Federal Report Quantifies PV Solar 'Soft Costs'

Ucilia Wang, Contributing Editor
November 09, 2012 | 8 Comments

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.

8 Comments

Gerry Wootton
November 12, 2012

You can catch the NREL sampler at http://vimeo.com/53108607
Building codes may also be a German advantage. I've observed German construction and (having worked in commercial construction myself) was amazed by the sheer scale of their structures: these people truly build to last centuries. When working on requirements for rooftop solar framing systems, we noted that American residential and agricultural building codes seemed marginal, especially for combined precipitation and wind loads. Consulting insurance statistics confirmed this: a lot of roofs fail every year even without the additional load of a solar installation. Consequently, engineering studies for rooftop installations, though a substantial cost, seem necessary for many parts of the continent.

Gerry Wootton
November 12, 2012

If you don't measure it, you can't fix it. This is a good start. Too bad the Germans have to a provide a benchmark: in spite of paying more for modules they pay way less for systems. Compliance is a difficult proposition in America for any type of equipment. In the US there are 14,000 minor authorities that have jurisdiction (AHJ) and 201 major AHJs. Within that there are ~25 separate compliance regimes for electrical safety alone. Frequently the minor AHJs are commercial utilities. Designing commercial and industrial equipment which achieves compliance is very challenging. This is exacerbated by jurisdictions that do not recognize certifications of conformance even those provided by third party recognized bodies. Although there are national standards, they have less relevance than most people think. I have personal experience with certified product which required substantial field modifications in order to comply with local jurisdictions requirements (can't say 'standards' as some of these requirements are not formalized). On the other hand, one compliance regime spans all of Europe, most of southeast Asia and parts of South America. With a few enhancements to comply with Chinese standards, it is possible to produce equipment that can be certified and will be accepted in more than 2/3rds of the world. China's approach seems exemplary: adopt global standards and then add greater definition. This is very different than the US wild west experience. One of the things that stands out is that large scale rooftop is more expensive than ground mount. This is not a surprise: commercial facilities have many more concerns related to public safety, fire prevention, insurance risk, interaction with building codes, etc. This will naturally increase permitting costs. In the US, an important consideration is aesthetics and view-sheds which present significant soft and hard cost components peculiar to the US market.

Gary Richardson
November 11, 2012

Sometimes the soft costs are limited by the customer's awareness of what participation is required of them. And, each customer has a unique set of circumstances that hinder the formation of uniform processes to make certain soft costs lower in price. For instance, customer signing of contracts for financing or other terms agreed upon can be hindered by the customer over promising the availability of their time for reviewing the agreement, their trust in the protections offered to them, lack of financial information available for credit checks, the lack of preparedness to streamline signing. These types of issues require the installer or whoever interfaces with the customer to dedicate their time to serving them satisfactorily. Even if it means you need to sacrafice many hours to make them happy because this is alot of money for a customer to invest in.

Thomas M
November 10, 2012

Thomas said:

'...The extra permitting and beaureaucratic fees mentioned are the killer...'

Russ said:

But the NREL study quoted says that permitting costs account for only a few percent of the total. Changing or even eliminating permitting processes will have little impact.
rack their changes over time'

the article said:

'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

Hard to base an opinion with very little data.....

Russ Finley
November 10, 2012

Is that you Sunflower?

M. SIMON
November 10, 2012

"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. "

Then you have to include storage so hot backup is not required to cover for passing clouds. And then there are winter days without sun. Limiting the areas where solar can be applied cost effectively.

Russ Finley
November 10, 2012

The Author said:

"...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..."

Thomas said:

"...The extra permitting and beaureaucratic fees mentioned are the killer..."

But the NREL study quoted says that permitting costs account for only a few percent of the total. Changing or even eliminating permitting processes will have little impact.

Thomas M
November 9, 2012

Most trade's prices end up being 50/50, split between time and materials for most jobs. The extra permitting and beaureaucratic fees mentioned are the killer. Also installation guidelines increase costs, especially when rooftop installations are required, even if it is not the best location, and particular system sizes are required, even if not necessary or wanted.
Other costs mentioned such as marketing and advertising has killed out many companies over the years since the customer base and general public knowledge is far and few between. So companies need to find cheap ways to get the word out to as many as possible to encourage the public to get on board. The 'no job too small' mindset should apply, since this is the real way the RE business will grow. Thousands of people with any size system for all to see rather than one expensive system somewhere in the city.

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Ucilia Wang

Ucilia Wang is a California-based freelance journalist who writes about renewable energy. She previously was the associate editor at Greentech Media and a staff writer covering the semiconductor industry at Red Herring. In addition to Renewable...