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Why We Pay Double for Solar in America (But Won’t Forever)

| Written by John Farrell | 7 Comments | Updated on Jul 10, 2012 The content that follows was originally published on the Institute for Local Self-Reliance website at http://ilsr.org/why-pay-double-solar-america/
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Update 12/21/12: Corrected chart.  Overhead and Sales Tax had been switched in the German data column.

I often get flak when I publish research on the cost trajectory for solar (e.g. my Rooftop Revolution report estimates 100 million Americans reaching grid parity by 2021).  About half think I’m too conservative, and half think I’m too overconfident that solar will continue to drop in price by 7% per year indefinitely.

But I’m not alone in perceiving an enormous cost reduction opportunity for solar in the United States.  An article in Forbes last week suggested that we can “Cut The Price Of Solar In Half By Cutting Red Tape“.  It provides a chart (reproduced below) like one I published in March, that shows how a similarly sized residential solar array in Germany costs 60% less than one built in the U.S.

This anecdote from a colleague illustrates the ridiculous disparity in red tape between the two nations (and consequently, the enormous opportunity):

There’s an article in the most recent issue of PHOTON describing a German family that got a 4.6 kW PV array installed and interconnected to their roof 8 days after calling a solar installer for the first time. The homeowner had a proposal from the installer within 8 hours. The installer called the utility the morning of the installation to request an interconnect that afternoon. The installer called at 10am, the utility came and installed 2 new meters and approved the interconnect at 2:37pm– the same day. The online registration of the PV system with Federal Grid agency and approval of the feed-in tariff took 5 minutes.

I’m sure that not every project gets completed that fast in Germany, but an interconnection and permitting process that takes less than a day?! 10 times that…would still be just incredible.

By comparison, New York City’s permitting goal under Solar America Cities was 100 days (before Solar America Cities it took 365 days).

[emphasis mine]

As I’ve mentioned before, the difference is mostly in “soft costs,” not hardware, and these cost barriers are solved by policy, not technological, innovation.  For example, soft costs include an enormous paperwork burden for U.S. solar installers, pictured at the top (photo taken from the Forbes post on cutting costs), and already there are policy ideas that significantly reduce these costs.

So is it too ambitious to assume the price of solar continues to fall by 7% per year?  On the contrary, if the cost of solar continues at that pace, it will take the U.S. until 2025 – 13 years! – to match today’s cost of solar in Germany.  Can anyone honestly claim we’ll remain so far behind for so long?

When you add potential hardware innovations (e.g. like this) to the soft cost reduction opportunity, the cost of solar is likely to keep falling rapidly in the United States.

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About John Farrell

John Farrell directs the Energy Self-Reliant States and Communities program at the Institute for Local Self-Reliance and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. More

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  • karl

    where did the labor go? you can’t tell me that the germans are all that much faster at installing the same equipment. this is skilled labor. seriously, I had to really search to find the line that represents the labor on this column, which means it’s got to be less than what, $1000? the line on the US side of the column seems like it might be a bit much, but that varies across the country.

    Also the Marginal overhead per kw for a company doing 300 4 kw systems a year plus a bunch of bigger systems is pretty small. the majority of US companies are pretty small, and the marginal overhead per KW is much higher, in part because of the red tape and the amount of effort that has to go into selling people on solar as a concept, not like selling a new furnace or roof.

    just some thoughts upon this. I wish the categories on the columns would be better explained. for example, what is “customer ACQ”?

  • Craig Morris

    Karl, yes, this is skilled labor, and I can’t comment on whether Germans are faster than Americans in general (if so, probably only slightly), but I can tell you that the figures seem reliable and are in line overall with a simpler version I just produced last month: http://www.boell.org/downloads/Morris_GermanSolarBubble.pdf.

    My chunk for labor is far greater than what is given above, but that includes the installer’s profit margin, which is a separate item above.

    German PV installers might, however, be significantly faster than Americans simply because they have done nothing but solar all day, everyday, for the past five years, and installation systems have become very sophisticated– you often simply put down a substructure, click the panels into place, and secure the antitheft system.

  • Jens stubbe

    It is roughly the same in Denmark so you can trust the German prices.

  • Thomas

    Here is a little video of a small rooftop system, takes less than a day it seems, but obviously doesn’t include the electrical work.I have no idea if that’s faster than Americans or not. (looks rather unsecure to me, though ;) )
    http://www.youtube.com/watch?v=76YKEK9mJpA

    So perhaps 3 people working 5 hours on the roof, and 1-2 doing the electrics for some more hours.
    Could end up in a territory of 1000-2000€… but that’s a simple number game… not sure about that at all. ;)

    I’ve read though, that there are specialized crews of “Solarteure” who install systems rather fast. Mainly larger systems though like solar parks or large rooftop systems.

  • Tomer

    Just a comment on the math: at 7% per annum reduction in cost it would actually take 10 years to reduce cost by >50%.

    Going from 1.0 (relative cost in US) to 0.5 (cost in Germany):

    After one year, cost in US would be 0.93

    After two years it would be 0.93 x 0.93 and so on… After 10 years price is at 0.48

  • http://www.winonarenewableenergy.com Tim Gulden

    Being a small Solar PV Dealer myself (with virtually no overhead), I have seen this latest German chart. I have since researched close to a hundred German installs and for their price they do not include professional installation in their turn-key (Gross) costs. Other costs they do not include are annual insurance, meter cabinet (meter socket), extra Electrician supplies, nor scaffolding rental.

    Here is actual German installation times: http://www.youtube.com/watch?feature=endscreen&v=y5zJwz_EG9A&NR=1. This German install consists of 18 modules (3.24kW) installed in 32 person hours (2 people times 2 days times 8 hours each day). Our company installs 20 modules in the same 32 person hours so it looks like the installation time is very close between the two countries. With the average German worker and electrician rate being $40/hr, this works out to $1,280, or about 40 cents/watt. Looking at the charts reveals this installation labor to be missing. Also, this is a far cry from 7.5 total person hours being reported lately as indicated in the latest quote “Survey results indicate that, Installation Labor on average, systems are installed roughly 10 times faster in Germany than in the U.S. (7.5 vs. 75 hours per system)”. Remember, if something sounds too good to be true, it warrants further investigation. It’s now obvious that there is a huge error in the transferring of information (which I believe is the main reason) or someone is trying to scare potential customers into not buying solar PV by making them think the US dealers are ripping them off. Can the people that write these articles please seek those who can offer an apples to apples comparison, as accurate information is key to our societies’ advancement.

  • http://integral-transformation.qapacity.com/ BUDS MOLINA FERNANDO

    This is simply amazing. Hats off …