The cost of solar photovoltaic systems is falling in California, but policy makers must ensure that incentive programs do not keep prices artificially high, concludes a report released by the Lawrence Berkeley National Laboratory. The January 19 study reflects prices prior to the state's $3.2 billion solar subsidy program voted on last week by the California Public Utilities Commission. "PV costs have declined substantially, especially among smaller systems," said Mark Bolinger, coauthor of the report, Letting the Sun Shine on Solar Costs: An Empirical Investigation of Photovoltaic Cost Trends in California. However, they might have dropped even further had state subsidies been more carefully crafted. "We find that heavy subsidies have dampened to some degree the motivation of installers to provide and customers to seek lower installed costs," said Ryan Wiser, another of the report's authors. For instance, caps that allowed incentives of up to 50 percent of system costs appear "to have at best impeded cost reductions, and at worst, contributed to artificial cost inflation," the report said. Those caps were lifted in 2003. Conversely, the lab found that when the California Energy Commission reduced incentives gradually, installers absorbed some of the reduction in order to maintain sales. The report showed that the cost of systems under 30 kW - subsidized under an Energy Commission program - declined an average of 7.3 percent a year between 1998 and 2004. On a per-watt capacity basis, the cost declined from $12 to $9 in 2004 dollars. The cost of larger systems subsidized by the California Public Utilities Commission has fallen by about 4 percent a year. Much of the reduction has been due to falling "non-module" installation costs, the report found. That has reduced system costs even while the price of modules has increased recently because of hot markets in Germany and Japan. Given the findings, the report recommends that: ?\tCalifornia target efforts to reduce non-module costs - for instance, by providing business development funding to installers. Those can be influenced locally while module prices are set by factors beyond state control on the world market. ?\tThe CPUC seek to sustain incentive levels more than planned under its version of the Million Solar Roofs program adopted earlier this month (Circuit, Jan. 13, 2005). ?\tIncentives targets be based on variable installation costs in different settings. For instance, installations on large new housing projects were found to be less expensive than retrofit installations.