Tackling Solar Energy’s ‘Soft Costs’

By Megan Cleveland | Vol . 25, No. 27 / July 2017


Did you know?

  • Soft costs­­—such as installation, permitting and inspection—make up 64 percent of solar photovoltaic system costs, according to the U.S. Department of Energy.

  • Variations in local permitting and regulatory procedures can result in price differences of $3,200 to $4,700 for a typical 5-kilowatt residential solar installation.

  • To reduce soft costs, some states are streamlining and expediting the permitting, inspection and interconnection processes.

Technological innovation, along with increased production and adoption, have brought down the costs of solar technology and manufacturing. Non-hardware “soft costs,” however, have not declined as quickly. Solar soft costs are the expenses associated with customer acquisition, permitting, inspection, interconnection to the electric grid, installation, taxation and system financing. These expenses represent up to 64 percent of the total cost of a solar photovoltaic (PV) system.

Since soft costs are paid by customers, policymakers interested in reducing these expenses to increase competitiveness are seeking solutions where they can—in the permitting, inspection and interconnection processes. Although they comprise a small portion of the total cost of a solar PV system, these processes represent a segment of soft costs that state policies can affect.

Deploying solar PV systems typically encompasses two separate, but parallel, approval processes: one for the local jurisdiction, which oversees permitting and inspection, and one for the electric utility, which oversees interconnection. The fragmented energy marketplace in the U.S. drives soft costs higher since permitting, inspection and interconnection processes vary significantly across 18,000 local jurisdictions and more than 3,000 utilities.

For small solar PV systems—including residential and small commercial systems—the full utility interconnection approval process took an average of 67 days in 2015. Delays can result in higher overall system costs, lost energy production and customer dissatisfaction. Variations in local permitting and regulatory procedures can result in a difference in average residential PV system prices of approximately 64 cents to 93 cents per watt between jurisdictions, equivalent to $3,200 to $4,700, for a typical 5-kilowatt (kW) residential installation.

State Action

Soft costs around solar energy is an emerging issue in the public policy arena. A handful of states have addressed soft costs by improving the permitting, inspection and interconnection processes, and other states are considering similar actions. California enacted legislation in 2014 requiring all city and county governments to adopt an expedited, streamlined permitting process for small residential rooftop solar energy systems (less than 10 kilowatts). The bill also requires cities and counties to meet recommendations in the California Solar Permitting Guidebook and provide a checklist of all requirements for a system to be eligible for expedited review.

Some states have enacted legislation reducing or eliminating the cost of obtaining permits. Colorado enacted legislation in 2008 that placed a statewide cap on building permit fees for solar energy systems. For systems smaller than 2 megawatts (MW), cities and counties must charge the lesser of a flat amount ($500 for residential and $1,000 for non-residential systems) or the actual cost of issuing a permit for a residential system. For systems 2 MW or larger, local governments cannot charge fees greater than the actual cost of issuing the permit.  Legislation in 2011 extended fee caps beyond residential and commercial projects to agencies, institutions, authorities and political subdivisions. Connecticut enacted legislation in 2011 authorizing municipalities to waive the building permit fee for renewable energy projects, including solar energy systems.

States have also decreased or eliminated building or interconnection permitting requirements. Vermont requires solar customers to obtain a permit, or “certificate of public good,” from the Vermont Public Service Board to connect to the electric grid. Legislation enacted in 2011 allowed applicants with systems of 5 kW or less to “self-certify” that they comply with certain interconnection and siting requirements. Anyone with concerns has 10 days to request a hearing. If no concerns are raised during this period, a certificate of public good is issued. Legislation enacted in 2014 increased the capacity of systems eligible for the 10-day permitting process to 15 kW. Arizona enacted legislation in 2008 allowing jurisdictions to remove the requirement to obtain a professional engineer’s stamp to approve solar PV and solar hot water installations.

To decrease labor costs and reduce delays, some states have allowed solar customers to access and apply for permits online. A 2015 Mississippi Public Service Commission (PSC) order included provisions that required electric utilities to provide online access to PSC-approved interconnection application forms and to establish processes for accepting applications electronically.

Federal Action

The U.S. Department of Energy (DOE) established the SunShot Initiative in 2011, which seeks to make solar energy fully cost-competitive with traditional energy sources and accessible for all Americans. SunShot is comprised of five subprograms, one of which seeks to reduce solar soft costs and address barriers to solar access and deployment. SunShot’s soft costs program works with state and local governments to improve solar deployment processes, create solar industry training, support data analysis, expand access to capital and accelerate market growth.