It’s happened. The soft costs of solar photovoltaics—the non-hardware costs related to solar panels and inverters—now comprise the majority of the costs of a rooftop solar array in the U.S. That’s according to not one, but two new reports out from the National Renewable Energy Laboratory. While the hardware costs of solar have plummeted over the past few years, the soft-costs of solar haven’t—even though they’ve always represented some of the easiest areas for cost reductions in a solar array.
“Soft costs are both a major challenge and a major opportunity for reducing PV system prices and stimulating SunShot-level PV deployment in the United States,” NREL said in "Benchmarking Non-Hardware Balance-of-System (Soft) Costs for U.S. Photovoltaic Systems, Using a Bottom-up Approach and Installer Survey – Second Edition,” the first of the two complementary reports. That and "Financing, Overhead, and Profit: An In-depth Discussion of Costs Associated with Third-party Financing of Residential and Commercial Photovoltaic Systems” find that solar soft costs across the U.S. now account for an average of 64 percent of a residential solar installation.
"The two new reports, along with previous reports, provide a comprehensive look at the full cost of installing solar, while delineating and quantifying the various contributors to that final cost," NREL analyst Barry Friedman said.
The first study took a detailed look at the soft-costs of solar over the first half of 2012, assessing 4,260 residential installations that totaled 27 megawatts of residential capacity. It also examined 69 commercial installations comprising a total of 66 megawatts of solar installations.
For residential solar, the hardware costs of photovoltaics declined to $1.83 per watt in 2012 from nearly double ($3.30 per watt) in 2010. At the same time, the cost of a residential PV array, when all costs are considered, fell to $5.02 per watt from $6.60 per watt. While they were roughly 50 percent of the costs of an array in 2010 at $3.30 per watt, they’re now 64 percent of an array’s costs in 2012 at $3.19 per watt.
The first new report is a follow-up to a report published in 2012, but offers a much more in-depth look at non-hardware costs of solar arrays. Whereas the first report looked at labor, tax and customer acquisition costs, the new report also looked at solar installer profit, supply chain costs and more, to give a more nuanced accounting of where each of the costs came in. It found that the greatest soft costs for residential solar were supply chain costs, installation labor, customer acquisition and indirect corporate costs.
The second report broke down the soft costs further. It looked at the finical structures being used to support residential and commercial solar arrays. It found that third-party ownership like power-purchase agreements (PPAs) add 78 cents per watt installed for a residential solar array. “However, this ignores three of the main benefits of third-party financing arrangements,” it said. The benefits include additional services like monitoring and repair, which may lower the levelized cost of energy and their ability to gain significant market share (70 percent) in the U.S. has driven residential solar demand.
In fact, the second report revealed that without PPA options solar prices could increase. “In Arizona, approximately 90 percent of the systems installed during 2012 and through the first half of 2013 were third-party owned,” the study found. “Without the third-party option, it is likely that fewer customers would be willing to purchase PV systems (e.g., due to first cost barriers), and the market would shrink considerably, possibly driving up overhead costs to EPC installers on a per-watt basis.”
Over the next few years, NREL anticipates that some installers and developers with uncompetitive business models will exit the marketplace and overhead costs and margins will come down on their own. However, it also said that benchmarking specific cost contributions of various parts of the solar installation process as the potential for cost-reductions can help. Another area for soft-cost reduction is reducing labor through such things as “plug and play” PV systems and PV installer training and certification programs.