Soft costs key to lower solar prices

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Residential PV customer aquisition costs account for about 10% of overall residential solar system costs and are estimated to be as high as $0.49 per watt. A variety of services are emerging to solve the customer acquisition problem, and costs are expected to fall to $0.35/W over the next four years, saving the industry a total of $619 million between 2014 and 2017. 

PV hardware costs, especially those of modules, are beginning to bottom out, and installers are looking to soft costs as the next opportunity to decrease costs. According to a report recently published by Rocky Mountain Institute (RMI) and the National Renewable Energy Laboratory (NREL), PV ‘soft’ costs account for more than 50% of total installed residential costs and over 40% of commercial costs, indicating the huge potential for cost reduction.

One much-discussed PV soft cost is customer acquisition cost. According to GTM Research’s latest report, ‘U.S. residential solar PV customer acquisition: strategies, costs, and vendors’, customer acquisition currently accounts for approximately 10% of overall residential solar system costs. GTM estimates that residential solar customer acquisition currently costs installers $0.49/W. At the current cost and conversion rate, the solar industry will spend more than $1 billion and need 3.9 million leads to reach the forecasted 262,000 residential installations in 2016 alone.

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While other soft costs such as permitting will primarily be reduced with government support and industry lobbying, installers can make changes to their lead generation strategies, allocation of resources, types of software used, and other external services procured to reduce customer acquisition expenses. 

Customer acquisition has the most near-term potential for cost reduction. The report by RMI and NREL, suggest three solutions that can decrease residential customer acquisition costs: (1) software tools, to reduce the total time spent on site; (2) design templates, to reduce system design costs; and (3) consumer-targeting strategies, increase the number of leads generated. GTM expects that residential customer acquisition costs over the next four years will fall to $0.35/W, saving the industry a total of $619 million between 2014 and 2017.

Several acquisitions of these software and service vendors have already occurred, marking the beginning of what is expected to be among the most active spaces for innovation, M&A activity, and differentiation in the U.S. solar market for years to come.

Nicole Litvak, author of GTM’s report commented: “In today’s increasingly competitive market, the leading residential solar companies have already come to recognize the importance of finding and converting leads in a timely and cost-effective manner. In just the last month, we’ve seen two acquisitions of originators specifically to reduce customer acquisition costs. This marks the beginning of what we expect to be an active market of mergers and acquisitions, strategy differentiation, and software innovation.”