A decline in the price of photovoltaic panels combined with an increase in competition among installers has cut the cost of installing a solar power system significantly in Hawaii over the past year.

A global oversupply of PV panels drove prices to record lows in 2011, according to a report from Boston-based GTM Research released today. And 2012 could bring even lower panel prices if the cost of polysilicon, the main component of a PV panel, continues to soften at the current rate, the report said.

The average price of PV panels globally, which fell to 90 cents per watt from $1.80 per watt over the course of last year, is on track to hit 70 cents per watt by the end of this year, according to GTM Research.

Falling panel prices contributed to a roughly 20 percent decline in the overall cost of an installed PV system in Hawaii over the past year, according to several industry participants. Increased competition from installers also played a role, they said.

The cost of panels makes up about one-fourth of the installed cost of a PV system, said Brett Prior, a senior analyst for GTM Research. The other three-quarters of the cost comes from other hardware and labor, which have held relatively steady, he said. Several years ago the cost of panels made up about 60 percent of the cost of the installed cost of a PV system, Prior said.

The decline in panel prices last year was more from a glut of product than drop in the spot price for polysilicon, Prior said. Because more than 80 percent of polysilicon is sold through long-term contracts, the pricing for the commodity in 2011 was fairly stable, he said.

However, the falling spot prices are giving leverage to polysilicon customers to renegotiate their contracts downward, according to Prior. That is expected to bring even lower panel prices this year.

"While spot pricing has collapsed and contract and contract pricing is expected to follow, the cost of production has changed little, which implies substantial margin contraction in the coming years (for polysilicon manufacturers)," he said.

Polysilicon, which sold for as much as $400 a kilogram just three years ago, fell to $80 a kilogram at the start of 2011 and below $30 a kilogram by the end of the year.

While that is good news for homeowners and businesses installing PV systems, it will hurt the bottom line of polysilicon producers, such as Honolulu-based Hoku Corp. Hoku’s polysilicon plant under construction in Idaho is over budget and behind schedule.

Panel prices have come down in part because of increased production by Chinese manufacturers.

Marco Mangelsdorf, president of Hilo-based ProVision Solar Inc., said his company has decided to offer customers the option of less expensive Chinese-made solar modules to stay competitive with other photovoltaic installers.

"The PV market in the state is very different than it was two or three years ago, let alone when we opened our doors in 2000. It’s become unsustainably saturated with so many players," he said.

"It’s not enough to say we’re offering the best of the best as far the highest-efficiency solar modules on the planet, which happens to be the most pricey. We have to be able to compete with these low-ballers, and we need to offer a lower cost option as well."

Mangelsdorf also said that while lower module prices have resulted in lower costs for PV systems, the downside is that an unknown and likely significant number of module manufacturers will be forced out of business.

"There will be a winnowing of module companies as well as PV integrators over the next few years. What is to become of modules sold by defunct companies if they need to be serviced?"

Miles Kubo, executive vice president of Honolulu-based Energy Industries, estimated that prices of installed PV systems fell about 20 percent in 2011.

"That’s good for consumers. My sense is that panel costs have dropped fairly rapidly, but other things like inverters have not. In fact, copper (wire) prices have gone up."

Kubo said the price range for an installed PV system depends on several factors, including the quality of the panels used. He said customers will pay a premium for higher-quality panels that have efficiency ratings of 18 percent or 19 percent compared with standard units that offer efficiency ratings of 13 percent to 15 percent.

"That’s 50 percent more efficient. That makes a difference when you have a customer with a constrained roof space. You get more electrical output from the same number of panels."

Rolf Christ, owner of R&R Solar Supply of Honolulu, said the cost of an installed PV system has dropped to $5 per watt today from about $6 per watt a year ago. A typical system for a single-family home is about 6,000 watts, or about $30,000 before tax credits, according to Christ. Federal and state tax credits can lower the price by about 65 percent.