A just-released NREL report finds that "soft costs" in a solar installation can account for up to 64 percent of residential system costs and up to 57 percent of commercial installation costs. Another NREL report released this week finds that third-party ownership can add up to $0.78 per watt to residential costs and $0.67 per watt to commercial costs.     

The cost of solar financing and other non-hardware costs are known as "soft costs." Once secondary considerations, with the cost of solar hardware eviscerated by economies-of-scale and Chinese corporate practices, soft costs now stand out as a target for cost reduction.

Two reports out of NREL this week really go into the details of soft costs. The first report, Benchmarking Non-Hardware Balance-of-System (Soft) Costs for U.S. Photovoltaic Systems, is a deep look at non-hardware business process and installation costs. The second report, Financing, Overhead, and Profit: An In-Depth Discussion of Costs Associated With Third-Party Financing of Residential and Commercial Photovoltaic Systems, breaks down the costs of third-party ownership (TPO).

The authors found that in the first half of 2012, soft costs represented the majority of all costs -- 64 percent of the total price for residential systems, up from 50 percent the previous year. Soft costs were 57 percent of small commercial and 52 percent of large commercial installations, up considerably from the previous year.   

According to the report, for residential systems, the greatest soft costs are:

  • Supply chain costs: $0.61 per watt
  • Installation labor: $0.55 per watt
  • Customer acquisition: $0.48 per watt
  • Indirect corporate costs: $0.47 per watt
  • Other soft costs include permitting, inspection, interconnection, subsidy applications and system design costs

The customer acquisition number jibes very nicely with the findings of GTM Research and its sector-defining report on customer acquisition costs in solar.

There is also a bucket in many cost estimates called "other soft costs." The second NREL report attempts to better quantify the “other soft costs” category by looking at the financing, overhead, and profit for a specific business model: developing, constructing, and arranging TPO residential and commercial PV systems. Note that in the modeling for this report, the market participants are not vertically integrated like market leaders SolarCity and Vivint.  

According to this report, in this corporate structure, a residential PV system would have a total price of $4.52 per watt, and a commercial system would have a price of $3.66 per watt. Third-party-ownership-related costs add $0.78 per watt to a residential portfolio and $0.67 per watt to a commercial portfolio.

The report notes that while there is an initial cost, third-party financiers can offer services not included in the initial cost of direct ownership. And while third-party financing costs may increase upfront costs, they may also lower the levelized cost of energy.


Next week's U.S. SMI event in San Diego includes discussions on smaller installers and customer acquisition strategy. Register here.