The Future Of US Solar Power: Opportunities In Soft Costs

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"The Future Of US Solar Power: Opportunities In Soft Costs"

(Credit: Anne Cusack/Los Angeles Times)

Solar power “soft” costs remain the United States’ greatest opportunity for cost reductions in solar energy deployment. These costs — which include permitting, inspection, interconnection, financing, customer acquisition, and others — represent approximately half of the total installed cost of residential solar systems, according to the National Renewable Energy Laboratory (NREL).

In order for the US to remain a serious global competitor in a future that, according to the IEA, will have renewables outpacing natural gas generation by 2016, we must encourage investment now. Contrary to claims by the Breakthrough Institute, soft cost reductions are not limited to Germany, and are possible in US markets without federal production and installation incentives.

Financing

Due to relatively high up-front capital costs, distributed generation (DG) requires sustainable, low-cost financing to compete with conventional fuels. However, there are plenty of opportunities to reduce the costs of capital without the use of German-style long-term federal incentives.

For example, banks assess cost of capital from the anticipated project risk, which is based on a number of factors, especially knowledge and experience. As banks increase their knowledge and experience financing solar projects, the cost of the capital they provide will decrease.

The experience risk factor will naturally decrease over time. Tony Clifford of Standard Solar says, “As conventional banks become more familiar with solar projects, larger institutions will finance solar projects on more favorable terms than we realize today. Bankers will see less technology risk and less construction risk.”

The other factor, knowledge, can be enhanced through private innovation. One group, kWh Analytics, is pursuing this by developing a rating mechanism for photovoltaic (PV) systems. A comprehensive and accurate rating system that applies a clear, accessible score to a project, and will allow financiers to more easily assess and finance solar systems. KWh estimates this simple rating system can reduce the cost of capital by $0.40 per watt.

Financing costs could also be reduced by extending Master Limited Partnerships (MLP) to renewables. Opening MLPs to renewables would increase access to cheaper capital equity and lead to more investment. Unfortunately, the most recent attempt to achieve MLP parity is stalled in Congress. An important step in reducing the soft costs of private investment is passing the Master Limited Partnerships Parity Act.

Finally, developing innovative financing mechanisms is key to spurring demand and investment in solar systems. Third-party leasing schemes, like solar power purchase agreements (SPPA), can eliminate up-front capital costs and provide predictable energy prices. Another idea, community solar farms, would allow consumers to reap the benefits of solar energy while simultaneously achieving the benefits of scale. State and local governments should encourage policies to promote SPPAs and community wind and solar farms. Developing these types of projects will be instrumental in moving US solar adoption beyond its infancy.

Hardware

Although PV cell prices have declined significantly over the last 36 years, the true benefits of PV system innovation are on the horizon in “Plug and Play” solar systems. This concept is designed to standardize and simplify PV systems so that panel installation is as simple as installing a washing machine. A PV manufacturer would supply a “solar kit” that includes panels, wiring, inverters, controllers and mounts with directions for manual installation. This immediately eliminates the need to hire a professional electrician/line worker, which can lead to reductions of approximately $0.59 per watt. Plug and play solar systems could also eliminate the need for permitting and commissioning, which NREL estimates could potentially reduce costs by an additional $0.23 per watt.

The Department of Energy (DOE) is already evaluating these technologies for the PV market. The DOE should continue encouraging private companies to develop plug and play systems and should work to standardize permitting, inspection, and installation policies to make solar installation as simple — and safe — as possible.

Customer Acquisition

Finally, customer acquisition and system design, which represent approximately 45 percent of soft costs, present an enormous opportunity for innovative cost reductions to residential PV installations. Companies like Clean Power Research are developing software tools to help companies provide customers with clear and simple information on incorporating PV into their homes. These tools would help customers search online for the best PV system and financing mechanism to meet their budget and other needs.

However, additional tools are still needed. We should develop a comprehensive solar database that will act as a reliable and unbiased source of information on PV vendors and financing opportunities. This database would help consumers evaluate the costs and benefits of competing solar systems in competitive markets based on location, home model, and budget. This would reduce the cost of generating leads and would encourage companies to continue improving their products in a competitive market.

