Cost Of Solar At An All-Time Low As Soft Costs Decline Amid Escalating Competition Posted on Dec 12, 2016
The cost of solar is at an all-time low, driven primarily by a decline in “soft costs” over the last four years.
According to the Lawrence Berkeley National Laboratory’s recent study summarized in “Tracking the Sun IX”, while solar energy system pricing is at an all-time low, over the last four years installed price reductions have been driven primarily by declines in “soft” costs. Based on data from approximately 800,000 solar energy systems, the decline in installed prices since 2009 was spurred initially by reductions in global PV module prices, but sustained since 2012 by continuing reductions in other hardware costs and “soft” costs. The “other” hardware costs accounted for approximately 20% of the price drop and primarily included reduced inverter and racking equipment costs. Beyond these reductions, the remainder is attributed to reductions in “soft” costs for things such as reduced pricing for marketing and customer acquisition, system design, installation labor, permitting and inspection costs, and installer margins. More recently, over the last week, solar panel prices are also dropping due to oversupply and unclear political environment. Thus, escalating competition is enveloping the solar market.
As financial incentives for PV drop, the pressure on installers and others in the supply chain increases to streamline business processes and reduce opportunities for value-based pricing.
Above and beyond the technical factors behind the decreases in soft costs over the last four years, the market has seen a significant shift of emphasis within the industry and among policymakers toward developing strategies to target soft costs. This broad and sustained focus has played the pivotal role in driving recent soft cost reductions through the growth of innovative business strategies and technologies. Further, financial incentives for PV in many states have fallen precipitously over time, and this is creating pressure on installers and others in the supply chain to streamline their business processes and reduce opportunities for value-based pricing.
Prices vary considerably across residential installers operating within the same state.
Based on the data gathered by the Lawrence Berkeley National Laboratory, pricing levels are not correlated to specific geographical regions or even company type. Their data shows that prices vary considerably across residential installers operating within the same state. Also, no obvious or consistent relationship exists between installer size and prices – i.e., high-volume installers are not associated with lower-priced systems.
Further price reductions and decreasing financial incentives in the PV industry are inevitable.
So, what does this mean for solar companies and others in the supply chain? The cost of solar-generated electricity will decrease even further through continued focus on reducing soft costs, and the current drop in PV panel prices will likely continue. It is expected that current solar-generated electricity pricing levels will achieve a 50 percent reduction between 2020 and 2030.
Installers and others in the supply chain must keep up with these pricing trends and be ready to compete by taking advantage of soft cost reduction opportunities. Competition in the solar market will likely increase drastically on a regional basis over the coming years. The companies that are not constantly streamlining their businesses processes and keeping up with the current technologies and opportunities available to decrease soft costs will not be able to compete as the industry continues to grow, especially in the current political climate.
To read the full reports and find out more information about the data referenced in this blog post, please see:
- “Tracking the Sun IX,” (August 2016). Lawrence Berkeley National Laboratory, Retrieved from https://emp.lbl.gov/sites/all/files/tracking_the_sun_ix_report_0.pdf.
- “PVinsights: Solar prices send bear signal with growth concerns lingering,” (December 9, 2106). Alternative Energy Magazine, Retrieved from http://www.altenergymag.com/news/2016/12/09/pvinsights-solar-prices-send-bear-signal-with-growth-concerns-lingering/25230.
- “New Solar Opportunities For A New Decade,” DOE Sunshot Initiative. Retrieved from http://energy.gov/eere/articles/energy-department-announces-more-90-achievement-2020-sunshot-goal-sets-sights-2030.