The Solar Industry and Its Falling Costs – 2/1/16

Falling “hard” costs for solar has made reducing soft costs problem #1 for the industry.

Hardware costs have dropped to a fraction of what they once were. From highs around a $1000 average per solar panel, the modules now cost less than $350 on average, and the cost continues to fall. Solar PV central inverter, the component converting the DC output to the utility standard AC, costs have remained level but the introduction of more efficient micro-inverters demonstrates another technological breakthrough. Substantial increases in investment in the US, Japan, and especially China have driven down manufacturing costs substantially via economies of scale and learning-by-doing.

Despite being theoretically easy to reduce, soft costs are more than 60% of the total cost of residential systems with their share of the cost still rising. Reports by the National Renewable Energy Laboratory analyzing the source of these costs found that the greatest contributors were supply chain costs, installation labor, customer acquisition and indirect corporate costs with power-purchase agreements adding a significant financing cost. Currently, high costs make the PPAs necessary to lower first cost barriers which are prohibitively large without the aid of third-party financing arrangements. There are plenty of other more flexible areas open to cost reductions.

For non-utilities, customer acquisition and installer overhead make up almost 50% of soft costs. They are also one of the most promising areas of cost reductions. Sales and marketing  should get easier and easier (see: cheaper) for companies as solar gains recognition as a viable alternative to fossil fuels and usage becomes more widespread. Estimated costs of customer acquisition in Germany only a fraction of those for the US making cost reductions almost inevitable when the regulatory and incentive systems simplify in the US. Fortunately for solar, green energy is set to benefit greatly from growing concern with sustainability and air pollution. The push by Democrats and solar-friendly Republicans to promote development can be seen in the renewal of valuable ITC and net-metering legislation have been a boon to the industry as well. A global preoccupation with climate change has created a perfect opportunity for solar to take on a bigger slice of total production.

If soft costs for solar are relatively high in the US now, then the industry stands to benefit greatly once they come in line with costs seen in other countries.

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