Solar soft costs rising

December 5, 2013 | By Barbara Vergetis Lundin

Solar financing and other non-hardware costs (soft costs) now comprise up to 64 percent of the total price of residential solar energy systems, reflecting how soft costs are becoming an increasingly larger fraction of the cost of installing solar, according to research from the U.S. Department of Energy's National Renewable Energy Laboratory (NREL).

Residential soft cost categories for the first (2010 data) and second (2012 data) editions of the benchmarking study. For the first edition of the benchmarking study, 2010 "all other soft costs" had not been differentiated. For the second edition, we quantified five sub-categories within this broader category. Click to enlarge. Credit: NREL

After gathering information from 55 residential PV installers representing about 27 MW of capacity installed during the first half of 2012 and 22 commercial PV installers representing 269 commercial PV installations (66 MW of capacity) for the same period, researchers found that in the first half of 2012, soft costs represented the majority of all costs – 64 percent up from 50 percent of the total price found in earlier research. Similar results were found for small and large commercial installations – 57 percent of the total cost for small (less than 250 kW) commercial systems (up from 44 percent) and 52 percent of the total costs for large (250 kW or larger) commercial systems (up from 41 percent).

For residential systems, the greatest soft costs were supply chain costs ($0.61/watt), installation labor ($0.55/W), customer acquisition ($0.48/W), and indirect corporate costs ($0.47/W), such as maintaining office management and accounting functions.

Researchers and industry developed and vetted a bottom-up analysis of costs associated with developing, financing, constructing and arranging the financing for third-party owned systems. The model quantifies the indirect corporate costs required to install distributed PV systems as well as the transactional costs associated with arranging third-party financing. The researchers conducted in-depth interviews with members of finance departments at large PV installation companies and collected data from corporate public filings, finding that third-party ownership added $0.78 per watt for residential systems and $0.67 per watt for commercial projects.

The researchers also noted three of the main benefits of third-party financing arrangements. First, third-party financiers offer additional services, such as shopping for systems, maintaining systems, and applying for incentives. Second, third-party financing may effectively lower the levelized cost of energy over time through economics of scale. Finally, businesses offering third-party ownership of installations have gained approximately 70 percent of residential market share in the United States, driving much of the PV demand.

The findings in these reports provide benchmarks and help track progress of the SunShot Initiative, a national effort to make solar energy fully cost-competitive with traditional energy sources by the end of the decade.

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http://www.fierceenergy.com/story/solar-soft-costs-rising/2013-12-05