Soft Costs Now Largest Portion of Solar Installation Total Cost

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According to a new report from the NREL, non-hardware costs, so called soft costs, comprise up to 64% of the total price of residential solar energy systems, and up to 57% of the total costs for commercial systems. Another new NREL report shows that third-party ownership adds $0.78 per watt for residential systems and $0.67 per watt for commercial projects. 

According to a new report from NREL, in the first half of 2012, soft costs represented 64% of the total price of residential PV solar systems, up from 50% from the previous year. Soft costs for small (less than 250kW) and large (250kW or larger) systems represented 57% and 44%, respectively, both also up considerably from the previous year. The report, Benchmarking Non-Hardware Balance-of-System (Soft) Costs for U.S. Photovoltaic Systems, Using a Bottom-up Approach and Installer Survey – Second Edition,” reflects how soft costs are becoming an increasingly larger fraction of the cost of installing solar.

According to the report, the greatest soft costs for residential systems are:

  • Supply chain costs ($0.61/W)
  • Installation labor ($0.55/W)
  • Customer acquisition ($0.48/W)
  • Indirect corporate costs ($0.47/W) 

 

In contrast to the first edition of the report, the new report unpacked the “other soft costs” category. Those included costs for permitting, inspection, interconnection, subsidy applications, and system design. 

The report uses a detailed “bottom-up” cost-accounting framework to quantify five sub-categories: transaction costs, indirect corporate costs, installer/developer profit, supply chain costs, and sales tax (see figure below).

soft-costs

 

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 in 2010, “all other soft costs” had not been differentiated. For the second edition, we quantified five sub-categories within this broader category. Source: NREL.

Another new NREL report, “Financing, Overhead, and Profit: An In-depth Discussion of Costs Associated with Third-party Financing of Residential and Commercial Photovoltaic Systems,” takes a deeper look at these five sub-categories.

According to the report, adding all costs and margins together, a residential PV system would have had, in 2012, a total price of $4.52/W, and a commercial system would have a price of $3.66/W. Third-party ownership added $0.78 per watt for residential systems and $0.67 per watt for commercial projects. 

The authors of the report note that the higher price ignores three main benefits of third-party ownership: “First, third-party financiers offer additional services not included in the upfront cost of direct ownership. Second, while third-party financing costs may increase upfront costs, they may effectively lower the levelized cost of energy. Third, third-party businesses have gained significant market share in the United States, driving a considerable amount of PV demand.”