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Soft Costs Stand in the way of Reaching Grid Parity for Solar

DOE Report shows the significance of declining prices in solar

The Department of Energy (DOE) and the Lawrence Berkeley National Lab (LBNL) recently released a report on the declining price of solar in relation to the DOE’s SunShot Initiative. The U.S. Department of Energy (DOE)’s SunShot Initiative, aims to reduce the cost of photovoltaic (PV)-generated electricity by 75%, between 2010 and 2020.

The report focused on the installed price of solar arrays and analyzing the historical pricing trends. In this report, the writers consider the “installed price” of a photovoltaic (PV) array to be the up-front cost of the system for the owner before incentives are deducted. The analysis is based on project-level data from more than 200,000 residential, commercial, and utility-scale PV systems in the United States. The sample is a representation of 72% of all grid-connected PV capacity installed in the United States through 2012.

The Numbers don’t lie

Installed prices continued their steep decline in 2012, falling year-over-year by 14% for systems less than 10kW, 13% for systems 10-100kW, and 6% or systems greater than 100kW. Among projects installed in 2012, median installed prices were $5.3/W for systems less than 10kW, $4.9/W for systems 10-100kW, and $4.6/W for systems greater than 100kW. All these findings come from then “Tracking the Sun” report researched and complied by the Lawrence Berkeley National Laboratory (LBNL).

Partial data for the first six months of 2013 indicate that installed solar prices have continued to drop, with the average installed price of projects funded through the California Solar Initiative (CSI) declining by an additional 10-15%. Energy experts feel that in order to drive the cost of solar down, reducing the “soft costs” involved with installing a solar system will be significant in reaching grid parity.

Despite these steep declines, U.S. prices are still significantly higher than those of some international markets according to the “Tracking the Sun” report. In Germany, Italy and Australia, the price of small PV systems installed in 2012 was roughly 40% lower than prices in the United States. A majority of the 40% price difference for the U.S. can be attributed to the soft cost prices of PV systems. In addition, the U.S., in comparison to countries like Germany and Australia, has a much more divided regulatory system, which leads to different states and jurisdictions having different laws, policies and permitting requirements. If the cost of solar continues to drop by 7% annually, it will take the U.S. 13 years to match Germany’s current cost of solar.

Therefore, in order to help solar generated power reach grid parity without subsidies, the soft costs involved with installing a solar array need to decrease. The soft costs of a solar array include the following: permitting, inspection, interconnection, financing, and customer acquisition. Currently, in the United States, according to the National Renewable Energy Laboratory (NREL), soft costs account for about half of the total installed price of a PV solar system. If the U.S. solar industry were to eliminate the need for permitting and commissioning, it could see a cost reduction of about $0.23 per watt according to the NREL.

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