**Proceedings of Solar Forum 2001:**

**Solar Energy: The Power to Choose**

**April 21-25, 2001, Washington, DC**

Reducing the Costs of Grid-Connected Photovoltaic Systems[^1]

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|   | **James P. Dunlop**   |        | **Brian   |                   |   |
|   |                       |        | N.        |                   |   |
|   | Florida Solar Energy  |        | Farhi**   |                   |   |
|   | Center                |        |           |                   |   |
|   |                       |        | Florida   |                   |   |
|   | 1679 Clearlake Road   |        | Solar     |                   |   |
|   |                       |        | Energy    |                   |   |
|   | Cocoa, Florida        |        | Center    |                   |   |
|   | 32922-5703            |        |           |                   |   |
|   |                       |        | 1679      |                   |   |
|   | <dunlop@fsec.ucf.edu> |        | Clearlake |                   |   |
|   |                       |        | Road      |                   |   |
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|   |                       |        | Cocoa,    |                   |   |
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|   |                       |        | b         |                   |   |
|   |                       |        | farhi@fse |                   |   |
|   |                       |        | c.ucf.edu |                   |   |
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Abstract

This paper presents alternative approaches for reducing the costs of
roof-mounted, grid-connected photovoltaic (PV) systems. Six cost
reduction approaches are presented, together with examples, data and
information from Florida and other states. Finally, the paper identifies
those areas on which efforts should be focused to achieve the 2020 cost
goals established by the U.S. photovoltaic industry.

introduction

In recent years, there has been a resurgence of interest in distributed
grid-connected photovoltaic (PV) applications. Key influences have
included the onset of electric utility deregulation, national programs
such as the Million Solar Roofs Initiative, and numerous federal, state
and local incentive programs to encourage the use of PV and other
renewable energy systems.

The long-term success of PV markets will largely depend on the ability
to reduce costs of installed systems. Since the mid-1970s, the installed
costs of PV systems have decreased by nearly an order of magnitude. Over
the same period, the area efficiency of commercially available PV
modules has doubled, module reliability has improved substantially, and
the U.S. annual production capacity has increased from about 5 MW to
over 60 MW \[1\]. In Florida, the present price of PV systems in
constant dollars is approximately one-third the price in 1983.

In 1999, the U.S. PV industry developed a 20-year roadmap which set
challenging goals for increasing the volume of production and reducing
costs to end-users \[2\]. Goals for the year 2020 include a production
volume of 6 GW per year, or a 25 percent per year increase from current
levels. Domestic applications are to account for about one-half of U.S.
production. Targets for installed system prices are \$3/Wac by 2010 and
\$1.50/Wac by 2020. This paper will focus on several different
approaches to realizing these price goals. In addition to addressing the
selling price of PV system installations, approaches to reducing
life-cycle costs are also discussed.

**SCOPE**

This paper identifies methods of reducing the costs of roof-mounted,
grid-connected PV systems, and concentrates on specific infrastructure
and technological challenges that must be met for the industry to
achieve 2020 goals. Six different approaches for reducing costs are
presented (see Figure 1).

Examples and experience are used from over fifty grid-connected PV
systems recently installed under the Florida PV Buildings Program \[3\]
and the long-term potential to reduce costs is discussed. Finally,
challenges and opportunities are identified for each approach, with an
emphasis on items thought to have major bearing on the industry's
ability to reach the 2020 goals. Figure 1 illustrates the planned
progression of the technology and costs from the year 2000 to the year
2020.

**BASELINE COST DATA**

For this paper, the costs of recently installed grid-tied PV systems in
Florida will be used as a baseline. Figure 2 illustrates the range of
costs for Florida PV installations. Total installed costs are divided
into three major categories, (1) costs of major system components,
including modules, inverters and module/panel support hardware, (2)
additional balance-of-system (BOS) costs required to complete
installation, and (3) labor costs for design and installation. The
largest costs are for major system components, amounting to between 50
and 80 percent of total installed costs. BOS costs were second highest,
ranging from less than 10 to 30 percent of installed system costs.
Installation costs were smaller than the costs of modules and inverters,
and varied from less than 10 percent to over 40 percent of total
installed costs.

