Lower costs trends in the solar industry are creating a boom. At the end of 2015 there were over 200,000 people employed in the industry, and by May 2016 there were over 1 million homes with solar panels. Solar generates about 1% of the electricity consumed in the U.S. These employment and energy benefits are a result of continued reductions in solar installation costs. But how long can these cost reduction trends continue, and how low can they practically get?

Current residential costs (with the ITC) are about $0.07/kwh, with utility-scale solar even lower at about $0.05/kwh. I’ve watched all-in residential installation costs decline from $10/watt down to the current $3.50/watt, while at the same time system efficiency, reliability and features have improved. Note that these costs vary considerably around the U.S., with lower cost of living states — such as Texas — with much lower installed costs compared to higher cost states such as New York and California. Interestingly, the net customer economics don’t change much because these lower cost states also have lower electric rates.

There is no doubt that solar hardware costs will continue to decline: panels, inverters and mounting systems will all get less expensive. I expect all-in hardware costs to bottom out in the range of $0.50-$1.00 per watt; systems with high efficiency panels, monitoring and name brand manufacturers will be at the high end of the range. But soft costs — such as labor, sales, marketing, engineering, permitting, financing, insurance and G&A costs — are unlikely to see substantial reductions. Without some kind of streamlined national solar installation policies, these soft costs are likely to stay in the $1.00 to $2.00/watt range.

Where will cost trends in the solar industry bottom out? The best comparison is to HVAC systems, which have similar complexities to solar. As with solar, HVAC system costs vary widely. A rough ballpark is that HVAC hardware will cost about $5,000 — but total installed costs are almost always more than $10,000. For more about cost trends in the solar industry, Listen Up to this week’s Energy Show.