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Solar Stakeholders Sharpen Their Ability to Reduce Soft Costs

While the installation costs for solar in the United States have dropped dramatically in recent years, the number is double that in Germany. The difference has mainly resulted from soft costs – costs that do not relate directly to construction. To explore the cost-reduction opportunities, Solar Power World held a webinar on April 28 to discuss some major strategies for installers to decrease the soft costs of financing, training, and local solar programs.

A solar installation in Germany
An extensive solar installation took place at this house in Germany.

In the webinar, speakers highlighted the importance of standardization to reduce financial costs, the solar opportunities with local municipalities, the long-term effects of in-depth training and initial consulting, and the benefits of adopting smart software tools.

According to the United States Department of Energy (DOE), solar soft costs – including the costs associated with permitting, inspection and interconnection (PII); installation labor; customer acquisition; and financing – account for up to 64 percent of the total cost of a new solar PV system. The large amount of these ‘plug-in’ soft costs presents great cost-reduction opportunities.

With the general goal of unlocking the solar market across the board, solar developers have multiple options from financial institutions, NGOs, governments, and local communities to decrease the installation costs in both commercial/industrial and residential sectors.

Information Management Can Cut Project Costs

According to Graham Smith, CEO and founder of Open Energy Group, the transaction costs for a commercial solar project normally include four components: the legal fees, environmental reporting expenses, non-closing transaction costs (such as servicing, documenting, filing, etc.), and the closing fees. All these together may account for as much as $0.5 million on a $2 million loan.

While historically banks are the main lenders for solar project finance, there are more and more innovative financial companies in the solar market to increase the debt financing.

Including Open Energy Group, these companies aim to unlock the financing through process standardization, transparency demonstration, and investor education. By streamlining the process, automating the application, and standardizing the legal processes, these financial companies can help solar developers to reduce the transaction costs and accelerate the transaction processes.

Smith said he hopes that “eventually the online application for solar loans should be as easy as applying for a credit card.”

With the help of such financial firms, solar developers should carefully prepare the information and standardize the documents needed, in order to reduce the financial costs of a solar project. Within a project, there are always industry wide standard documents for power-purchase agreement; engineering, procurement and construction; operations and maintenance issues. Such kind of standardization could significantly help make the financing more accessible and less expensive.

Governments Explore Solar Opportunities

Governments have been playing an important role in reducing solar soft costs, and solar developers can benefit a lot when appropriately collaborating with governments. For example, since 2011, the DOE has launched the Sunshot Initiative to drive down the cost of solar electricity to $0.06/kWh or $1/W. There are also other programs to increase customer acquisition in local jurisdiction, with Solarize campaign as another example.

Within the Sunshot Initiative, Solar Powering America by Recognizing Communities (SPARC) aims to establish a national technical-assistance program for local governments and provide money to municipalities to reduce soft costs.

On April 27, SPARC announced the SolSmart designation and technical-assistance program. The two-year designation program allows the communities to achieve one of the three designations – brown, gold and silver – depending on the soft cost-reduction actions the community put into place.

Also, no-cost technical assistance is available for communities striving to achieve SolSmart designation. By encouraging local governments to seek for the designation and get involved into the programs, solar installers can receive valuable technical support to reduce the consulting costs.

Generally, the actions that municipality governments can take to help reduce soft costs include streamlining permitting process for solar projects, training for inspection staff and fire-and-rescue departments, reviewing zoning code for setback, and engaging with local utilities, according to Chad Laurent, senior consultant and general counsel at Meister Consultants Group.

“At least local governments can take specific actions make their jurisdictions solar-ready, thus to unlock the solar market at a local level,” Laurent said.

Training Can Prevent Costly Mistakes

While solar developers are eager to reduce the financing and permitting costs as much as possible, initial investments in training are necessary to save the labor costs in the long term. 

According to Kathryn Swartz, executive director of Solar Energy International, there are only a few certification entities for solar installers (e.g. NABCEP), and the requirements for solar professionals are minimal.

A lack of initial training and inspections can generate costly mistakes due to both design and installation errors. Examples have shown that an original investment in training could easily resulted in an over-10-fold savings if the company schedules the work right at the beginning.

“The investments in training and initial consulting can reduce costly mistakes, ensure performance and establish solid foundation for future growth,” Swartz said.

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