Hardware costs like panels, inverters, and racks are no longer the top driver of solar costs. It’s all the other “soft costs” that are eating into your profits and making it tougher to win bids.
You have to manage those costs to run a successful solar business. But it can be difficult to implement changes when you’re busy keeping up with your project workload.
This post will break down solar soft costs into their core components and share tips on how to reduce them and improve your bottom line.
What are solar soft costs?
Solar soft costs are the costs related to installing a solar power system without counting the cost of all the hardware components (which make up the hard costs).
Think of it like this: hard costs are what you pay for hardware and equipment—the solar panels, inverters, racks, wiring, and the nuts and bolts that make a solar system work. Soft costs cover the rest of the business expenses—the paperwork, the permits, paying your crew to install the system, the time spent chasing down customers, and more.
These are the often-hidden expenses that can make or break your solar business. They add up fast and impact the overall cost of solar energy.
Solar system installation costs have dropped to less than 1% of the cost in 1980. According to MIT, up to 85% of that reduction came from lower hardware costs.
But today, panels and inverters are so cheap that making them more affordable won’t move the needle much. Solar soft costs are, therefore, critical to lowering expenses in today’s solar market.
Breaking down the components of solar soft costs
To increase solar adoption and win more customers, controlling costs—especially soft costs—is key. Managing them is central to running efficient solar operations. But to get a handle on the latter, we need to break them down into their components. We can do this in different ways, depending on how detailed you want to get, but here’s an overview of the main soft cost components:
Installation labor costs
This is your business’s bread and butter. It includes the cost of your crew’s time for site surveys, getting those panels on the roof, and ensuring the system is correctly designed.
Labor expenses range from $0.49 to $0.59/Wdc, or around $4,000 to $5,000 for a typical 8 kW residential system.
Permitting, inspection, and interconnection costs (PII)
These expenses cover all the paperwork and inspections needed to get your solar projects approved and connected to the grid. Application fees, inspections, grid interconnections—it all adds up to $0.10 to $0.20/Wdc or $800 to $1,600 for an 8kW system.
Customer acquisition costs (CAC)
Finding and landing new solar customers takes time and money. CAC includes all marketing efforts, sales costs, and lead generation. It also includes salaries, benefits, commissions, and bonuses for sales and marketing staff. Customer acquisition costs for solar companies amount to between $0.48 and $0.69/Wdc.
Financing costs
Many folks need financing to go solar, and those financing options come with costs. Interest rates and loan fees can significantly impact the overall cost of a solar system, and they’re all a form of non-hardware costs.
The bulk of financing costs comprises interest paid on the loan, measured as the weighted average cost of capital (WACC). The solar industry’s WACC varies from 1.3% in Germany to 14% in Argentina.
In the U.S., it’s closer to 4.3%, close to the long-term average yield of a 10-year Treasury bond (the risk-free rate).
Other soft costs
Don’t forget about the other expenses that creep in—insurance to protect your business, supply chain costs to obtain your materials, and overhead costs to keep the lights on.
Of course, this is just a starting point. You can dive deeper into these categories to get a more granular view of where the money is going.
The impact of soft costs on solar project expenses
Now that you know what soft costs are, let’s put their relevance in numbers.
Recent reports indicate that soft costs account for an average of 65% (almost two-thirds) of total solar costs. As hard costs decrease—solar PV and battery costs have dropped over 90% in the last decade—soft costs tend to increase (OurWorldInData).
Skilled labor becomes harder to find, customer acquisition becomes costlier, and overhead expenses increase. Everything adds up to make profits harder to earn and customers harder to find.
Before we get into solutions to these challenges, let’s take a closer look at each obstacle so we can understand exactly what we’re up against.
Soft costs and system size
Soft costs are generally a bigger deal for residential solar than commercial or utility-scale projects. The National Renewable Energy Lab (NREL) developed two benchmarks to analyze and track solar energy system costs:
- Minimum sustainable price (MSP), which represents the lowest possible cost of a solar energy system. Here, soft costs represent 58% of residential systems and 51% of commercial systems.
- Modeled market price (MMP), representing the actual market prices of solar installations. Here, soft costs represent 52% of residential systems and 47% of commercial systems.
Soft costs and energy storage
Adding a solar battery or other energy storage system increases hard and soft costs. However, according to the NREL, the impact is stronger on hard costs, leading to a lower proportion of soft costs.
For example, at current market prices, soft costs for a PV + Energy Storage System (ESS) decrease by 6% compared to a PV without the ESS.
Solar soft costs and location
It’s not just the type and size of a project that matters—where you’re working matters too.
With over 18,000 jurisdictions overseeing solar permitting in the U.S., each with its particular fees, taxes, and requirements, soft costs can vary greatly from state to state.