**Figure 1. Present prices, future goals, challenges**

In Florida, the lowest installed prices still exceed \$9.00 per watt ac.
Reducing these prices by more than a factor of three by 2010, and by
more than a factor of six by 2020 will require not only lower hardware
costs, but also innovative products, better ways of integrating products
into buildings, and new approaches to marketing and distribution.

**Figure 2. Florida PV system costs**

![](media/image4.wmf)

COST REDUCTION APPROACHES

**1. Reducing the Costs of Manufacturing PV System Components**

The greatest potential for reducing overall PV system costs is in
reducing the costs of manufacturing system components, especially
modules and power conditioning equipment (inverters). For most
installations, the cost of PV modules and inverters can account for over
half the costs. Experience from pilot installations in the Florida PV
Buildings Program suggests that module and inverter costs can range from
50 to 80 percent of overall system costs for small rooftop
grid-connected systems. Module prices have ranged from less than
\$3.50/Wp to over \$8/Wp dc in the Florida program. Prices for
grid-connected inverters have ranged between \$0.75 and \$1.30/Wac. It
is important to note the distinction between the cost of producing a
component and the price the end-user pays for the component. For
example, installed system prices may be considerably higher during
periods of high demand than during periods of low demand even though
installation costs may be the same.

Cost reductions in manufacturing are closely associated with high
production volumes, sustainable markets and technological advances. To
achieve industry price goals of \$1.50/Wac by 2020, production volume
must increase by two or three orders of magnitude from current levels.
Average module prices to end-users have decreased significantly over the
past couple of decades, from over \$10/Wp in the late 1970s to less than
\$4/Wp in 2000. At the same time, U.S. production volumes have increased
from less than 5 MW to over 60 MW. This is a very significant cost
reduction in relation to production increases. Other industries
typically require one or two orders of magnitude increase in production
to reduce costs by one-half \[1\].

A number of opportunities exist for reducing the cost of manufacturing
PV system components. These include standardizing manufacturing
equipment, increasing the volume, throughput and efficiency of cell
production processes, creating low-cost module packaging and integration
methods, and adopting the use of less expensive materials in
manufacturing PV products. New, low-cost photovoltaic materials and
products, especially those integrated with common building materials,
also offer considerable promise for reducing the costs of PV
installations. Examples of these building-integrated PV (BIPV) products
include roofing materials (shingle, tile, slate and metal roofing),
windows and awnings, among other architectural features. In some cases,
certain cost advantages may be possible by using PV products in place of
conventional building materials. Bonding of flexible, low-cost thin-film
PV materials to metal roofing and other building products offers certain
advantages over conventional thick-cell modules. Because lightweight,
flexible laminates are less expensive to ship than the metal panels,
investigations are underway to develop processes for bonding the
flexible laminates at or near the site of the installation. Another
alternative may involve bonding at regional warehouses, such as
commercial roofing warehouses.

Based on years of participation in Southeast Builders Conferences and
substantial feedback from builders and homebuyers, there appears to be a
public affinity for BIPV products. However, a need exists for
improvements in mechanical and electrical integration, reduction in
costs and, in many cases, a greater degree of installer specialization.
In two of the Florida projects, PV materials bonded to metal roofing
were used in place of conventional metal roofing panels. Typical
installed costs for conventional metal roofing are approximately \$3 per
square foot. PV metal roofing panels purchased for the Florida program
were approximately \$6.50/Wp dc. Considering the power densities of
about 4.80 Wp/sq. ft. for these thin-film products, area costs are about
\$31/sq. ft. including the roofing material. Subtracting the costs of
the metal roofing leaves \$28/sq. ft. for the PV material alone, or
about \$5.80/Wp dc. This number is substantially higher (as much as 50
percent) than the lowest costs for conventional flat-plate framed
modules purchased under the Florida program. Because many BIPV products
use less efficient thin-film PV technologies, larger surface areas (up
to 100 percent greater) are required for array installations compared to
crystalline arrays of similar output. This drives up area-related costs,
requiring competitive thin-film products to be less expensive than
conventional crystalline products, per unit of power output.

