Robert M. La Follette School of Public Affairs
Wednesday, April 22, 2015

Competition, installer, geography influence solar energy system costs

Eric O’Shaughnessy describes influences on photovoltaic prices. Eric O’Shaughnessy describes influences on photovoltaic prices.

The costs of installing a residential solar energy system seem to vary by the amount of competition in a market, the type of installer and by geographical area, new research suggests.

La Follette School student Eric O'Shaughnessy and professor Gregory Nemet summarized preliminary research results in an April 21 seminar at the La Follette School. Their research on solar photovoltaics is funded with a U.S. Department of Energy grant through the Lawrence Berkeley National Laboratory, which offered to fund O'Shaughnessy this summer so he can continue working with Nemet. O'Shaughnessy is a second-year student working on his Master of Public Affairs and certificate in energy analysis and policy.

"The biggest influences on costs of solar photovoltaic systems include the size of the system and the soft costs — the labor," O'Shaughnessy says. "We have seen the installed price of solar energy drop from about 50 cents per kilowatt-hour in 2000 to about 25 cents in 2013."

"Larger photovoltaic systems are less expensive to install and more competition among installers reduces expense," Nemet says. "Subsidies also lead to greater installation costs."

Some systems can cost $1 per watt to install while others cost $15, O'Shaughnessy adds. "Cheap installers tend to be smaller. Most installers do fewer than five systems per year; some of these are plumbers or roofing contractors who are dabbling in solar installation.

The two tried to capture why costs can vary so much. Nemet noted that solar systems are usually a one-time purchase. "Consumers are risk averse," Nemet says. "They don't want to get ripped off with a poorly functioning system, so they end up willing to pay more."

Nemet and O'Shaughnessy noted that just getting a quote for a home solar system is time consuming. "It took me eight hours just to get one quote for my house," Nemet says. "Getting the information is not easy."

One way for consumers to reduce search costs is to talk with their neighbors, O'Shaughnessy says, noting that research method then affects cost variation.

Understanding these influences on costs is important, Nemet says, because although solar energy makes up 0.4 percent of electricity generation in the United States, solar capacity doubles every two years.

The government has a large role in the development of photovoltaic systems, having spent $5 billion a year in the last several years on subsidies. In addition, utilities are regulated, so state agencies like Wisconsin's Public Service Commission will determine the future of solar energy.

The benefits of solar include that it is an unlimited resource that does not pollute, Nemet says. Problems include that it is diffuse, expensive and not always available. Getting more information to consumers seems to allow society to take advantage of the benefits of solar.

The two are now looking at whether having a neighbor who has installed a PV system influences the prices people pay.