In our first article, we talked about the exponential growth of home solar power — and how reductions in cost are driving consumer choices in Connecticut. Today, we’ll look at what other global and local factors determine cost.
We’re in a unique position to do this because the Connecticut Green Bank facilitates financing for residential solar projects. This means we receive a lot of economic data on the costs imbedded in solar systems.
In the solar market, we are focused on reducing the time and money it takes for an installation to move through the permitting process and get connected to the power grid. We also help Connecticut installation companies gain new customers using fewer resources – and pass the savings on to the consumer.
But in order to do that, we have to understand why solar power costs what it does.
Note: The data is for Connecticut residential system. Also note that from 2004 to 2011, the Green Bank was known as the Clean Energy Fund.
The hardware: Solar panels
Until recently, it was the equipment that accounted for the lion’s share of costs. This includes photovoltaic (PV) modules — the panels that collect sunlight. And it also includes the power inverters that convert the direct electrical current (DC) created by the panels into alternating current (AC), which powers our homes and allows the energy to feed into utility lines.
We call these equipment expenses ‘hard costs.’
Hardware prices, specifically the solar panel modules, have come down significantly.
So what caused the dramatic fall from 2009 to 2013? One likely possibility is that manufacturing became more efficient, as companies competed to meet demand.
The other is the less expensive Chinese solar panels, which are being increasingly used in Connecticut and around the world.
China has been able to flood the global market with its panels because it provides export subsidies to its solar manufacturers. That pushed panel prices down, which undercut prices in other countries. Unable to compete, many American and European manufacturers were forced into bankruptcy. In response, the U.S. placed import tariffs on Chinese panels.
At the end of the day, our data show that imported panels tend to be cheaper than U.S.-made panels. But the data doesn’t take into account the specific attributes of any given panel. Things that can add value, and vary the cost, include the panel’s efficiency, aesthetics and technology. So without doing a model-by-model comparison, it’s hard to speculate how much extra value U.S.-made panels provide to the customer.
Hardware: Solar PV inverters
The cost of inverters has remained roughly level, but there’s a catch.
Before 2010, the only type was a ‘centralized inverter,’ which connected all panels to one machine; this meant that one poorly performing panel could reduce the maximum output of the system. In 2010, more expensive and efficient inverters were introduced, called ‘micro-inverters.’ They are mounted on each panel, which means they can operate independently.
Use of micro-inverters has grown significantly since 2010. But as the solar market has grown, the percentage of houses using micro-inverters has declined. The reason seems to be the booming popularity of solar leasing in recent years; homeowners who purchase systems tend to split equally on what sort of inverter they purchase, but solar leasing companies use central inverters much more often.
So even though it appears that the cost has remained level, this timeline includes the introduction of a more expensive and efficient type of inverter. This could very well mean that the cost of regular inverters has gone down.
Soft costs going up
Money spent on labor – and not hardware – goes to “soft costs.” This includes things like engineering and design, installation and permitting costs. And over the past year, soft costs have become a larger share of the cost than hardware, accounting for about 60 percent of the system cost. This means they are the next frontier in pressuring prices down.
One area we’re looking at is the process of getting permits for a system.
Soft costs: Permitting, Inspection and Interconnection
Connecting your solar installation to the power grid is fairly standard, because there are only two investor-owned electric utilities that service nearly the entire state.
But permitting is tough. It differs for each of Connecticut’s 169 municipalities. The variation can create geographic differences in solar PV pricing, because the more time a project spends undergoing permitting review, the more visits an installer must pay to the town. In response, industry groups have pushed for more standardization across municipalities.
From town to town, permit fees can range from $0 to $767, with an average fee of $408. (Note: Installers report this data to us. If any towns have new information, get in touch, and give us an update.)
But this situation may be about to change. The Connecticut General Assembly recently passed legislation requiring towns to incorporate solar photovoltaic systems into their building permit application.
A town’s average fee is just one input into the total system cost. The most obvious cost driver is size; towns with bigger houses that consume more electricity produce higher average costs, since the size of their system is probably matched to the size of their electric bill. Also, data for towns with a low number of installations could more easily be skewed by a few really large installations.
Soft cost: Customer acquisition
Solar installers invest in acquiring new customers, which can involve advertising, demographic targeting, canvassing home improvement stores or neighborhoods, and even sending staff out to have kitchen table conversations with potential customers. All those things take resources.
At the Green Bank, we try to reduce these costs using grassroots outreach campaigns with municipal volunteers, group purchasing and time-limited offers. The goal is to drive faster, more affordable deployment of home solar systems.
All the factors above can change the price tag on solar installations for Connecticut residents. And the reasons behind these cost drivers are both global and local. From China to Cheshire, these are some of the trends the Green Bank sees in the hard costs and soft costs of residential solar power.
In our next story, we’ll explore the ‘Solarize’ campaigns, which are programs that reduce customer acquisition costs.
Isabelle Hazlewood, Lucy Carpentier and Selya Price contributed to this story
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