Breakdown of Soft Costs in Solar Contracting

When it comes down to your solar installation projects, are you overwhelmed by the soft costs you’re incurring? While the hardware needed for any installation is coming down in cost, other costs are increasing. You’re supposed to be generating new business and finding cost-efficient solutions, but in the current climate, are you?

As a solar contractor, you need to save time and money, but there are some areas that may be keeping you from doing so: soft costs, labor costs, and supplier costs. There are rising labor costs because there aren’t enough qualified people to take on board, so you have to offset those costs. You also have to find a supplier who can help reduce your costs. That supplier should provide a full service, affordable solution for pricing, design, permit packages, equipment, and support services.

Let’s get the low-down on the things that bother you the most in your solar contracting business.

The Low-Down on Soft Costs

When it comes to your solar installation projects, soft costs are biting into your profit margins more than you care to see. A 2013 NREL report found that soft costs in a solar installation accounted for up to 64% of residential system costs and up to 57% of small commercial installation costs for a less than 250 kWs solar photovoltaic (PV) system. For larger commercial systems of 250 kWs or more, soft costs made up for 52% of the total costs for the project.

These numbers reflect how soft costs are becoming an increasingly large fraction of the cost of installing a solar pv system when you compare it against the decline of solar hardware.

The tyranny of soft costs

In solar contracting, soft costs are king. But there’s nothing funny about a tyrant who’s wielding a pretty big cost sword.

As the non-hardware costs associated with solar energy projects, soft costs make up a large percentage of the total amount the customer pays. After all, they’re part of running your business. However, they’re still not decreasing in price as quickly as your hardware costs.

But in order to keep your doors open, you have to compete with other contractors who can—and do—offer better prices. As a result, you can have financial worries. You still have to pay highly-qualified employees, attract new customers, and make a profit. But if you could obtain high-quality products at discount prices with design services that could save you money and time, would you do it?

The ABC List of Soft Costs

Your soft costs originate from a variety of sources and contribute to the solar system’s final cost.

As you know, they take up anywhere from just over 50% to 64% of the costs that your customers pay. That’s a huge outlay on services whose amounts can change in the swipe of the tyrant’s sword.

Here’s a list of those soft costs that you face and that your customers pay as part of their solar installation.

Increasing labor costs

The solar industry is the fastest-growing industry in the U.S., growing approximately 10 times faster than the U.S. economy overall. Based on data from The Solar Foundation’s National Solar Jobs Census 2018, solar employment has grown 159%, from just over 93,000 to more than 242,000 jobs in all 50 states. Statista reports a 2018 figure of 263,293 jobs. The rebounding of the U.S. economy has put people back to work, resulting in wage growth. With that, companies are forced to raise pay in order to recruit and retain highly skilled workers. Plus, they also need to pay taxes on those workers. While wage growth is a positive thing, it will also eat into profit margins.

Installation labor

Installation labor makes up around 11% of your soft costs. According to a Lawrence Berkley National Laboratory (LBNL) survey, the average cost of labor is $0.59/W or around $6.19/W. Roofing labor comes in at $0.33/W while electrical labor is $0.26/W. The installer cost is higher because the higher installer labor requirements—49 hours per installation for installers versus 26 hours per installation for electricians—more than offset the lower installer wages of $40.49 per hour for installers versus $60.12 per hour for electricians.

Supply chain costs

Supply chain expenses make up the largest portion of solar soft costs, breaking down into around 12% of the system’s total cost or $0.61/W.

Permitting

Permitting takes up 2% of the installation costs. The National Renewable Energy Laboratory estimates an assumed permitting fee of around $400 per system. This fee is paid to the local city, town, or municipality. However, some local governments might waive this fee in an attempt to incentivize residents adopting solar power.

Regulatory procedures

There are multiple regulatory procedures across the U.S,. 18,000 jurisdictions and 3,000 utilities for solar energy. In many of these, zoning and siting requirements can often limit the installations of small-scale residential or municipal solar systems.

