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The uptake of solar power globally as an important alternative energy source to fossil fuels, together with a rapid fall in the cost of photovoltaic (PV) systems, has been phenomenal during the past decade. This trend is widely anticipated to continue for the years to come. The decline in PV installation costs, like many other new technologies through history, has been largely driven by the learning curve effect. However, it is suggested that other factors, such as costs of key production inputs and prices of competing technologies, also impact the costs of PV systems. In this study, we construct a hierarchical learning curve model to quantify the effects that various factors have on installation costs of PV systems based on empirical data from Taiwan. The results show that, in addition to the learning curve effect as underpinned by an increase of cumulative PV capacity, reductions to silicon price have significantly contributed to the decline of the final installation costs of PV systems in Taiwan. By quantifying the effects of critical cost factors, the learning curve effects on PV installation costs in Taiwan are defined which enable a more accurate projection of PV installation costs for governments, PV producers, operators and users.