Soft costs are hindering solar industry growth in the U.S. What people can’t seem to agree on is why this is happening, or what to do about it.
In fact, industry professionals haven’t even agreed on a standard definition for the term “soft costs.” Soft costs don’t include hardware like panels, mounting systems and inverters. Instead, they usually refer to the costs associated with permitting, marketing, labor (like design and installation), and other “intangible” aspects.
According to a National Renewable Energy Laboratory (NREL) report, which analyzed data from the U.S. and Germany in 2010 and 2011, soft costs in the US are responsible for about 50 percent of the expenses involved in selling and installing solar PV systems. Some data sets that number even higher, at 60 percent.
This isn’t the case in Germany.
The Lawrence Berkeley National Laboratory (LBNL) conducted an in-depth study of both the U.S. and German markets. They found that in Germany, a residential solar system costs $3.00 /watt. In the US, the price for an identical system is $6.19/watt.
Why are soft costs so high in the U.S.? There are a number of causes we can address.
In the U.S., over 18,000 municipalities are setting their own requirements for permitting. This results in requirements that are dramatically inconsistent in every city. It means a solar installer may have to go through a long, drawn-out process with high fees, multiple inspections, heaps of unnecessary paperwork and more before they can begin installing a system. During that time, the end customer may grow impatient, question the installer’s expertise, or second-guess the wisdom of installing a solar system.
This doesn’t even touch on things like labor, design or financing.
LBNL’s study analyzed the issue from an exhaustive number of angles. Some of their conclusions explain the disparity between U.S. and German markets.
- U.S. installers develop projects more slowly. (Projects take 126 days in the US, compared to 35 days in Germany.)
- Customer acquisition costs are higher in the U.S.
- Customer satisfaction rates in the U.S. are lower.
- Marketing and advertising expenses are higher in the U.S.
- US installers take a longer time to install systems.
- Installation labor in the U.S. comes with higher wages.
- The U.S. has higher fees for permitting and interconnection.
- Sales tax on PV systems is higher in the U.S.
But the most impressive disparity between U.S. and German markets was in “overhead, profit and other residual soft costs.” In the U.S., these elements cost about $1.61/watt, while in Germany they come to $.29/watt. A 2012 study by Woodlawn Associates indicates that profit margins aren’t very impressive in the U.S., so these residual soft costs include things like property expenses (such as utilities and rent), administrative costs, extra fees and insurances, and inventory-related expenses.
There’s no single reason U.S. soft costs are through the roof. There’s no single action we can take to remedy the problem. So what can we do?
The administrative and bureaucratic structure requires solar professionals to take extra steps, jump through hoops, sit around waiting, and shell out money for unnecessary fees. But green technology professionals are nothing if not innovative, and many have taken upon themselves to reduce time and expenses associated with things like permitting, labor and site analysis.
Many companies are going virtual. The internet allows solar providers, engineers, and other professionals to expand their reach, and gives them greater access to a wide variety of tools that are affordable for both them and their end clients. It also allows professionals located in different parts of the country to collaborate with one another, creating greater efficiency and value for end clients.
For instance, the new Solar Site Design app makes analyzing site potential and financial feasibility simple and quick. It allows contractors to input specs into an iPhone or Android, then it sends the information off to experts who use satellite data and other tools to arrive at incredibly accurate estimations for pricing, feasibility, and ROI.
The ability to give end customers accurate answers about energy costs, installation and pricing in a short amount of time can help contractors close a lot of sales.
Companies utilizing the cloud are also getting a lot of attention, as they innovate new ways to collaborate, analyze and deliver on solar projects.
One such company is GreenLancer, based out of Detroit. GreenLancer has created a virtual platform in the Cloud where contractors and freelance green engineers can connect.
“We’re basically a platform connecting freelance green engineers with contractors around the country. A contractor or developer logs in to our site and orders from a set of predefined engineering services. The contractor knows exactly what they’re going to get, when they’re going to get it, and what they’re going to pay,” explained CTO Patrick McCabe. “Then our GreenLancers bid, and one of them picks up the project. Since everything is predefined, there are no surprises regarding turnaround time or pricing.”
GreenLancer has permits in all 50 states, which cuts down on the time and fees that can arise during that process. Accomplishing all this in the cloud allows them to keep costs low, and like the Solar Site Design app, technology makes it simple for solar professionals nationwide to get reliable answers about project specs and pricing very quickly. But GreenLancer takes it a step further by actually providing access to an accredited pool of freelance specialists who take care of the engineering and design.
This kind of accessibility and flexibility is breath of fresh air in an industry where costs fluctuate from city to city, and some regions of the country have a marked lack of local solar experts. For instance, an electrical contractor in an undeveloped solar market could turn to a virtual green technology company, and add solar installation to their services, without hiring local specialists or subcontractors, and without having to jump through a mess of permitting and administrative hoops.
It may take time to work out the kinks in state and national administrative structures, but by continuing to educate, collaborate, and innovate, the solar industry can make decent headway towards reducing soft costs for both commercial and residential installations.
Lead image: Cut costs via Shutterstock