From Executive Summary:
This report presents results from the second U.S. Department of Energy (DOE) sponsored, bottom-up data-collection and analysis of non-hardware balance-of-system costs—often referred to as “business process” or “soft” costs—for U.S. residential and commercial photovoltaic (PV) systems. Annual expenditure and labor-hour-productivity data are analyzed to benchmark 2012 soft costs related to (1) customer acquisition and system design and (2) permitting, inspection, and interconnection (PII). We also include an in-depth analysis of costs related to financing, overhead, and profit.
The second annual survey of U.S. PV installers was deployed from September 2012 to May 2013, focusing on customer acquisition and PII costs for the study period of January 1 to June 30, 2012. We gathered data from 55 residential PV installers, representing 4,260 residential installations and approximately 27 MW of residential capacity installed during the first half of 2012. We cleaned the data for outliers, yielding sample sizes ranging by cost category from 47 to 53. We also gathered data from 22 commercial PV installers, representing 269 commercial PV installations during the 6-month study period for a total of 66 MW of capacity.
According to our analysis, the soft costs accounted for a significant portion of total installed PV system prices in the first half of 2012: 64% of the total residential system price, 57% of the small (less than 250 kW) commercial system price, and 52% of the large (250 kW or larger) commercial system price.
In contrast to the first edition of this report, in this second edition we have unpacked the “other soft cost” category using a detailed “bottom-up” cost-accounting framework into five categories: transaction costs, indirect corporate costs, installer/developer profit, supply chain costs, and sales tax. Specifically, we model a third-party ownership structure, capturing the costs of doing business that have not been previously quantified, such as engineering, procurement, and construction (EPC), developer and finance department staff and overhead, professional/legal services, capital costs during construction, and other costs that may not be attributable to specific PV projects. The detailed breakdown of soft and hard costs are shown in Figure ES-1.
As shown in Figure ES-1, we find that economies of scale helped reduce soft costs, particularly when comparing the residential and small commercial systems with the large commercial systems. Among the individual soft-cost categories we characterized, supply chain costs, indirect corporate costs, transaction costs, and installer/developer profit are dominant contributors, followed by installation labor, sales tax, and customer acquisition. PII contributes relatively little cost when measured in terms of dollars per watt but presents a market barrier that can deter project completion entirely. It is difficult to know for certain how many projects are deterred in this way each year, but the issue underscores the importance of considering market barriers and other market factors, rather than limiting soft-cost analysis to installed costs. Our analysis suggests that customer acquisition and PII costs decreased from 2010 to 2012.
The SunShot Initiative aims to reduce the installed-system price contribution of all soft costs to approximately $0.65/W for residential systems and $0.44/W for commercial systems by 2020, in 2010 dollars (DOE 2012).1 The soft costs we characterized contributed $3.19/W for residential systems, $2.90/W for small commercial systems, and $2.02/W for large commercial systems, in 2010 dollars.
Soft costs for residential and large commercial systems declined in the United States between 2010 and 2012, while small commercial soft costs increased. This second benchmarking effort characterizes all PV soft costs—which the previous edition did not—and represents the most granular analysis to date that measures progress toward the SunShot soft-cost-reduction targets.
Soft costs are both a major challenge and a major opportunity for reducing PV system prices and stimulating SunShot-level PV deployment in the United States. The data and analysis in this series of benchmarking reports are a step toward the more detailed understanding of PV soft costs required to track and accelerate these price reductions.