Note: This blog was originally published in 2019. It was updated in November 2024 to reflect the most recent information. If you have any questions, please contact us.
If you work in the solar industry, chances are good that you’ve heard the term soft costs. But what does it mean and why should you care? Solar soft costs are a critical topic for the industry (and solar customers) because they are one of the barriers to making solar more affordable — and thus more accessible. Let’s take a look at what solar soft costs are and what’s being done to address them.
What are solar soft costs?
The U.S. Department of Energy’s Office of Energy Efficiency & Renewable Energy defines solar soft costs as the “non-hardware costs associated with going solar”. That includes the costs of acquiring customers — from marketing and sales costs to assessing if a customer is a good candidate for solar based on their roof type and how much sunlight their property receives — as well as the costs associated with permitting, interconnection to the grid, installation labor, and other assorted costs like supply chain and transaction costs.
Solar soft costs vs. hard costs
The hard costs of going solar are the tangible aspects required to construct and install the solar power system. This includes the solar panels, inverters, mounting hardware, and any other necessary physical components.
Why are soft costs so important for the solar industry to address?
Soft costs are vitally important to address because they represent one of the greatest opportunities to reduce the cost of solar PV. While solar equipment costs have dropped by more than 40% over the last decade due to technological advancements and increased production scale (and by 99% from 1980 to 2018!), soft costs remain stubbornly high.
As of late 2023, soft costs can make up to 65% of the total cost of a residential PV system according to the Solar Market Insight Report by the Solar Energy Industries Association (SEIA) and Wood Mackenzie Power & Renewables. SEIA calls soft costs the “biggest cost-decline opportunity in residential and small commercial solar.”
Soft cost reductions are a key step to getting more solar on the grid—thereby helping the solar industry to keep growing and mitigate climate change.
What are the benefits of reducing solar soft costs?
We’ve established that soft costs are high in the U.S. and represent the majority of the cost of a solar PV system — but that’s not the case everywhere. In fact, we see dramatic differences in soft costs in different countries.
SEIA reports that solar soft costs “continue to be much higher” in the U.S. compared to other countries with developed solar markets, despite hardware costs being relatively similar.
For example, solar soft costs are roughly 50% less in Germany than in the U.S., according to a Massachusetts Institute of Technology (MIT) study. The report says that while hardware technology improvements tend to be shared globally, soft cost innovations “typically aren’t shared across borders.”
“This country-by-country difference could be driven by regulation and permitting processes, cultural factors, or by market dynamics such as how firms interact with each other,” says the study’s senior author, Jessica Trancik, a professor in MIT’s Institute for Data, Systems, and Society (IDSS).
Bringing down U.S. soft costs would help bring the cost of solar here in line with much the lower prices we see in these more mature solar markets, enabling more U.S. homeowners to go solar. Improving U.S. regulation and permitting issues would also streamline the solar installation process, allowing installers to serve more customers and significantly reduce costs.
“We haven’t been thinking about soft technology design as systematically as we have for hardware. That needs to change,” says study co-author Magdalena M. Klemun, a former IDSS graduate and assistant professor at the Hong Kong University of Science and Technology.
What’s being done to lower solar soft costs?
The importance of soft cost reductions to the growth of solar in the U.S. has not gone unnoticed — solar industry groups and companies and the U.S. government have been taking steps to bring these costs down. Approaches to lower soft costs range widely — from efforts to reduce customer acquisition costs to programs to streamline codes and permitting.
The DOE SunShot Initiative
One of the major efforts to reduce the cost of solar is the Department of Energy’s SunShot Initiative. Launched in 2011, the program aimed to “reduce the total cost of solar energy by 75 percent,” setting ambitious targets for the Levelized Cost of Energy (LCOE) in residential, commercial, and utility-scale sectors. (In 2017, SunShot announced that its 2020 utility-scale cost target of $0.06 per kWh was reached three years ahead of schedule.)
Currently, SunShot has 2030 goals set to further reduce utility-scale solar costs by 50%. While the initiative focuses on solar costs overall, supporting efforts to tackle soft costs — including software solutions to improve the installation process — has been one of the key ways that SunShot supports solar energy cost reductions.
Aurora Solar is a two-time SunShot grant recipient for our efforts to make solar design and customer acquisition more efficient. One way that soft costs can be reduced is by eliminating some of the time-consuming manual labor involved in designing a solar installation for a customer and in assessing whether a prospect is a good fit for solar based on solar access and irradiance.
Aurora pioneered the ability of solar contractors to use software to remotely design an accurate PV system, using satellite imagery and other data like LIDAR and other 3D data, rather than driving out to the customer’s property to take measurements. The U.S. National Renewable Energy Laboratory (NREL) found that remote system design can reduce the cost of a solar installation by as much as $0.17/W — or $850 for a 5 kW system!
Solar APP+: streamlining solar permitting
The Solar Automated Permit Processing — SolarAPP — initiative works to reduce the local barrier of going solar by expediting and lowering the cost of solar permitting. Founded in 2018, SolarAPP has now become a collaborative effort led by solar industry leaders and groups, including the National Renewable Energy Laboratory (NREL), SEIA, and the Solar Foundation.
Permitting is a key barrier to lowering soft costs, especially because the permit requirements for solar installations vary widely across jurisdictions. According to SEIA, direct and indirect solar permitting costs add about $1.00 per watt installed, or roughly $6,000 to $7,000 for the average residential solar system.
SolarAPP seeks to reshape the solar permitting process at the local, state and federal level by developing a standardized online platform for solar installers to register new systems. The program would also establish equipment standards and/or certified equipment lists for solar and energy storage projects, as well as system design standards, to quicken the approval process.
SolSmart
A related initiative by The Solar Foundation, the SolSmart Initiative, helps local governments reduce red tape and make their communities more supportive for the growth of solar energy. Over 500 local government and regional organizations have worked with the program to earn a SolSmart designation, indicating that they are solar-friendly communities.
California’s solar mandate: Title 24
California’s Title 24 solar mandate updated the state’s building standard code, now requiring solar energy provisions on all newly built residential and commercial structures (including building expansions), effective January 2023. The effort was passed in 2019, marking the first solar mandate in the U.S. The effort is meant to “remove many of the ‘soft costs’ of the PV market, such as customer acquisition costs and customer-specific design,” according to the California Energy Commission. It’s set to update every three years.
Soft costs have stagnated for quite some time, keeping the cost of solar higher than it could be. However, there are many promising developments in the works that are helping to reduce solar soft costs, including our own initiatives here at Aurora. With continued innovation and collaboration to tackle this issue, the future looks bright for affordable solar energy.
