System costs for solar photovoltaics (PV) are falling rapidly in the USA thanks to module price reductions, according to new research. Wood Mackenzie says that residential system prices for monocrystalline PERC modules are expected to fall by 17 per cent from 2020 to 2025, a larger drop than the 14 per cent predicted earlier this year. In addition, mono PERC commercial and utility system costs are expected to decline 16 per cent and 20 per cent, up from 13 per cent and 16 per cent, respectively, during the same timeframe, the company has reported.
“In the utility segment, bifacial modules are gaining traction, especially as these modules have been exempt from Section 201 tariffs on all imports into the US,” said Molly Cox, Wood Mackenzie Research Analyst. “Typically, utility-scale bifacial tracker projects would be more expensive than those with monofacial mono PERC modules due to increased interrow spacing, resulting in higher civil and land costs. However, bifacial systems also yield system cost benefits. These include reduced balance of system components and lower labour costs because of the comparatively fewer modules needed when compared to a monofacial system of the same capacity.
As module prices represent a shrinking portion of total system prices, Wood Mackenzie expects a heightened focus on soft cost reduction from EPCs and developers. Soft costs, such as customer acquisition in the residential market, have been a huge barrier to declining system prices, along with permitting and inspection costs. However, as hardware costs are expected to decline at a slower pace over the next decade, it will be crucial to understand where the next level of system cost reduction will occur.
“Module cost reduction will be the most significant factor impacting C&I and utility system costs as a result of the pandemic. Not only are module manufacturers facing reduced demand and subsequently lowering margins to stay competitive, but they are also looking at a reduction in supply chain component costs, leading to further module price declines,” said Cox.
The Investment Tax Credit (ITC) reduction to 26 per cent in 2020 will create further downward price pressure across all market segments, for both EPCs and developers, according to the Wood Mackenzie report. “The stepdown will cause companies to closely analyze their cost stacks and ensure solar PV systems are still competitive with a 4 per cent ITC reduction. Having said that, companies have been preparing for the ITC stepdown, so we do not expect any drastic changes to system prices in 2020 as a result.
“As the solar industry faces demand destruction in 2020 from coronavirus impact, we expect demand to pick back up again by the end of the year and before the ITC steps down again in 2021. As a result, companies across all market segments may be able to maintain healthier project margins towards the end of 2020 as a result of the heightened demand, just like we saw at the end of 2019,” said Cox.