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Clean Power solar acquisition costs US Germany

Published on February 17th, 2013 | by Zachary Shahan

17

Why German Solar Is So Much Cheaper Than U.S. Solar — Updated Study

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February 17th, 2013 by Zachary Shahan 

The whole “Why is German solar about half the price of U.S. solar?” question is one of the most important solar questions of the day. Lawrence Berkeley National Laboratory (LBNL) has probably most extensively studied this matter. In a recently updated version of its analysis, LBNL examines why a residential German solar system goes for $3.00/watt and a residential U.S. solar system goes for $6.19/watt.

As no surprise to anyone who follows this matter, LBNL still concludes that the massive price differences above are basically due to soft costs. But the updated study also digs into the reasons why the soft costs are (or might be) so much lower. As LBNL rightly noted, relatively little has been known about how or why various soft cost differ.

us vs germany soft costs solar

First of all, let’s quickly run down how LBNL conducted this study:

  • It conducted two surveys of German PV installers (the first one, conducted in September, included 27 installers; while the second one, conducted in October, included 41 installers). LBNL’s studies were “adapted from NREL’s survey of U.S. installers, to collect data on residential PV soft costs.
  • The installations the study were focus on were customer-owned residential solar systems (not 3rd-party-owned solar systems, which dominate the U.S. residential market).
  • The study also “Comprehensively reviewed public and private consultant data relevant to the cost structure of residential PV in Germany.”

Also, before getting into the results, here’s a quick reminder of the differences between German and U.S. solar power growth:

germany us solar growth

germany us solar

us germany solar

Alongside the differences in solar growth in the past several years, German solar has also been considerably cheaper for awhile now:

us germany solar prices

solar price us vs germany

The Question

The specific question LBNL is trying to delve into is whether the lower solar power system costs in Germany are primarily due to its more mature market, or to what extent BoS costs are due to “larger overall market scale and associated learning-induced cost reductions.”

Specific Possibilities

1. LBNL notes that about half the price difference described above may be due to market size in each of the countries.

One thing LBNL notes is that “non-module costs in 2011 were ~$2.8/W higher in the U.S. than in Germany” and that “at the same cumulative capacity that the U.S. had installed at the end of 2011 (4 GW), non-module costs for residential PV in Germany were only $1.3/W less than in the U.S.” A basic inference from that might be that only about half the difference in soft cost prices could be related to market size. However, it should also be noted that Germany is much smaller and has a much smaller but more densely concentrated population. So, 4 GW in Germany represents a much greater solar market saturation per capita or relative to many other relevant socioeconomic metrics.

2. Solar incentives may also be highly important (something Jigar Shah premised in a guest post on CleanTechnica in October). From LBNL:

  • BNEF (2012) indicates the presence of value-based pricing in both the US and Germany.
  • Following this hypothesis, the iterative reduction of the FiT presses German installers to lower system prices to maintain attractive investments for their customers
  • Similar forces may operate less efficiently in the U.S., yielding higher “value-based” prices, even for customer-owned systems

german fit solar price drops

3. A whole bunch of other possibilities.

As stated at the top, not much research has been conducted in this arena. There are a large number of reasons why the difference in prices occur. Of course, they aren’t mutually exclusive — it’s like a combination of many or all of these. Here are some hypothetical reasons noted by LBNL:

hypothetical reasons why german solar cheaper than US solar

why german solar us solar different

Specific Results of LBNL Study

Labor Rates

When it comes to labor rates, there’s a lot of variation between the countries, with some jobs paying less in the U.S. and some paying less in Germany.

labor rates us germany

Customer Acquisition

Customer acquisition costs are considerably lower in Germany (about 62¢/watt lower):

solar acquisition costs US Germany

Some considerations why that might be, from LBNL, are:

  • Mean bid success rate is slightly lower in the US (30% in US vs. 40% in Germany)
  • German installers leverage partnerships with equipment manufacturers
  • Langen (2010) points to simpler and more certain value proposition in Germany (i.e., FiT), installer learning, and critical mass for word of mouth

Permitting

Many have speculated that permitting costs are the main culprit of the prices differences, but that only comes to about 20¢/watt of the difference (not negligible, but not as much as customer acquisition).

permitting cost differenced

Labor Costs

Labor costs represent another considerable difference in price, which is largely due to how long it takes to install the solar systems in each country, but is also due to greater use of cheaper labor in Germany.

solar installation labor germany usSome of these labor differences are due to differences in mounting practices, LBNL notes:

  • Large majority of German installers either never or rarely install systems requiring roof-penetration
  • Roof penetration is much more common in the United States, due to differences in roofing materials and higher wind speeds in some regions

Sales Tax

Through a couple of available mechanisms, basically all residential solar systems are exempt from revenue taxes, sales taxes, or value added taxes.

Not the case in the U.S. “23 states assess sales tax on residential PV systems, usually 4-8% of system prices, as do many local governments.”