**2. Reducing the Costs to Market and Distribute PV Systems and
Components**

Reducing the costs to market and distribute photovoltaic equipment
offers potential to lower overall system prices. Some companies expend
considerable resources in developing marketing and distribution chains,
while other companies may take a more direct approach to reduce end-user
costs. Therefore, the effects on end-user costs due to the marketing and
distribution of PV products can vary widely.

Experience from the Florida program suggests bulk purchases directly
from manufacturers are 30 to 50 percent less costly than similar systems
and equipment purchased through distribution channels. Examples to
support this include recent Florida utility bulk purchases of packaged
systems for approximately \$4.50/Wp dc. Similar hardware supplied
through distributors can be as high as \$6-8/Wp dc.

Strategies to reduce these transaction costs include direct sales to
end-users, bulk purchasing by utilities or large consortiums, direct
sales to building supply centers, and new marketing schemes to reach
diverse end-users and geographical areas.

**3. Reducing Installation, Operation and Maintenance Costs**

Labor costs for pilot projects in the Florida PV Buildings Program have
ranged from 10 percent to over 40 percent of overall system costs, with
the higher range associated with custom installations. The cost of labor
based on system size has ranged from about \$0.50 to \$2.00/Wp dc for
rooftop and building-integrated installations under 10-kWp dc. The
skills and experience of installers can have a direct effect on reducing
PV installation costs. Labor time (and costs) have been considerably
higher for personnel installing PV systems for the first time, or even
experienced installers using new products and designs for the first
time. Inexperienced installers can take more than twice as long to
install a system as individuals having had experience installing a half
dozen or more similar systems. Development of a knowledgeable, skilled
and experienced workforce is key to reducing labor costs, as well as
helping to improve the safety and quality of installations. A need
exists for broad-based training curricula on PV technologies throughout
electrical trade organizations and training institutions. Goals are to
reduce the average number of person-hours required for installations and
reduce average labor costs for rooftop installations to less than
\$0.20/Wac by 2020.

The level of hardware integration and the increasing use of packaged PV
systems have had a substantial effect on reducing installation costs
compared to custom designs, installations and equipment. Improvements in
the documentation, drawings, parts lists, instructions and other
materials provided with system packages have greatly facilitated the
installation, operation and maintenance of newer systems. In addition,
these materials can also aid in the permitting and inspection process
for PV installations. Continued development of standard design packages,
equipment and installation practices is strongly encouraged.

Cost reductions in installation labor are also achievable with certain
design strategies, particularly by using higher voltage modules and
equipment. Higher voltage applications translate directly to smaller
conductor and conduit sizes, fewer number of source circuits, conductors
and overcurrent devices, which all contribute to simplifying the
installation, reducing the amount and size of electrical BOS, and
reducing costs. Certain product design and manufacturing principles can
also reduce the costs of installing PV systems. This includes minimizing
the total number of parts and part variations included in systems
design, including use of larger modules, fewer panels, and less
hardware. Where possible, eliminating the need for special tooling,
designing certain parts to be multifunctional, avoiding tight
tolerances, and creating components that only assemble in one way can
also reduce costs. Designs should allow for ease of assembly and
accessibility, not only to reduce the installation time required, but
also to reduce maintenance. Mounting designs for PV arrays are needed
that allow for easy access for maintenance and repair and are easily
removed for re-roofing. Tradeoffs must be identified in system design
and installation, including the practice of pre-assembling and
pre-wiring panels off-site using less expensive personnel, and in
minimizing the number of roof attachment points versus subjecting
individual attachment points to larger forces.

