The cost to install solar has dropped by about 50% over the last 5 years. This cost reduction, along with new financing models, has helped launch the current solar boom that has been able to benefit hundreds of thousands of US homeowners who now have solar panels installed in their homes. However, while solar costs have dropped, 90% of the reductions have been on the hard cost side of the equation (equipment & materials). While hard costs have fallen, the soft costs (business operating expenses) have remained the same.
This has lead to next big challenge for the solar industry: reducing soft cost.
What are the costs to install solar? Solar costs can be separated into two categories:
- Hard costs – Equipment costs like solar panels and inverters
- Soft costs – Labor costs for business operations such as client acquisition (marketing & sales), design, permitting, construction, overhead, and administration of solar paperwork.
Will the cost of solar continue to drop?
Not really. Of note, most of the cost reduction over the last few years has been on the hard cost (equipment) side of the equation. Several years ago, China dumped cheap solar panels on the global market, forcing all other solar manufacturers to cut their prices or shut down. China’s move, along with other factors like reduced silicone costs, reduced hard costs of solar worldwide. However, it appears that equipment costs have dropped as low as they can and are expected to increase slightly over the next year or so.
Hard costs have dropped dramatically over the last few years.
Solar’s Soft Costs
While solar’s hard costs have bottomed out, the soft costs have not changed much over the last few years. There are a variety of reasons for soft costs staying high, from increased customer acquisition costs to the time spent navigating the different permit requirements each city has for solar. In general, the soft cost have stayed high because operating a business is challenging and solar is a highly technical industry with lots of bureaucratic hoops.
What is being done to reduce sales, design, and construction costs?
There is hope. Reducing the soft costs has become a top priority for the Solar Industry, with help from the US Department of Energy. The US Department of Energy launched their SunShot Initiative to help innovate ways to reduce soft costs. Part of their program includes research grants on how to improve business operating efficiency through cloud based CRMs and project management tools.
US Department of Energy sponsored Case Study
Allterra was the subject for a recent Case Study highlighting a successful model for operating a solar business. Allterra Solar was selected for the Case Study for two main reasons:
1) Allterra has been using Solar Nexus’ Cloud Based Sales & Project Management program for over 1 year; and
2) Allterra has demonstrated rapid growth while continuing to reduce operating costs. The Case Study can be found here.
Solar Costs going forward
It will take a few years before solar’s soft costs drop significantly. However, the measures currently being taken by the US Department of Energy and others will have a long-term benefit that will help solar make the next jump to nationwide grid parity.