Case in point: California’s Title 24 mandate requires solar installations on all new homes built after 2023. The most recent updates to Building Energy Efficiency Standards took effect on January 1, 2024. This might sound like good news for you as an installer, but with cost increases, new requirements can seem like punishments to home buyers.
This is why it’s crucial to know the ins and outs of the regulations so you can accommodate personal preferences while remaining compliant. It’s also beneficial to maintain strong ties to the real estate industry so you have reliable professionals with whom to partner. More on this later.
Strategies for reducing solar soft costs
Alright, enough doom and gloom about costs. Let’s talk about how to fight back and keep those soft costs in check.
Streamlining the solar installation process
The faster and more efficiently you can install a solar system, the less it’ll cost you and the more money you’ll make. You can streamline your installation process in three phases:
- Pre-installation Process: Efficient site surveys, accurate system design, and a smooth permitting process are key. SiteCapture can be your secret weapon here, helping you streamline self-surveys, design reviews, and project estimates, keeping everyone on the same page.
- Installation Efficiency: Optimizing installation times, minimizing trips back to the warehouse, and improving overall efficiency can significantly lower labor costs. SiteCapture can help with scheduling, field communication, and real-time data capture to keep things moving smoothly.
- Post-Installation Process: Efficient post-installation inspections, a streamlined interconnection process, and clear documentation can save you time and money and prevent you from returning to the site after installation to address outstanding items or correct errors.
Reducing customer acquisition costs
Partnering with other local professionals, including real estate agents and code officials, helps expand your reach in the community and streamlines your customer acquisition process. Establishing relationships with industry professionals who should understand how solar affects their occupations benefits both of you.
Referrals, better customer experiences, and speedier installations result from you combining education and good old networking.
Accessing affordable solar energy options
The expense of solar energy prevents many people from taking the leap to installation. However, financial solutions exist to help make it more affordable. Homeowners and businesses can apply for a Federal Solar Tax Credit to help offset the investment costs of a solar system.
Another federal program available to local communities is Community Solar. This program allows members of a local community to pay for a share of the electricity generated by the solar project and then receive a portion of the value of that project as a credit. There are currently 20 states with at least one Community Solar project.
Finally, the Department of Energy’s SunShot Initiative is one of the greatest success stories for affordable solar energy to date. Since February 2011, SunShot has worked toward its goal of reducing the total cost of solar energy by 75%. So far, it’s met every goal.
An example of this initiative in action includes Aurora’s development of software to remotely design an accurate PV system using satellite imagery and other data, such as LIDAR and other 3D data. This design can reduce the installation cost of a 5kW system by up to $850!
Leveraging technology to reduce soft costs
Technology is a powerful tool for any solar installer looking to cut costs and boost efficiency.
- Software Platforms: Software platforms like SiteCapture can improve communication between the field and the office, automate tasks, and reduce manual errors.
SiteCapture is packed with features that can help you reduce soft costs across the board, such as mobile data capture, custom-branded reporting, and real-time communication.
- Automated Permitting: SolarAPP+™ is an app that automates plan review and permit approval and integrates with government software. It’s available in over 160 communities and helps you maintain safety and compliance efficiently.
- AI-Powered Data Analytics: AI is changing the game in the solar industry. AI and ML-powered tools can analyze vast amounts of data to help you optimize everything from system design and installation to sales and marketing, all of which contribute to soft costs.
- Other Technologies: Look for technologies that can help trim those soft costs, such as drones to speed up site surveys and machine learning to predict system performance.
Practical tips for implementing soft cost reduction strategies
Now that you’ve got the knowledge, it’s time to put it into action. Here are some practical tips to help you tackle those soft costs head-on:
- Embrace technology and automation. Software platforms like SiteCapture can be a game-changer for lowering utility-scale, commercial, or residential system costs. For solar businesses seeking the most comprehensive approach to technology and automation for soft cost reduction, exploring dedicated solar CRM platforms that integrate with field operations software is a highly recommended strategy.
- Focus on continuous improvement. Monitor and analyze your expenses constantly to identify areas for improvement. Review your processes, from site surveys to inspections, regularly, and look for ways to optimize efficiency.
- Build strong relationships with partners and suppliers to negotiate better prices and improve your supply chain costs.
Reduce soft costs and boost your bottom line!
Soft costs are a major factor in the solar industry, but they don’t have to be a thorn in your side. Understanding what they are and how to manage them can significantly improve your profitability and competitiveness.
Remember, even small reductions in soft costs can make a big difference. So, embrace technology, focus on continuous improvement, and build strong relationships with your partners.
Ready to take control of your solar soft costs and boost your bottom line? Schedule a demo with SiteCapture today!
