature of solar power designs.
Monitoring and tracking systems allow you to measure the savings on electric bills over time by reporting hourly electricity production of the solar system. They are great tools to monitor the system’s performance and evaluate, if it is working at maximum electricity production .
Besides, decent solar energy companies should provide warranties on their solar systems for at least 15 years after the installation. The warranty should assure a good performance of solar panels over the lifetime (guarantee power output above 85 percent of nominal value) which also covers some of fixture or maintenance costs .
Permits are a tricky subject because they can vary greatly across regions. Like the installation costs, inspection and interconnection (PII costs) costs vary across each State, depending on regional power utility and local solar policy laws.
As an example, the US average cost for the permits is USD $0.1 per watt. The cost includes permitting, zoning, inspection and interconnection; but in the State of New York, permitting, zoning and inspection costs can reach USD $0.24 per watt, and permit fees and interconnections can reach up to USD $ 0.32 per watt .
Summarizing the overall installation costs of a residential solar system in the United States, the total cost reaches close to USD $2.93 per watt according to the National Renewable Energy Laboratory 2017.
It is also important to compare installation prices across the world to see important patterns and differences in policy and market opportunities. As we mentioned before, costs of solar systems are highly dependent on soft costs which vary across States and can, therefore, represent big differences among solar system installation prices.
In this sense, comparing the United States with other high-income countries depicts considerable differences in total installation costs – all due to the soft costs. The United States is actually one of the countries with the highest installation costs among developed countries.
So, the question we made at the beginning was: Why solar systems are so expensive? However, the real question is: Why are they so expensive in the Unites States?!
For instance, Germany is one of the lowest installation costs countries for solar PV systems, saving costs by reducing permit fees, interconnections and taxes to almost USD $0.03 per watt, driving soft costs far below US values .
The US currently offers a Residential Renewable Energy Tax Credit that accounts for 30 percent of the costs for a solar PV installation. This indeed reduces a great part of the upfront investment Americans need to pay to get a rooftop solar system. However, this tax credit will be valid only for solar systems installed before 2019. Then, the percentage of credit will begin to decrease, while installation costs might increase.
Unless more favorable policy measures are set in place to facilitate administrative procedures for residential PV installations, it can be harder for US prices to compete with other solar markets like Germany and China.