The U.S. solar industry grew substantially over the last three years and is expected to continue this strong growth. The Q3 2012 Solar Market Insight report from GTM and the Solar Energy Industries Association predicts total 2012 solar installations to reach 3.20 gigawatts (GW), up from 1.89 GW in 2011 and 0.85 GW in 2010. The employment impact of this strong growth is reflected in The Solar Foundation’s most recent National Solar Jobs Census. According to the Census, from August 2011 to September 2012, the U.S. economy saw an overall job growth rate of 13.2% in the solar industry alone, nearly six times higher than the national average employment growth rate of 2.3% over the same period. Installers contributed the most solar workers to the economy (accounting for nearly 50% of total solar jobs) and are expected to add close to 12,000 workers in the next year.*
We know domestic installations continue to break historic records, and that PV systems today are a fraction of the cost they were less than ten years ago, and that these costs continue to fall. However, new research from the U.S. Department of Energy’s Lawrence Berkeley National Laboratory (LBNL) shows that the U.S. continues to lag behind some global solar leaders in at least one important regard – the “soft costs” attached to residential PV installations.
Data collected from the LBNL survey, shown in Figure 1, reveals a $2.82/W difference in the installed PV price between the U.S. and Germany in Q4 2011, with this gap growing throughout 2012. According to these data, the price for residential PV systems is over twice as high in the U.S. than in Germany.
After reviewing and comparing surveys from 41 German solar installers and 56 U.S. installers, LBNL revealed that the main cause of this price gap was primarily due to differences in “soft costs”. According to the study, and illustrated in the chart below (Figure 2), “total soft costs, which include customer acquisition, permitting, interconnection, inspection (PII) and installation labor, for residential PV in Germany were significantly less than the implied soft costs for U.S. residential PV resulting in $0.62/W in Germany and $3.34/W.”
The residential PV price difference between Germany and the U.S. is due to a number of different components associated with its soft costs. Besides a lack of U.S. installer experience and a more novice solar market in the U.S., customer acquisition costs are higher in the U.S. due, in part, to fewer successful projects being completed after initial customer engagement (30% in U.S. vs. 40% in Germany), and higher marketing and advertising costs among U.S. installers. Higher installation labor costs in the U.S. are due to longer installation times and higher wages for U.S. installers. Many of these factors are expected to evolve as the market grows.
While PII accounts for $0.2/W or roughly 7% of the total installed PV price gap of $2.7/W, the difference in permitting, interconnection, inspection costs between the two countries is significant. PII costs are roughly 600% higher in the U.S. than in Germany. This is mainly due to higher labor hour requirements due to more difficult installations and higher permitting and interconnection fees in the U.S. According to the LBNL study, the PII process in Germany typically requires five labor hours and no permitting fees while in the U.S., the same process requires roughly 22 hours and an average of $430 in permitting fees per system. Market forces such as high market fragmentation, as seen in the U.S., can also affect PII costs, leading to higher overhead, transport, and supply chain costs. In the U.S., there are thousands of markets due to different PII rules and requirements in local governments and municipalities.
The U.S. could reduce many of these soft costs and bring prices closer in line with Germany through policies and practices at the local government level. Most notably, PII costs could be reduced by local governments via streamlining of their permitting processes, creating greater paperwork uniformity across jurisdictions, and simplifying the PII requirements by including online registration and performing more efficient inspections. As in Germany, lower soft costs could reduce residential PV prices in the U.S. and in turn, increase PV sales and installations to drive the solar industry forward. Numerous studies(1, 2) show that developing solar locally can provide long-term environmental and societal value by avoiding high electricity transmission congestion costs for ratepayers, enhancing grid security through near point power usage, and supporting local electrical and constructions workers. In addition, the increased economic activity associated with solar development can help expand the local tax base, making it a winning opportunity for all the local stakeholders.
Fortunately, the Solar Outreach Partnership works to assist local governments in their solar development needs through a variety of resources. The Partnership strives to help build strong local solar markets and offer complimentary technical assistance to areas seeking guidance to reduce barriers to solar production.
The Solar Outreach Partnership can assist your local community in reducing local solar soft-costs through complimentary, one-on-one consultations. For further information please visit the Solar Outreach Partnership’s Resource Database and Technical Assistance pages.*A “solar worker” is defined as “a worker who spends at least 50% of their time supporting solar-related activities.” (The Solar Foundation’s National Solar Jobs Census, Page 6)