Soft costs account for most of PV residential installation costs

The U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) has published an updated report in which it states that up to 64% of installation costs for rooftop solar systems are taken up by so-called "soft costs".

The first edition of the report – titled Benchmarking Non-Hardware Balance-of-System (Soft) Costs for U.S. Photovoltaic Systems, Using a Bottom-Up Approach and Installer Survey – was published in 2012 and found that soft costs accounted for approximately 50% of the entire installation costs.

This latest edition appears to lend credence to the notion that non-hardware costs now account for the majority of the expense when installing a rooftop solar system.

The study found that for residential U.S. systems, supply chain costs of $0.61/W were the largest single soft cost, followed by installation labor at $0.55/W, customer acquisition ($0.48/W) and indirect corporate costs – such as accounting functions and maintaining office management – at $0.47/W. Less expensive but still an important consideration were costs relating to permits, inspection, interconnection, system design and susidy applications.

Third-party ownership

NREL’s updated report took a bottom-up approach to its calculations, quantifying five sub-categories: transaction costs, indirect corporate costs, installer/developer profit, supply chain costs, and sales tax. These sub-categories were balled together as one in the earlier study, but broken down and analyzed by researchers for the second report: an approach that enabled NREL to better quantify the costs associatied with each step of a solar system installation process.

As well as identifying soft costs, the second report – titled Financing, Overhead and Profit: An In-depth Discussion of Costs Associated with Third-Party Financing of Residential and Commercial Photovoltaic Systems – also looked at the cost breakdown of third-party owned systems and found that for residential systems, third-party ownership added $0.78/W. For commercial projects, that figure was lower, at $0.67/W.

NREL noted that despite the costs, there where three main benefits in choosing a third-party finance option: the availability of additional services, incentives and maintenance arrangements; third-party financing is likely to lower the overal LCOE over time; and businesses that offer third-party installations are now in charge of 70% of the U.S. residential solar market, and so are driving demand.

"The two reports, along with previous reports, provide a comprehensive look at the full cost of installing solar, while delineating and quantifying the various contributors to that final cost," said NREL analyst Barry Friedman.