Although the US solar industry still depends on federal support, there are plenty of effective, market-based solutions to reduce solar soft costs that do not require tapping into the federal purse. As long as the US encourages both smart public policies and private innovation, soft-cost reductions are clearly achievable in the PV market.

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19 Responses to The Future Of US Solar Power: Opportunities In Soft Costs

  1. Solar Jim says:

    If all these measures were implemented then a significant portion of existing national utility investment would be “stranded” (i.e., uneconomic). Look for existing investors (aka Wall Street, especially banks) to oppose most efforts.

    It’s like trying to remove atomic fission insurance indemnification (which this entire “industry” scheme is built upon).

  2. Spec says:

    The DoE should create a ‘model building code’ that will specify a simplified set of requirements for solar PV installation to reduce the costs with designing and permitting a PV installation. As is, the installers have to deal with a crazy patchwork quilt of conflicting rules & regulations among the various different places they work.

  3. Mark Shapiro says:

    Develop methods and materials to make PV panels into roofing systems: they must repel rain and wind and be replaceable if damaged.

    This makes the PV roof a simple, standard feature like windows and doors. Done right, a PV roof would cost less to install than a shingle roof and perform better.

    Of course, a PV roof is only useful in a house that plans to use electricity.

  4. Leif says:

    “For example, banks assess cost of capital from the anticipated project risk, which is based on a number of factors, especially knowledge and experience. As banks increase their knowledge and experience financing solar projects, the cost of the capital they provide will decrease.”

    As long as banks can invest in the higher ROI by investing in the ability to profit from the pollution of the commons, nothing will change. “Socially enabled capitalism” is a failed paradigm. Price Carbon and see some changes.

  5. Gingerbaker says:

    “In order for the US to remain a serious global competitor in a future that, according to the IEA, will have renewables outpacing natural gas generation by 2016, we must encourage investment now. ”

    Really, must we? Or is that just the corporate line?

    Instead, why don’t we have a conversation about large-scale or medium-scale publicly-financed renewable energy projects?

    Because if we want to get our renewable infrastructure in place in time to avert disaster, and we would like to do this as cost-efficiently as possible, that means the opposite of for-profit rooftop solar.

    • Mulga Mumblebrain says:

      Exactly. Right to the bitter end, the brainwashed galahs will keep screeching ‘Leave it to The Market! Leave it to The Market!’ Translating from the galahberish, leave it to the money power and minuscule ‘consciences’ of the rich. Profit maximisation remains the overriding priority, and will to the end of time, now quite close.

    • SecularAnimist says:

      Um, “for-profit rooftop solar” means thousands of high-paying jobs for the people who install those systems.

  6. Spec says:

    Someone needs to create hub for DIYer solar people. With microinverters, any DIYer with the skills to install an outlet for an electric dryer and a roof vent has all the skills they need to install an AC-based PV system. All the DIYers need is some sample plans and a confidence boost. For $10K in parts ($7K after tax-credit), get electricity for the next 25+ years.

    • SecularAnimist says:

      A tiny fraction of the people who want rooftop PV have the skills to spec out, design and install such a system. That’s exactly why the rooftop PV installation industry is booming and employing tens of thousands of skilled installers.

      • Leif says:

        Most roofs need to be replaces every 15 -20 years. Long lasting solar can come to all that need replacing eventually with proper financing. A new roof that pays for itself. That has got to be a winner.

    • wili says:

      Does anyone know what the current status of “plug-and-play” solar is–systems that you just have to screw onto your roof (or other surface) and plug into an outlet?

      Are the technical difficulties for such a thing so hard to overcome?

      • SecularAnimist says:

        I have read that plug-and-play solar panels are available and being installed willy-nilly in Germany … apartment dwellers hang them from south-facing balcony railings, and plug them into an AC outlet.

  7. Katie says:

    No need to wait and “leave it to the market”… have you checked out Mosaic? Mosaic is an online marketplace that let individuals invest in solar projects- and receive 4.4-6.38% returns (https://joinmosaic.com/browse-investments/solar-carport-on-university-housing-23).

  8. Merrelyn Emery says:

    Imagine: We run a campaign to convince the American people that they own every ray of sunshine that falls on their country, and have a god given right to use it. Patriots and evangelicals alike – rise to claim your rights! ME