As solar power becomes more popular, it also is becoming more affordable, and that is good news for an industry whose greatest handicap has always been its steep upfront installation costs.

According to a report released in September by the Department of Energy’s Lawrence Livermore National Laboratory, the cost to install residential and commercial photovoltaic (PV) systems is on a downward trend. The average cost to install a PV system in 2010 was $6.20 per watt. That represents a decrease of 17 percent or $1.30 per watt from 2009. Furthermore, the industry showed a similar decline in the first six months of 2011, with the average cost dropping by 11 percent.

Multiple factors are contributing to the trend. The report finds that the decline is in large part due to the falling cost of wholesale prices for PV modules. In other words, the manufacturing costs of solar-power systems have come down, and that price reduction has been passed on to consumers. Wholesale prices have experienced a steady decline in the last several years, falling by $0.90 per watt from 2008 to 2009, another $0.50 per watt from 2009 to 2010, and more still in the first six months of 2011.

The overall price decline of PV systems also is attributable to a drop in so-called “nonmodule” costs. These costs are not associated with the actual manufacturing of the systems. They include installation, labor, marketing, inverters, mounting hardware, permitting and fees, shipping and other costs. Nonmodule costs have come down by $0.60 per watt from 2009 to 2010.

The report’s findings represent averages. Costs vary according to the size of the systems and the region of the country where they are installed.

Concerning size, installed costs for PV systems exhibit significant economies of scale. For example, at $5.20 per watt, systems larger than 1,000 kilowatts (kW) cost 47 percent less than the $9.80 per watt it costs to install a 2-kW system or smaller.

Regionally, the cost to install a 10-kW or smaller system varies from a high of $8.40 per watt in Utah to a low of $6.30 per watt in New Hampshire. California and New Jersey, the two biggest state PV markets in the country, fall in the center of that range.

On a down note, the gains made in installed costs were partially offset by a drop in incentives. Average state and utility cash incentives declined by $0.50 per watt to $1.60 per watt in 2010. The value of the federal investment tax credit also fell last year because it is tied to the (declining) cost of installation.