The final conclusion from LBNL: “Given the spatial distribution of PV systems, and accounting for sales tax exemptions in some states, state and local sales taxes added $0.21/W to the median price of US residential PV in 2011.”

Other Soft Costs

Beyond the soft costs LBNL closely examined, a number of other soft costs apparently accounted for another $1.32/watt. These could include overhead, profit (seems to be unlikely), or other costs.

soft costs total solarLBNL notes: “‘Overhead, profit, and other residual sow costs’ is calculated as the difference between total sow costs and the sum of the individual business process costs quantified through the German and U.S. installer surveys. This residual term includes such items as property-related expenses (rent, utilities, etc.), inventory-related costs, additional insurances and fees, and general administrative costs. Our estimate of $1.61/W for ‘overhead, profit and residual sow costs’ is generally consistent with the findings of CPF (2012). Research by Woodlawn Associates (2012) suggests that profit margins for many U.S. installers are low or non-existent, implying that the differences shown for the ‘overhead, profit, and other residual sow costs’ category is not the result of much higher profit margins in the U.S.”

Longer Project Development Times

Aside from the longer installation period noted above, longer overall project development is also a reason for higher solar system costs in the U.S.

longer solar project development usa germanyLBNL writes:

  • Based on TTS data and German survey responses, residential projects take 126 days to develop in the U.S. vs. 35 days in Germany
  • When comparing German and U.S. system prices based on installation date, some of the difference is due to the longer development time in the U.S., i.e., German system pricing is effectively “shifted” one quarter relative to the U.S.
  • In Q4 2011, this effect contributes ~$0.18/W ($3.26 minus $3.08) to the apparent price gap
  • Larger or smaller impacts in other quarters, depending on speed of price declines

Larger Installations

German installations go up much faster, but they’re actually larger.

size of solar installations

Based on this, LBNL projects that there’s a 15¢/watt difference due to Germany’s larger systems.

median pv prices usUse Chinese Solar Modules Not The Issue

The U.S. and Germany use Chinese solar modules (which are cheaper) to a similar degree, so that is not considered one of the reasons for the differences in price.

germany us chinese solar modulesSummary of Findings

So, here’s a summary of LBNL’s findings (from LBNL’s Germany surveys and from secondary data):

  • Total non-hardware costs for residential PV in Germany are ~$2.70/W lower than in the U.S.
  • Customer acquisition costs average just $0.07/W in Germany, or roughly $0.62/W lower than in the U.S.
  • Installation labor requirements reportedly average 39 hours for German systems, leading to $0.36/W lower costs than in the U.S.
  • PII processes require 5 hours of labor, on average, in Germany, with no permitting fee, resulting in PII costs roughly $0.21/W lower than in the U.S.
  • German residential systems are exempt from sales/value-added tax, while U.S. systems are subject to an average sales tax of roughly $0.21/W (accounting for sales tax exemptions in many U.S. states)
  • The remaining gap in soft costs between Germany in the U.S. (~$1.32/W) is associated with overhead, profit, and other residual soft costs not captured in the categories above
  • Shorter project development times in Germany contribute to apparent price gap (e.g., ~$0.2/W effect for Q4 2011 installations)
  • Residential PV systems are larger in Germany (partly due to differences in policy design), benefitting from economies of scale ($0.15/W effect)
  • Not additive to the differences in soft costs presented previously, but rather helps to explain those differences (e.g. larger system sizes in Germany are partly why marketing costs, on a per Watt basis, are lower)
  • Market share of Chinese modules is similar for customer-owned residential systems in Germany and U.S., and thus does not contribute to price gap

“Possible Market Drivers for Soft Cost Differential”

Getting back to the root of the matter. What are the market drivers that result in the cost differences above? Here’s what LBNL concludes are possibilities:

  • Greater market-wide deployment and longevity in Germany allow for cost reductions based on installer experience
  • Lower market fragmentation (one contiguous market and regulatory framework) and higher population density in Germany allow for lower overhead, transport, and supply chain costs.– In the US, at least 50 markets exist – many more when considering local permitting-inspection-interconnection rules.
  • Larger and more concentrated markets in Germany (as well as cultural differences with the US) facilitate bandwagon effects and customer acquisition by word of mouth, leading to lower customer acquisition costs
  • Less onerous permitting-inspection-interconnection processes (e.g. online registration, no permitting fee or inspection by county officials) and installation practices (e.g. easier grounding, roof penetration) in Germany
  • Simpler, more certain and more lasting value proposition in Germany allow for both lower customer acquisition + overhead costs, and larger average system sizes– FiT guaranteed for 20 years in Germany vs. varying value of net metering + state incentives + federal tax incentives in the US
  • Regular declining FiT and high competition among installers yield pressure for price reductions and lower margins in Germany, while larger incentives, opportunities for higher value-based pricing, and less installer competition allow for higher prices and margins in US

Policy Implications

So, lastly, some of the policy implications of the above are as follows:

policy implications

Of course, a lot more research in this arena needs to be conducted. LBNL’s study is just the beginning. But it certainly opens up a lot of windows and alot of opportunity for improvement.

