Monitoring, Solar

Balance of systems: The next step to grid parity

Reducing balance-of-system (BOS) costs is a largely untapped opportunity to improve the levelized cost of electricity (LCOE) for solar installations — and one area in particular could make the biggest difference, explains Ted Sullivan from Lux Research.

by Ted Sullivan, senior analyst, Lux Research

January 21, 2009 –  While cells and modules have been the primary focal point of the solar industry, relatively little attention is given to the balance of systems (BOS) components and installation that are needed to allow the modules to effectively produce power and transmit it to the grid. Generally, they fall into three categories: mounting, which includes racking and tracking systems; power electronics, which includes inverters and maximum power point tracking (MPPT) devices; and installation, which includes the engineering and design work as well as the actual labor of installing a system. BOS and installation account for slightly more than 50% of the cost of a total system.

From our analysis of BOS components, several findings were revealed:

– Foundations and racking are highly customized by climate, ground type, and application, and are comprised mainly of commodity materials — making cost cutting difficult. Although not as glamorous as active PV elements, BOS components offer a largely untapped opportunity to improve the levelized cost of electricity (LCOE) for solar installations. Presented as cost per kilowatt-hour ($/kWh), LCOE measures the total lifetime cost of a solar installation. Put another way, reducing BOS costs could bring solar technology one step closer to grid parity. Despite leading higher upfront costs per watt ($/W), trackers have the potential to improve the economics of solar energy because they can improve the output in kilowatt-hours, leading to a lower LCOE.

– Power electronics are being improved generally by cost-cutting at manufacturing and efficiency improvements, but new system architectures are leading to a rise in microinverter and MPPT solutions at the residential level, and higher voltage solutions at the utility scale.

– Standardization of system components and system design is enabling modular systems which can significantly reduce labor cost.

Labor: The big system cost-saving opportunity

To determine the future impact of BOS innovations on system cost and LCOE, Lux Research built a proprietary BOS model that incorporates the line-item cost data and projections from 15 interviews with installers and BOS component manufacturers. We then combined this BOS model with module price projections and integrated total system cost projections with a proprietary LCOE model. Among our findings:

As module prices fall, single-axis trackers’ edge erodes and dual-axis trackers disappear. Foundation and racking cost-cutting have very limited results for cost savings through 2015, accounting for only $0.03/W or 1.1% of total cost reductions. Solar trackers can boost output, lowering LCOE, but similar commodity constraints hamper cost-cutting here as well. As module prices plummet, the benefits narrow, making dual-axis trackers obsolete in the short-term, and making the cost advantage of single-axis trackers, such as SunPower’s T20, tenuous on an LCOE basis in 2015.

Power electronics offer improvements in LCOE, but only marginal savings on capex. Standard string and centralized inverter costs will come down more slowly than module costs in coming years, with savings from power electronics from 2009-2015 accounting for only $0.11/W or 6.1% of total cost reduction. However, power electronics that increase electricity production in kWh — even at the expense of higher capital costs — will prove valuable for decreasing LCOE through 2015, particularly in residential applications.

Installation labor cost reductions present the biggest opportunity for cost savings. Labor cost reduction is the biggest lever to pull on the BOS front to reduce system costs — by 2015 it will account for $0.51/W of cost reduction, or 25% of the total. These reductions are made possible by better integration throughout the value chain, with a view toward system cost reduction rather than simply component cost reduction.Because wage rates are typically fixed, high labor costs for solar system installation have been viewed fatalistically, as a bitter pill that must be swallowed. However, this view may be misguided. By reducing both the quantity and the quality of labor hours to install a system, integrators possess the largest lever for cost reductions on the BOS side. This will require thoughtful integration of the numerous BOS components to optimize each for reduced labor costs — even if it sometimes increases component cost.


 



Ted Sullivan received his BA in Finance from the U. of Virginia and is a senior analyst at Lux Research Inc., 234 Congress Street (5th floor), Boston, MA 02110 USA; e-mail [email protected].