Other issues exist as well. Zoning ordinances and design review restrictions can delay permitting approvals and restrict access to grid interconnections.

Other regulatory procedures include:

  • Pricing back-up power to account for the variability of weather patterns.
  • Licensing and siting for large scale production requiring land and access to transmission lines.
  • Siting for smaller scale technologies requiring rooftop zoning and strength codes.
  • Evaluating complementary government policies for the subsidies that often accompany solar energy programs.
  • Cost recovery mechanisms for connecting remote renewables with the grid.
  • Pricing studies and rulings in dealing with net metering or feed-in tariff design.

Tariffs

In January 2018, the federal government placed import tariffs on solar hardware components, including cells and panels. This was forecast to increase the total cost of U.S. solar projects by about 10% and reduce installations by 11% throughout the nation. These tariffs may reduce installed solar capacity by 7.6 gigawatts over the next five years.

Interconnection

Once a solar system is installed, it needs to be hooked up to the grid, the interconnection process. The U.S. Department of Energy estimates that interconnection labor may make up as much as 2% of the system’s final system.

Transaction and financing costs

Other soft costs involve transaction and financing costs.These are leveraged by third-party lenders and leasing agencies to initiate the contract. They cover administrative costs like accounting expenses, loan-generated interest, timekeeping, software, and bank transaction fees. Transaction costs make up 6% of the solar installation costs, working out to around $0.06/W.

Custom acquisition

You work hard on every solar project. But you have to offset your soft costs and find ways to acquire new customers. This costs money—and time. This is another recurring cost, coming in at 9% or $0.48/W.

System design

Solar system design for a PV installation is the most critical area. Designs have to be right the first time. Not only do problems cost time, but the rectification costs can skyrocket, and that’s on top of the cost for the solar design engineer.

Taxes

You can expect taxes to be levied on the installation. These can be assessed by local and state agencies, depending on the amount of money involved in the project. You’ll also have taxes on materials and labor, increasing the cost of the overall project. The sales tax soft cost is estimated at 5% but can fluctuate based on your location.

Solerus Energy Services for the Solar Contractor

When you’re saddled with rising soft costs and need more help with your equipment costs, you need to offset these by obtaining a full-service solar equipment supplier that provides high-quality hardware at discount prices bundled with design services, line diagrams, and permit packages. Solerus Energy has the products and services you need.

Solerus Energy offers two solar permit services, a full solar design and permit package, and solar single line diagram. Solar Single Line diagram are free of cost with any residential system order up to 25kW or $50 with as a la carte service for residential and commercial solar installation in the U.S. A full solar design and permit package service based upon system size.

This includes battery back-up and off-grid solar installations for small and large commercial installations.

Solerus Energy also offers Structural and Electrical PE Stamps in all 50 states with a separate quote upon request.

There’s the Full Solar Design and Permit Package set that’s free with residential system of 10kW-25kW or $.01-$0.05/W, depending upon system size.

Solerus Energy supplies you with everything you need to complete the solar permitting process in your area. This includes:

  • Cover page
  • Site plan for your solar installation
  • Array layout and attachment details
  • Single line diagram

In addition, Solerus Energy can offer you a full system layout and shading analysis. This is free with a full system order or $250 without a full system order.

Permit packages

Soleus Energy provides a full permit package with electrical single line diagram, system mechanical layout, installation plan, and product data sheets.

Equipment

All of our equipment is from top-of-the-line, well-established, and industry-leading manufacturers like Canadian Solar, LG Solar, and Solaria.

Support services

Whenever you need tech support services, we provide it not only before and during installation, but afterwards, too. And we also assist you in completing your Bill of Materials.

Don’t Let Soft Costs Get You Down

In order to help save money and offset costs in your solar contracting company, you have to work smart. Solerus Energy supplies the means to lower soft costs with an affordable full-service solution so you can work efficiently, generate more business, and increase your profit margins.

To learn more about how Solerus Energy can help you manage the soft costs for your solar contracting business, reach out and contact us today!