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Federal Report Quantifies PV Solar 'Soft Costs'

Non-hardware costs make up 41 percent to 50 percent of the expenses of selling and installing a solar electric system, according to a report by National Renewable Energy Laboratory (NREL) that is set for release within two weeks.

The so-called “soft costs” for an array of solar panels on a residential rooftop account 50 percent of the overall costs while they make up 41 percent to 44 percent of a system for a business customer, according to the report, which set out to benchmark those soft costs as they were in 2010. Back then, the soft costs for a 5-kW residential system amounted to $3.32 per watt. For a commercial system of less than 250-kW, the soft costs reached $2.64 per watt; for a system over 250 kW, the costs were $2.16 per watt, the report said.

Reducing soft costs is a major goal for the solar industry because it ultimately wants solar energy to price comparably with electricity from fossil fuel power plants. The prices of hardware, such as solar panels, inverters and mounting systems, have come down significantly over the past few years. In fact, the average selling price for solar panels dropped from $4.04 per watt in 2005 to $1.14 per watt during this year, said Kristen Ardani, a solar analyst at NREL. Ardani gave a preview of the report, which she authored with researchers from Lawrence Berkeley National Laboratory, during a webinar hosted by Vote Solar Initiative on Thursday. That drop in solar panel pricing accounted for 96 percent of the decline in price of buying and installing a solar electric system between 2005 and 2010.

Lowering the soft costs seems more daunting mainly because some of the major challenges lie with figuring out local laws and wading through a bureaucratic process. Creating effective marketing plans and getting those who visit a website or make that initial phone inquiry to commit to buying or leasing a solar system also aren’t easy. Anecdotal accounts put that conversion rate at as low as 2 percent to over 10 percent. The NREL study pegged the residential customer acquisition cost at $0.67 per watt. For commercial customers, the acquisition cost was less than $0.20 per watt. That expense tends to shrink when the size of the system goes up. 

“There is inefficiency in customer acquisition. We haven’t worked on how to talk to consumers and be exciting and interesting and show that in emotional terms, not just rational terms,” said Danny Kennedy, founder and president of Sungevity, during a Greentech Media conference just south of San Francisco last week.

There isn’t an industry definition for what constitutes a soft cost except that it doesn’t involve equipment such solar panels, inverters and mounting system. In general, the term could include the costs of marketing, signing up customers and helping them to line up financing, designing and installing a solar energy system, applying for construction and interconnection permits and monitoring the system’s performance. Those were the categories used by the lab to collect and analyze data.

The NREL study sought to systematically quantify the soft costs, on which little data have been collected to study their impact and track their changes over time. NREL is holding a survey now to gather more current data from installers (click here to fill out the survey if you are a residential installer and click here if you are a commercial installer). Ardani hopes to attract a larger pool of respondents this time. The number of respondents for the report about the 2010 soft costs was rather small, and many of those who filled out the surveys were located in California. She also hopes to get more and better data about the cost of providing financial packages -- such as leases and power purchase agreements -- to home and business owners. 

Reducing the time and labor it takes to secure permits is one area that many solar retail service providers are working to improve. Clean Power Finance, which provides financial packages for installers to market to consumers, secured a $3 million grant from the U.S. Department of Energy’s SunShot initiative last year to build a national database of local permitting rules and make it available to any installers. Clean Power Finance unveiled a beta version of the database during Solar Power International in September this year.

The San Francisco company also won a $1 million grant from SunShot earlier this year to create an online marketplace to connect installers with companies that specialize in marketing to and signing up customers. 

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