To see LBNL’s full report (which includes the images above and many more, as well as an extensive bibliography), go to: Why Are Residential PV Prices in Germany So Much Lower Than in the United States?” [PDF].

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About the Author

spends most of his time here on CleanTechnica as the director/chief editor. Otherwise, he's probably enthusiastically fulfilling his duties as the director/editor of Solar Love, EV Obsession, Planetsave, or Bikocity. Zach is recognized globally as a solar energy, electric car, and wind energy expert. If you would like him to speak at a related conference or event, connect with him via social media. You can connect with Zach on any popular social networking site you like. Links to all of his main social media profiles are on ZacharyShahan.com.



  • Dave

    $62/hour is not what most electricians make. This figure must be what contractors are charging per hour for an electrician to the customer to cover overhead costs such as office/shop rental, support staff, etc.

  • Malik Amayreh

    You explained that the German solar system goes for $3.00/watt and a residential U.S. solar system goes for $6.19/watt, what about the chinese solar systems.

    • Bob_Wallace

      I’ve never heard anything about the cost of Chinese residential solar prices. There is a bit of information about utility scale….

      “Yingli chief strategy officer Yiyu Wang said that project costs for its current pipeline of 130MW in utility-scale solar projects in China are about $1.03-$1.05 a watt.”

      http://cleantechnica.com/2013/09/12/how-the-solar-pv-industry-became-a-global-phenomenon/#comment-1045117247

      For comparison, US installed utility scale solar averaged $1.96/W at the end of 2013. There are reports of installed utility scale in Europe for $1.20 to $1.40/W.

      End of 2013 the average US residential price was $4.59/W.

  • james braselton

    hi there are now 600 watt solar pannels 2 kw solar pannels now 10 kw solar panels

  • dan

    And now you have Hawaii Electric refusing new connections for solar. They need to protect their grid.
    When they get permission to charge solar users a $50
    surcharge the grid will magically be protected.

  • OnceTwice

    It didn’t take that much of a study to know that in the US your solar installer WILL rip you off. Geez…. anybody who can check prices for solar panels and inverters and compare them with installer quotes can know that.

  • Greg Lowe

    These numbers are also out of date. Current figures for a rooftop install in Germany are euro1.70/watt (Which is USD2.25/watt).

    • Bob_Wallace

      Link, please.

      This site is giving ‘Juli 2013 € 1.560′, a bit over $2/W for German average costs.

      http://www.photovoltaik-guide.de/pv-preisindex

      (Cheaper is good.)

      • Greg Lowe

        Thanks for the link. I wonder what the current US numbers are?

        • Bob_Wallace

          End of Q1, 2013 –

          US national installed system weighted average price was $3.37/watt. Residential – $4.93/W, non-residential rooftop – $3.92/W and utility sized systems $2.14/W.

          Greentech Media

  • http://www.solarlist.com/ Tyler Tringas

    Great overview Zachary. We tend to think that the a big chunk of the problem is the difficulty in actually educating potential customers in the US. Germany has reasonably uniform insolation, power prices and a national set of incentives. So, if your cousin in another part of the country raves about he’s earning 11% a year on the PV system he put on his roof, chances are the opportunity is about the same for you too. Obviously everyone here knows that In the US, we’re the opposite with wildly different power prices, insolation and fractured moving targets for incentives. If we can just make it painless and inexpensive for homeowners to move from “solar seems interesting” to “I understand roughly the cost/benefits and am ready to move forward” I think we see a huge fall in soft costs. Love to see this detailed data collection though, incredibly helpful.

  • Bob_Wallace

    Great job of explaining why US prices are so much higher.

    Perhaps this article needs to be part of a list of “high information” pieces. At least prominent in the the solar page linked on the right hand side of the page.

    • http://zacharyshahan.com/ Zachary Shahan

      Yes, this is going to be my go-to resource for soft costs & Germany v US solar. Will try to find it a prominent spot.

  • Otis11

    If only the US had as much sun as Canada!

    And what’s this about $62/hour for an electrician in the US?!?! I’ll take that job in a heart beat!

    Also, could the difference in size be due to the fact that since we have higher solar radiation we get more electricity from the same size system? So even though we consume more electricity we need fewer panels?

    • http://zacharyshahan.com/ Zachary Shahan

      Haha. :D

      2- go for it! :D

      3- could be. however, our homes are bigger and we use more electricity. not sure if the net effect benefits us or not.

  • http://MrEnergyCzar.com/ MrEnergyCzar

    Nice job Zach. We are so far behind, industry influence won’t even allow lawmakers to vote for a national FIT without losing their jobs…

    MrEnergyCzar

    • http://zacharyshahan.com/ Zachary Shahan

      Thanks! :D

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