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  • 02.10.17

Prices For Solar Panels Keep Falling, So Why Isn’t It Cheaper To Get Solar?

Now that we’ve made the tech affordable, we have to turn our attention to the less sexy parts of the business.

Prices For Solar Panels Keep Falling, So Why Isn’t It Cheaper To Get Solar?
[Photo: Alicia_Garcia/iStock]

It’s never been cheaper to go solar. The installed price for home solar systems is less than half of what it was eight years ago. More than 1 million U.S. homes have now taken the plunge, buoyed by falling module costs and ongoing federal and state subsidies.

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But, while this growth has been impressive, there are some question marks as to whether it can continue at the same pace. Some states are phasing out their subsidies. Module prices are flattening. And “soft costs”–which include signing up customers, installation, and maintenance–remain relatively high, especially when you compare the U.S. with other leading markets, including Germany and Australia.

“Soft costs comprise about 67% of a total [U.S.] residential system price. So while continued hardware cost reductions and technology innovation will continue to bring down overall system prices, ‘dramatic’ cost reductions will primarily come from reducing soft costs,” says Ben Gallagher, a solar analyst at GTM Research, in an email.

Gallagher says selling a solar system in Germany is easier because the cost of grid-derived electricity is higher (so the savings are bigger) and because Germans, generally speaking, are more impressed by solar’s environment benefits. Also, a national installer here, like SolarCity, has to cope with a patchwork of inspection, interconnection, and permitting regimes across states, whereas in Germany the equivalent company operates under a more uniform, national system.

Part of the reason costs are high is that homeowners need personal persuasion before signing on the dotted line. “Door-to-door solar salespeople are critical at this point in the residential solar adoption lifecycle,” argues Liz Delaney, program director at the Environmental Defense Fund’s Climate Corps initiative. “Most consumers do not understand what a kilowatt hour is and how they are billed for electricity, much less about solar power and the savings benefits it can bring. This education requires a lot of hand holding and trust building but does come at a cost.”

The solar industry employs 208,000 people, according to a recent EDF report. Which is obviously good news. Solar employment opportunities are currently growing 12 times faster than the rest of the U.S. economy, and solar wages are above the national median of $17.04 an hour, EDF says. The solar industry created 1 in every 50 new jobs in the U.S. in the 12 months up to November 2016, according to another report from the nonprofit Solar Foundation.

Word of mouth and a “peer effect” to solar purchases (that is, if your neighbor has solar, you’re more likely to get it) should lower customer acquisition costs over time. Meanwhile, sites like SolarPowerRocks.org and Google’s Project Sunroof help customers get a sense of costs and estimate their potential savings from solar. The latter uses high-resolution aerial imagery from Google Earth to work out how much energy a rooftop can generate, factoring in shade, roof angle, and sunlight hours.

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But David Bywater, CEO of installer Vivint Solar, expects solar to remain a “consultative purchase” for now. “If [owners] are putting a $30,000 to $40,000 investment in their home, they want to make sure it’s the right solution for them,” he says, in an interview.

And an inspector still needs to visit and decide whether the roof can take the weight of the racking and paneling. “You can now buy a car online almost entirely by yourself. People didn’t do that 10 years ago. So I think we’ll have more self-education and self-sign-ups over time. But there are still some residual things that need on-site verification,” Bywater says.

Gallagher, at GTM Research, says reducing installation times, maximizing installations in a day, and having sales people do preliminary project design all have potential to reduce soft costs. Meanwhile, Vivint is using Google’s platform to reduce its own project planning overheads. And, by changing how it does panel racking, it’s reduced its on-site installation teams by 20%, Bywater says.

Reducing the solar industry’s soft costs isn’t the sexiest part of the renewable energy revolution: It’s likely to take years and involve many incremental improvements. But it is vital. If residential solar is to become truly mainstream, it needs to become cheaper, easier, and more transparent for consumers.

About the author

Ben Schiller is a New York staff writer for Fast Company. Previously, he edited a European management magazine and was a reporter in San Francisco, Prague, and Brussels.

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