For photovoltaic applications on buildings, one interesting approach
involves factory-installed systems. Approximately 30 per cent of new
housing stock in the U.S. is manufactured housing of one type or
another, with higher percentages in Florida. To be effective, the
manufacture of buildings in a factory requires careful planning,
time-motion studies, and process optimization -- areas of interest to
industrial engineers. Opportunities exist to include photovoltaic
systems in the building manufacturing process. The idea is to accelerate
the installation process, reduce costs, and improve quality control.
Strategies include both complete and partial installation of systems in
the factory, with the latter approach being used to simplify
installation in the field. There are several related efforts in Florida
and in other states.

Operation and maintenance (O&M) costs can be significant for PV
installations. For small rooftop PV systems, one maintenance visit per
year can offset the value of energy produced per year by the system.
Improving the reliability and fault tolerance of systems and equipment
can have a significant effect on reducing O&M costs, and can improve
overall system performance. While there have been very few problems
associated with PV modules and arrays in the Florida program, a number
of reliability issues have been identified with inverters and power
conditioning equipment in grid-connected systems. Over fifty percent of
these installations have experienced problems with power conditioning
subsystem components that required a site visit to correct the problem
and return the system to normal operation \[4\]. Unscheduled maintenance
has been required to change out complete inverters, replace fuses, reset
circuit breakers, and upgrade software. Based on the amount and value of
energy produced from these systems, the estimated costs for maintenance
have ranged from \$0.05 to \$0.20 per kWh ac during the first year of
operation. Other studies have identified O&M costs ranging from \$0.01
to \$0.16 per kWh ac \[4, 5\]. Challenges to reduce PV system
maintenance costs include developing inverter designs that offer
improved reliability and fault-tolerant features consistent with those
for PV modules.

Identifying problems with PV systems that require maintenance is largely
dependent on the level of oversight and monitoring employed. Typically,
it requires either site visits by trained personnel or some type of
monitoring scheme, such as metered inverter output. What to do about
problems identified is another matter, and involves tradeoffs between
the effects on performance, cost of maintenance, and the value of system
availability. Mean time before failure (MTBF) for PV inverters must be
increased significantly. Both MTBF and the mean time to repair (MTTR)
information are needed to assess the value of system output and
availability \[4\].

**4. Developing Performance-Based Subsidies and Attractive Financing
Programs**

Since the inception of Florida's \$2 per Watt subsidy program in 1998,
the number of grid-connected PV systems in Florida has increased from
only a handful to more than fifty, with a total installed capacity of
more than 200 kW dc. Electric utilities and other program partners have
invested more than \$1.5 M to leverage funds from the buy-down program.

Over the past 20 years, subsidies, credits, exemptions and other
financial assistance have been the principal means to support the cost
of PV applications in domestic markets for distributed generation,
building-integrated and rooftop systems. A continued reliance on these
sources and major commitments by public and private institutions are
critical if the 2020 goals established by the U.S. PV industry are to be
met. Incentive programs for end-users are necessary, as well as new and
innovative ways to finance and buydown the cost of PV installations.

Energy-related incentive programs have had positive effects on advancing
PV technology by opening new markets, increasing resources for R&D,
lowering costs to consumers and encouraging investment \[6, 8\]. While
subsidies and buy-down funds for PV applications are increasing the
number of applications, building industry infrastructure and developing
technology, they do not necessarily reduce the cost to the end user. For
example, subsidies in the 1980s for solar thermal systems that were not
performance based resulted in unsuspecting buyers paying more with the
subsidy than what they would have paid without it. Some concerns about
incentive programs include the level of administrative and technical
oversight required, and the ability of the industry to reach
self-sustaining levels after the subsidy ends. Performance-based
subsidies not only help reduce price to the end-user, but also challenge
the industry to meet or exceed performance claims and expectations for
their products. Large users are likely to purchase PV systems and
equipment based on performance, and may monitor installations and hold
system suppliers accountable for shortfalls in energy production.
Performance-based subsidies for PV systems at levels consistent with
those afforded to conventional energy technologies are encouraged.

