The Most Important Cost in Solar

During 2011, the falling price of solar panels and polysilicon have gotten a lot of publicity. The falling prices have put pressure on solar manufacturers from the U.S. to China, but heading into 2012, we should put more focus on the largest opportunity to cut costs for solar installations: balance of system costs, or BOS.

 While the panels themselves may be the largest single item in a solar installation, it's becoming a smaller percentage of the overall cost. According to a report from Greentech Media and the Solar Energy Industries Association, the average solar system cost $5.20 per watt in the second quarter of 2011. Costs ranged from $6.42 per watt for residential installations to $3.75 for utility-scale solar.

In the same quarter, Trina Solar (NYSE: TSL  ) reported that the average selling price of its modules was $1.46 per watt. That sales price has since fallen to $1.25 per watt, and one competitor, ReneSola (NYSE: SOL  ) , said it was getting just $1.19 per watt for its panels.

So for a utility-scale project during the second quarter, a panel from Trina would have been 39% of the cost, and for a residential project it would have been just 23% of the cost. With Trina's own sales prices down 14% in the quarter, the current ratio would be even lower. So BOS costs are not only a majority, in some cases they are the driver of solar's installed cost.

Cutting out the middleman
There are a variey of ways solar companies are trying to cut BOS costs through the design of their modules. SunPower (Nasdaq: SPWR  ) and Canadian Solar (Nasdaq: CSIQ  ) have both announced modules with microinverters built in to allow quicker installation. As an integral part of the solar installation, the inverter will play a major role in lowering BOS costs. That may not sound positive for inverter makers Power-One (Nasdaq: PWER  ) or Satcon Technology (Nasdaq: SATC  ) , but it's an opportunity for them to have their products integrated into modules.

Instructions not necessary
On the utility side, SunPower has been the most aggressive in addressing BOS costs. Not only do the company's high-efficiency modules allow a project to use less land, they're being designed to cut costs. The Oasis power plant uses T0 Trackers and is designed in 1 MW blocks that can be put together like a Lego set (ages 18 and up). The C7 Tracker is designed to maximize captured sunlight and claims it cuts costs by 20% versus other technologies.

Stacks and stacks of paper
The largest opportunity may lie in cutting out paperwork and other soft costs that have a real impact on the overall cost of solar power. Earlier this year, SunRun reported that $0.50 per watt could be saved on residential installations by streamlining the process of getting a permit. The Department of Energy recently announced it would spend $7 million to reduce non-hardware costs to support the SunShot Initiative.

Then there are the very soft costs installers of utility scale deal with every day. It seems that new complaints surface constantly about First Solar's (Nasdaq: FSLR  ) Antelope Valley Solar Ranch One or one of its other projects.

These soft costs are starting to get attention, but there is still a lot that can be done to lower them nationwide.

Foolish bottom line
As the module becomes a smaller piece of the cost to install solar, there will be a continued flight to quality and efficiency for solar manufacturers. This favors SunPower and top-tier Chinese manufacturers. But also keep an eye on who is working to lower BOS costs for their customers. Installers will look at overall costs, not just the cost of the module, and manufacturers who cater their product to an inexpensive solution will win in the solar battle.

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Fool contributor Travis Hoium owns shares of First Solar and SunPower and has also sold puts in SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Power-One and First Solar. Motley Fool newsletter services have recommended buying shares of First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (5)

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  • Report this Comment On December 06, 2011, at 3:02 PM, spakklal wrote:

    I agree with you that the main cost is BOS costs in Solar Installation. Most of the pending orders for FSLR is Utility Scale Projects which is implemented by them to reduce the total cost of the installation. FSLR told recently that they have brought down the cost of BOS to $1/watt. Presently Utility Scale Project costs is $3.75/Watt according to your article.

    Even though the cost of silicon goes down, the profitability is more if BOS is done by the solar panel manufacturer like FSLR.

    This is the reason FSLR had 37% margin in the 3rd quarter.

  • Report this Comment On December 06, 2011, at 8:03 PM, DonSolar wrote:

    This is an astute article, while the price of panels has dropped sharply; the installation (and permitting costs) have been going down much slower. This will tend to favor the more efficient modules and Concentrated Photovoltaics (such as Amonix or the Rainbow Concentrator by Sol Solution) in particular since the installation cost is cheaper per watt hour.

    Also dollar per watt is a poor metric, and would be analogous to measuring mile per hour when we want to know the fuel efficiency of a car which is in miles per gallon. The proper metric is using LCOE (Levelized Costs of Energy) or dollars per watt HOUR.

  • Report this Comment On December 07, 2011, at 10:25 AM, TMFFlushDraw wrote:

    @DonSolar

    I agree that LCOE is a much better metric and I would love to use it in my articles more often. The problem is that LCOE changes with a million different factors from location to if trackers are used and even land and labor costs.

    Therefore for the time being $/watt is a reasonable proxy for the cost of solar power. It's not perfect, but it often illustrates the points I'm trying to make.

    Travis Hoium

  • Report this Comment On December 07, 2011, at 11:24 AM, Brettze wrote:

    First Solar makes different type than the rest of the solar pack . General Electric is making same type as First Solar does. First Solar 's type is better able to capture marginal sunlight like cloud overcast or dawn light as well as dusk light while the silicon vareity known for higher efficiency will just shut down . So efficiency is not the only name in the game.. Also, First Solar is able to produce modules very quickly with different machines automatically.. The silicon ones are more labor intensive to complete and finish.. First Solar has a complete recycling facitlity so that almost all of the products is recyclabe . I have yet to hear anything about the silicon variety as they are piling up the broken modules and they are not being recycled at all , if I am correct. There is so much surplus solar panels made years ago useless and not even recycled at all. Why dont they?

  • Report this Comment On February 14, 2012, at 8:36 PM, solarfanatic wrote:

    Travis - Great to see this reality communicated.

    For years solar panel manufacturers focused on panel efficiency. While panel output was an important differentiation, at the end of the day, as Travis points out, $/watt (installed) is what matters. The lower we can drive the installed price, the more America will benefit.

    While adding micro-inverters to panels adds tremendous savings by reducing the amount of engineering required for ordinary DC installations, the real home run is a fully integrated solar panel that includes the racking, wiring, grounding and micro-inverter directly into the panel.

    Westinghouse Solar launched the first fully integrated solar panel in 2007 (under the Andalay brand) that resulted in a solution they claimed to have had 80% less parts and saved 50% in labor installation costs.

    In 2009, Westinghouse launched an improved version of this solution that incorporated a fully integrated micro-inverter delivering the industry's first out of the box, plug-and-play AC solar panel. So compelling and simple was the solution that Lowe's home improvement stores began selling it as a Do-it-Yourself solution.

    Many of the lower BOS focused solutions coming on the market today follow the designs that were first introduced by Westinghouse and the adoption by installers to leverage these advantages is clearly increasing.

    The next few years will be interesting as all solar panel manufacturers and traditional racking companies attempt to take advantage of this innovative trend.

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