Solar's Untapped Opportunity for Cost Reduction

When examining ways to make solar more competitive, our industry has traditionally and correctly focused on the need to drive out cost from hardware. Increasing cell efficiency, optimizing module and inverter reliability, and reducing BOS hardware costs have been core objectives of industry, government and non-government organizations – and rightly so.

When the cost-per-kWh was over $1.00/kWh, panels were $10/Wp and inverters often failed out of the box, this was critical for the economic viability of the industry. Technological maturity was a table-stake for bankability and to create a market, and emphasis on further cost reductions is still necessary.

However, as we’ve successfully reduced costs and increased reliability and performance on hardware, the soft costs have become an increasing percentage of each project’s cost structure. According to SolarTech, approximately $2.21/Wp of residential PV system cost comes from items other than panels and inverters.

These soft costs can be broken into two categories: those that involve government or utility intervention, and those that can be addressed within individual companies.

Issues Requiring Industry and Outside Support

The issues that require a broader, industry-wide resolution are permitting, incentive processing/tracking, and interconnection processing. For those of you familiar with organizations such as SolarTech and SolarABCs, these will sound familiar. Such groups have helped carry the industry torch in highlighting and proposing solutions in these areas, including standardization and greater process visibility.

The US Department of Energy (DOE) has also placed increased emphasis in these areas, hosting a series of productive meetings over the last year in an attempt to both understand the challenges and stimulate a dialogue on how the federal government can best aide in minimizing these barriers. US DOE also has issued a Request for Information to better understand the impact of these costs.

Inefficiencies in incentives are the area in which we’re arguably in the most positive position. We as an industry have a wonderful resource in DSIRE, which tracks and reports on incentives throughout the US. However, we need to go several steps beyond collecting this information. The process of applying for these incentives is often slow and cumbersome. To date, only the State of California has enabled automated electronic upload of incentive information. Other states have moved to electronic submission via the web, but even with this seemingly innocuous step of manually entering data rather than allowing it to be uploaded automatically, inefficiencies are introduced – significant redundant data entry is required, costing the contractors and homeowners time and money.

This process is cumbersome, but is better than many of the other programs that still require that incentive materials be physically submitted. A standardized system for states and other programs to accept information electronically and directly from other sources of data that already contain this information will help streamline these processes.

Permitting is one of the greater challenges. DSIRE is a great repository for incentives, and such an initiative for permitting information would be extremely valuable. However, unlike the world of incentives, which include about 200 different incentives to track and manage, there are over 20,000 Authorities Having Jurisdiction (AHJs) in the US. Not only are there two orders of magnitude more entities to track, the complexity of these varies greatly since each can determine its own submission requirements, which parts of the NEC it emphasizes, and how the overall request-through-approval process works. And unlike most incentive programs, there’s much more diversity in the requirements, submission policies, fee structures, and approvers’ objectives. Only an organization with the influence of the federal government can effectively incent AHJs to adopt more solar-friendly permitting policies.

Utility interconnection is another area that could use process efficiency improvements. Many utilities have been solar-friendly and have created their own reasonably-simple processes to gain approval to turn systems on. However, these processes are not standardized, meaning different requirements in different service territories. Furthermore, not all utilities have such straight-forward practices due to their limited financial and labor resources, lack of awareness of the implications of the complexity, or in more limited cases, a desire to make it more challenging to install solar.

Regardless of the reason behind the inefficiencies, it is incumbent upon the industry to push for a standard and accelerated interconnection process that reduces the time spent filling out paperwork, on the phone and in the field supporting a process that could be more simple and cost effective for both the solar industry and the utilities themselves.

The cost required for these processes and other soft costs translates to about $1.00/Wp, not including labor, the cost of delays, BOS hardware, or administration. It also implies a lower speed of revenue, since fewer jobs can be completed in the same amount of time, which means less equipment sold, and lower profit for the entire value chain. Therefore, the opportunity just from these issues that require broader industry support to correct will yield significant savings when corrected.

Corporate Inefficiency

While there are several challenges the industry must face together, many others can be addressed by improved business practices within each company. Inefficiencies in business operations are particularly prominent at the contractor level and in the interactions between companies. A lack of automated processes, limited use of collaboration tools and redundant data entry are among the inefficiencies the industry faces.

Companies can manage with such issues by using software and tools that leverage more modern means of managing business operations. SolarNexus, a web-based solar business management software system for contractors (and also the company I happen to work for), addresses this challenge by enabling contractors to manage projects from lead through project completion in a scalable way. It allows contractors to automate the system configuration, proposal generation and form completion processes.

Other companies like Solmetric have helped expedite the system design process by using an intelligent, graphical user interface to quickly and easily allow contractors to mock up systems and calculate key technical parameters.

Another way of reducing inefficiency is to balance operations and staff count with an eye toward focusing on what each company does well. Much like utilities themselves, a contractor’s “baseload” of work is distinct from its need for “peakers.” The ability to carry a smaller, stronger full-time staff and outsource these operational variations can help companies run more lean and profitably.

Companies like Next Phase Solar, which handles outsourced preventative maintenance and service calls, allow contractors to focus on revenue-generating activities like selling and installing. Such leveraging of outside resources can be done on the sales side (via qualified third-party lead generation services), design (like 3-line diagrams and permit package submission), inspection (using qualified stand-ins), and many other phases throughout the project lifecycle.

For companies that lack strength in particular project functions, the complete function can be outsourced to a specialist, allowing maximum corporate scalability. This concept is not new to those involved in the deployment of larger PV projects, but as the size of PV systems decrease many contractors take more of the project on themselves. This is sometimes, but not always, the most scalable and efficient way for contractors to operate.

The same issues exist for manufacturers, distributors, and other service providers as well. Given the greater overhead, business maturity, and a priori recognition of the impact of operational inefficiency on their bottom lines, these larger companies are typically already attuned to these issues and attempting to address them. There is still room for significant improvement in the way they are able to interact with one another, however.

Direct interfaces that allow information to flow more freely between companies will enable the industry as a whole to become more efficient. An effort called the Integrated Energy Project Model (IEP) creates a standard language for software systems to communicate more readily with one another regarding solar and energy efficiency related projects. This will simplify and streamline the way companies communicate with one another about projects and products.

Conclusion

A new emphasis needs to be placed on soft costs if the solar industry hopes to approach grid-parity en masse. Even with module costs ranging around the $1.00/Wp mark and inverter costs likewise falling (despite temporarily-high prices due to a short-term lack of supply), there will be an opportunity to reduce these hardware costs even further and improve efficiency/reliability to gain even better ROIs.

However, the industry now must turn its attention to the opportunity for improvement in the overall cost structure of PV systems that lies in becoming more streamlined and accelerating our industry’s business operations.

Brian Farhi is VP, Business Development & Marketing at SolarNexus - a software company that provides web-based business management solutions to solar businesses. Brian is a market and strategy professional with 13 years of experience in the solar and energy efficiency-related fields.   Over that time, he managed the definition and launch of SunPower's monitoring systems, helped establish Fronius as one of the leading inverter suppliers in the US, and conducted research on PV system design, performance and reliability for the US DOE while at the Florida Solar Energy Center. Brian holds an MBA from UC Berkeley’s Haas School of Business and an MS from the University of Colorado at Boulder's Building Systems Program.