Tax relief can also help reduce the costs of PV systems, and has been
implemented as part of state and federal policies. Sales tax exemptions
for PV products can be readily implemented at state levels. Property tax
exemptions, such as in Florida for solar energy equipment, allow the
value of the equipment to be omitted from ad valorem tax assessments.
Legislative actions are encouraged to promote these exemptions. Income
tax credits, such as those offered by some states, can help stimulate
the market for PV systems and send a positive message about the
technology. However, federal tax credits in the 1980s were not
performance based, and were often abused and actually drove prices
higher. Any tax relief or other financial incentive programs to
encourage PV installations should not require excessive government
oversight or programmatic support. Furthermore, tax relief for
installations and/or equipment should directly benefit purchasers and
end-users \-- not just manufacturers and system suppliers.

Long-term, low-interest financing can help create and sustain PV
markets, especially for PV systems included in new home mortgages and
home equity loans. This area suggests a real opportunity for reducing PV
system initial costs by spreading the costs over the life of the
mortgage or loan. Because the average U.S. homeowner is likely to move
within 5 to 7 years after purchasing a home, amortizing the costs of PV
systems offers distinct advantages. A need exists to educate and build
confidence among lending institutions so they will be more likely to
finance PV systems in home mortgage and equity loans.

Electric utilities can also help finance the cost of PV systems to their
customers through green pricing and other marketing programs. PV systems
can help utilities diversify generation sources, and provide additional
peak power during critical load periods. With growing concerns about
greenhouse gas emissions and global warming, the generation of carbon
offsets from non-polluting PV technology may offer additional value for
utility PV applications. These offsets may be traded as commodities, or
used to mitigate the development of other less environmentally sound
generation technologies.

**5. Improving the Performance of Power Conditioning Equipment**

The power conditioning equipment and inverters used in grid-connected PV
systems perform a number of essential functions to permit the safe,
reliable and efficient utilization of PV array energy. How well the
power conditioning equipment performs these functions directly affects
performance, reliability and costs. Unfortunately, progress in inverter
efficiency, reliability and costs over the past twenty years have been
discouraging compared to developments with photovoltaic modules, and is
a serious concern within the photovoltaic systems research community. At
present, small market demand and low production volumes result in many
utility-interactive PV inverters being largely hand made.

A number of performance issues have surfaced during the evaluation of
small PV inverters in the Florida program. These issues include the
ability of units to maintain grid-connection, power conversion
efficiency, effectiveness of array peak power tracking algorithms,
nuisance trips of circuit breakers, and failures of source circuit
fuses. Consequently, the performance for monitored systems has been
worse than expected.

Significant needs exist for increased funding in the research and
development of utility-interactive PV inverters. These efforts should
include highly accelerated lifetime testing, and studies on the effects
of load, utility power quality, dynamic conditions, and multiple
inverters of the same and different topologies operating on the same ac
bus. Development of fault-tolerant inverter designs, including possible
use of automatically re-setting overcurrent devices is encouraged. PV
inverters must be capable of operating over a wide range of voltage and
current output from the PV array, and must rapidly respond to changes in
array output during variable irradiance conditions. Furthermore, the
equipment must operate the array at maximum power output under these
conditions, and must maintain acceptable power quality and interact with
the utility grid within specified operating criteria.

**6. Streamlining the Permitting, Interconnection and Inspection
Processes**

Permitting, interconnecting and inspecting PV systems can have
significant effects on the costs of PV installations, and in many cases
are barriers to technology implementation. However, as with any
electrical power system, they are necessary in ensuring safety,
reliability and conformity with jurisdictional requirements.
Advancements in equipment standards, product listings and the
development of packaged systems have helped to reduce the time and costs
associated with these processes. A need exists for consensus
interconnection requirements, and improved knowledge and familiarity
with PV installations among utilities, electrical trades and code
enforcement officials.

