According to the California Assemblyman Al Muratsuchi it can take 65 days to install solar panels, "of which 64 of those days are spent wading through the local bureaucracy to get the necessary permits and approvals." That's why he sponsored a bill that will streamline the process and make installing solar on homeowners' rooftops quicker and more affordable.
SolarCity (NASDAQ:SCTY), the country's largest solar installer with a 29% share of the U.S. market, has been focusing as much on growth as it has on reducing costs. For example, at the end of 2012, it cost SolarCity roughly $3.16 a watt to install a solar-power system on a customer's roof. Scale and increased efficiency allowed it to reduce that cost by nearly 30% to $2.29 a watt in the second quarter.
The company's current goal is to get its costs down to just $1.90 a watt by 2017. That would represent a 17% improvement from June, a massive 40% lower than its costs at the end of 2012. The math that goes into this cost includes direct expenses like solar panels, indirect ones like fleet vehicles, and so-called soft costs like labor and, oh, permitting.
Will Craven, a SolarCity spokesman, noted the difficulty of the permitting process in California, telling The Los Angeles Times that solar panel installations are basically all the same at this point, but that "more than 500 jurisdictions of California have their own processes and code interpretations." So even though the work being done is roughly identical, SolarCity frequently has to fight through different legal paperwork to get things done.
Although Assemblyman Muratsuchi's estimate of 64 days' worth of paperwork for a 65 day installation process is likely hyperbole, clearly it isn't that far from the truth. And that's adding costs to the process that make it harder for SolarCity to turn a profit, and the added time and costs turn off individuals from attempting to install solar on their own.
How big a deal?
Ryan Wiser of the Lawrence Berkeley National Laboratory estimates that a cost reduction of up to $1,000 is possible for "a typically sized residential system." That's a notable savings. According to Sunrun, an installer that operates in California and other states, a rooftop solar-power system can cost anywhere from $18,000-$40,000 depending on size. Permitting makes up between $3,000-$6,000 of that cost.
So while $1,000 is only around 6% of the total cost of an $18,000 system, it would represent a 33% savings on the permitting side and speed up the process. Increased speed means companies like Sunrun and SolarCity can do more installations, increasing efficiency and further reducing costs.
This is great! Right?
So for homeowners and installers this is great news, including a rule that limits homeowners associations from adding extra costs. However, not everyone is going to be happy about more affordable solar -- basically, that means utilities like Edison International (NYSE:EIX).
Although Edison International is keenly aware that the future of the utility industry will include incorporating customers' rooftop systems, called distributed power, it isn't happy with the way things are set up today. For example, Edison estimates that customers without solar systems are subsidizing those with solar systems by as much as $0.219 a kilowatt hour. Why? Because solar owners can sell power to the grid at elevated rates, getting a free ride on vital infrastructure others are paying for.
Twenty cents may not sound like much, but it adds up quickly and will only get worse if more people start installing rooftop solar. Edison is lobbying for what it would consider a more equitable structure. That, of course, would increase the ongoing cost of solar systems.
Help with the effort
Right now, solar is a hot topic and getting lots of government attention in California. In fact, 88 votes were for the bill and only two against. Indeed, it seems that SolarCity has plenty of government support in its efforts to manage costs in the state. Using Sunrun's stats, this bill could reduce SolarCity's installation costs by as much as $0.12 a watt for a small system in California. That would go a long way toward helping the company meet its 2017 cost goal.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. 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.