Costs and Potential for Cost Reductions

Costs for PV systems vary widely and depend on the system's size and location, the type of customer, the grid connection and technical specifications. In a standard building-integrated PV system, about two-thirds of the installation cost is for the module. The remainder reflects the cost of components, such as inverters and module support structures. The PV cells account for slightly more than half the total cost of the module itself. Cheaper cells would lower the system cost, but only so long as they deliver good efficiencies. Otherwise, higher balance-of-system costs might outweigh the lower cost of the cells.

Average installation costs are about USD 5-USD 9/W for building-integrated, grid-connected PV systems. Costs vary according to the maturity of the local market and specific conditions. For off-grid systems, investment costs depend on the type of application and the climate. System prices in the off-grid sector up to 1 kW vary considerably from USD 10-USD 18/W. Off-grid systems greater than 1 kW show slightly less variation and lower prices. This wide range is probably due to country and project-specific factors, especially the required storage capacity.

Stand-alone systems cost more, but can be competitive with other autonomous small-scale electricity-supply systems, particularly in remote areas. Solar cells and modules are expensive components of PV systems, so reducing the cost of the cells is vital. A variety of reliable components is available, but the efficiency, lifetime and operation of some components can be further improved, especially those of inverters and batteries.

Investment costs are the most important factor determining the cost of the electricity generated from PV installations. Operation and maintenance costs are relatively low, typically between 1% and 3% of investment costs. The expected lifespan of PV systems is between 20 and 30 years. However, inverters and batteries must be replaced every 5-10 years, and more frequently in hot climates.

Figure 5.2 illustrate electricity generating costs for PV and bulk and peak utility power. In liberalized electricity markets, utilities are likely to charge higher rates in

1990 2000 2010 2020 2030 2040

Key point

Solar PV will become more and more competitive with peak power utility supply. Fig. 5.2 Projected cost reductions for solar PV8 (Source: Hoffmann [8])

1990 2000 2010 2020 2030 2040

Key point

Solar PV will become more and more competitive with peak power utility supply. Fig. 5.2 Projected cost reductions for solar PV8 (Source: Hoffmann [8])

8 The upper and lower boundaries of the PV costs reflect the meteorological situations of Germany and Southern Europe, respectively. The cost increase for conventional electricity is assumed to be 2% per year. External costs are not considered and could lead to a much earlier break-even for PV electricity. It may be estimated that PV electricity can be competitive with peak-load electricity within two decades and to base-load electricity within four decades, depending on the meteorological conditions of the installation site.

periods of peak demand. As a consequence, PV systems will be more competitive with standard peak power utility supply.

About half of potential future cost decreases for PV is expected to result from RD&D directed towards improving materials, processes, conversion efficiency, and design. Substantial cost reductions can also be gained through increased manufacturing volume and economies of scale.

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