As part of the Florida program, a complete plan for implementing state
and community PV program was developed and delivered at workshops in
several states \[7\]. The plan includes quality assurance measures for
systems and equipment, practitioner training and certification
requirements, and guidelines for site surveys, system monitoring and
inspections. Included are interconnection guidelines and submittal forms
that were developed for use by utilities and their customers. These
recommendations for small (less than 10 kWac) PV systems were presented
to the Florida Public Service Commission in meetings with investor-owned
utilities. The Florida Municipal Electric Association and many of its
municipal utility members are considering adopting these interconnection
guidelines.

Ownership of PV installations is often an issue when interconnecting to
the utility grid. Inherently, there are no significant barriers when the
utility owns the PV systems that are to be interconnected to their grid.
However, privately owned PV systems that are not under direct control of
the utility have created serious concerns. Major issues include safety,
equipment protection, power quality and reliability of service. Utility
requirements for outdoor, accessible and lockable disconnects on
privately owned PV systems can add significantly to installation costs
\[9,10\]. One example of this requirement added approximately \$0.15/Wp
to the cost of a nominal 7 kW PV installation. Over/under frequency and
voltage protection are other examples of utility requirements that can
add to the cost of PV installations.

Permitting and inspections are an important part of PV installations,
mainly due to contracting and liability issues. Installations in most
jurisdictions will require licensed contractors, and inspections by code
enforcement officials. Lack of local knowledge concerning PV systems has
presented problems for PV system installers and owners in many areas. A
need exists to develop guidelines for inspecting PV system installations
for code officials and installers and to distribute them through
national associations and training programs. To help ensure the safety
and quality of PV installations, contractor laws specifically dealing
with PV installations is encouraged.

Codes, covenants and restrictions can increase costs or otherwise hinder
the implementation of PV systems. Certain community building standards
may prohibit the installation of rooftop PV systems. Legislation, such
as that on the books in Florida, is encouraged to prevent barriers to
installing rooftop PV systems in deed-restricted communities.

Insurance requirements for PV installations, where applicable, can be a
significant factor in the overall cost of PV systems. Several years ago,
the annual liability insurance premiums for a grid-connected PV system
at FSEC's main facilities were about four times the value of the annual
energy produced by the system. A need exists to provide underwriters
with information and data that will reduce uncertainty, allow more
accurate risk assessment, and result in premium rates consistent with
risk.

**CONCLUSIONS**

In summary, this paper identifies a number of opportunities for reducing
the cost of PV installations. Considerable variation exists in the
present costs of PV installations in the Florida program, ranging from
\$6.50 to \$17/Wp dc. PV module costs are between 50 and 80 percent of
overall system costs. However, installation labor and BOS (including
inverter), which account for between 20 and 50 percent of installed
system costs, offer good opportunities for near-term cost reductions.
Standardization of components and system packaging are important
elements of cost reduction. The reliability of power conditioning
equipment is a major driver of operation and maintenance costs.
Long-term challenges include reducing the cost of manufacturing PV
modules, and developing new and innovative building-integrated PV
products.

**ACKNOWLEDGMENTS**

The support of the U.S. Department of Energy and Sandia National
Laboratories is gratefully acknowledged. Sandia is a multiprogram
laboratory operated by Sandia Corporation, a Lockheed Martin Company,
for the United States Department of Energy under contract
DE-AC04-94AL85000.

The Florida Solar Energy Center is a research institute of the
University of Central Florida. Since 1982, FSEC has operated the
Photovoltaic Southeast Regional Experiment Station for the U.S.
Department of Energy under contract with Sandia National Laboratories.

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[^1]: This work was supported by contracts to the Florida Solar Energy
    Center from Sandia National Laboratories and the U.S. Department of
    Energy.