The Soft Costs of Distributed Solar: Best Practice Recommendations for Cost Reduction
Non-staff authors: Sarah Benda
Distributed solar generation can contribute to the decarbonization of state economies. But relatively high soft costs – all of the non-hardware expenses of installing a solar system – remain a key barrier to more widespread deployment of distributed generation.
In 2018, the average cost of a residential rooftop PV system in the U.S. was $2.70/W. At an average of $1.72/W, soft costs make up 63% of the total price tag that homeowners can expect to pay when installing a new system. As hardware costs have fallen rapidly over the last decade – from $3.64/W to $0.99/W – soft costs make up an increasing share of total cost.
In order to maximize distributed solar development, continued efforts must be taken to understand and reduce soft costs. It can still be difficult to find detailed, state-level information that addresses both the magnitude of soft costs and how to reduce them. In this report, I review the existing literature and suggest areas where more data would be useful in supporting state policy initiatives.
Numerous groups and agencies, including the National Renewable Energy Laboratory (NREL) and US Department of Energy Solar Energy Technologies, have conducted research and launched programs designed to analyze and reduce soft costs, including the SolSmart and SunShot Initiatives.
NREL identifies seven distinct categories of soft costs: Permitting, Inspection and Interconnection, Install Labor, Sales Tax, Overhead, Net Profit, Customer Acquisition, and Supply Chain Costs. Customer acquisition is the most expensive category. It is interesting that permitting, inspection and interconnection (PII) typically receives the most attention when it comes to soft cost reduction. This is because PII often involves regulatory requirements, making it a share of costs over which policy makers have direct control.
Policy makers are in a position to reduce soft costs, as many cost elements, such as permitting, inspection, and taxes, are influenced by state and local policy.
An increasing consensus among experts points to a set of best practices that states and localities can follow to reduce soft costs. For example, online permitting, standardization across jurisdictions, and reducing wait times and fees can all contribute to lower costs. Other actions that could lower soft costs include reducing federal solar import tariffs, creating financial incentives, and supporting group purchasing campaigns.
Which specific combination of cost reduction strategies that will work best will differ by state and locality, and additional research and data is needed to analyze the options. Regardless of the strategies employed, reducing the cost of distributed solar will make it a more competitive energy option, and encourage more widespread adoption. In this way, soft cost reduction can help build a more resilient, carbon-free economy.