Clean Power

Published on September 25th, 2012 | by John Farrell


Why We Pay Double for Solar in America (But Won’t Forever)

September 25th, 2012 by  

I often get flak when I publish research on the cost trajectory for solar (e.g. my Rooftop Revolution report estimates 100 million Americans reaching grid parity by 2021). About half think I’m too conservative, and half think I’m too overconfident that solar will continue to drop in price by 7% per year indefinitely.

But I’m not alone in perceiving an enormous cost reduction opportunity for solar in the United States. An article in Forbes last week suggested that we can “Cut The Price Of Solar In Half By Cutting Red Tape.” It provides a chart (reproduced below) like one I published in March, that shows how a similarly sized residential solar array in Germany costs 60% less than one built in the U.S.

This anecdote from a colleague illustrates the ridiculous disparity in red tape between the two nations (and consequently, the enormous opportunity):

There’s an article in the most recent issue of PHOTON describing a German family that got a 4.6 kW PV array installed and interconnected to their roof 8 days after calling a solar installer for the first time. The homeowner had a proposal from the installer within 8 hours. The installer called the utility the morning of the installation to request an interconnect that afternoon. The installer called at 10am, the utility came and installed 2 new meters and approved the interconnect at 2:37pm– the same day. The online registration of the PV system with Federal Grid agency and approval of the feed-in tariff took 5 minutes.

I’m sure that not every project gets completed that fast in Germany, but an interconnection and permitting process that takes less than a day?! 10 times that…would still be just incredible.

By comparison, New York City’s permitting goal under Solar America Cities was 100 days (before Solar America Cities it took 365 days).

[emphasis mine]


As I’ve mentioned before, the difference is mostly in “soft costs,” not hardware, and these cost barriers are solved by policy, not technological, innovation solutions. For example, soft costs include an enormous paperwork burden for U.S. solar installers, pictured at the top (photo taken from the Forbes post on cutting costs), and already there are policy ideas that significantly reduce these costs.

To add fuel to the fire, Lawrence Berkeley National Laboratory just released a chart explaining much of why U.S. residential solar costs twice as much as residential solar in Germany. The conclusion? Soft costs. (See an interactive version of the chart here.)

So, is it too ambitious to assume the price of solar continues to fall by 7% per year? On the contrary, if the cost of solar continues at that pace, it will take the U.S. until 2025 – 13 years! – to match today’s cost of solar in Germany. Can anyone honestly claim we’ll remain so far behind for so long?

When you add potential hardware innovations (e.g. like this) to the soft cost reduction opportunity, the cost of solar is likely to keep falling rapidly in the United States.

This post originally appeared on ILSR’s Energy Self-Reliant States blog.

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About the Author

directs the Democratic Energy program at ILSR and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. His seminal paper, Democratizing the Electricity System, describes how to blast the roadblocks to distributed renewable energy generation, and how such small-scale renewable energy projects are the key to the biggest strides in renewable energy development.   Farrell also authored the landmark report Energy Self-Reliant States, which serves as the definitive energy atlas for the United States, detailing the state-by-state renewable electricity generation potential. Farrell regularly provides discussion and analysis of distributed renewable energy policy on his blog, Energy Self-Reliant States (, and articles are regularly syndicated on Grist and Renewable Energy World.   John Farrell can also be found on Twitter @johnffarrell, or at

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  • Will Poundstone

    how much would it cost to buy solar panels from Germany and import them here?

    • Bob_Wallace

      Panels here cost the same, more or less. Manufacturers sell by the container, same price to all. Probably a better price to those who buy more container loads.

      It’s the non-panel costs that are hurting us. Permit/paperwork costs are too high. We aren’t as efficient at getting systems up and going. Some price gouging is happening.

  • Ronald Brak

    Installation costs have declined rapidly in Australia and are getting closer to German installation costs. Technically, the US should be able to install solar at a lower cost than Australia or Germany because of its lower labour costs.

  • jonesey

    Something else that has apparently brought costs down in Germany is planned reduction in subsidies (in Germany’s case, feed-in tariffs). Reducing subsidies on a regular schedule does two useful things: it motivates people to buy now, because the subsidy will never be higher; and it motivates installers to reduce their costs so that customers will continue to get a good value.

    Example: I just got solar PV installed on my house, and between the federal and state tax credits and my utility’s incentive, I’m paying nearly zero (less than $1000 for a $14,000 2.8 kW system, which will pay me about $250 per year in reduced bills). At that price, the installer has no incentive to bring costs down.

    • Bob_Wallace

      You can start scaling back the subsidies once the installers are in business and the industry infrastructure is in place.

      Germany has a mature solar industry. It’s ready to stand on its own.

      Removing subsidies too early can damage an emerging technology and delay its maturity.

      (Why is it we’re still subsidizing the fossil fuel and nuclear industries and so many people want to cut off renewables, the newbys? What could their motives be?)

    • what state is that?

      • jonesey

        Oregon, USA.

        Bob – It’s not entirely about market maturity, and I agree about the fossil subsidies. Take a look at this Grist post, and the links within it, for more analysis of Germany v. US. It’s thoughtful.

        • Bob_Wallace

          $14,000 – 4,200 (30% federal subsidy) = $9,800.

          How much of the more than $8,800 that you didn’t pay was covered by state subsidies and how much by utility subsidies?

          • jonesey

            This was the installer’s initial estimate:

            Total cost: $14,000 ($5.00/watt)
            Utility incentive: $4,000 (paid to contractor)
            Federal tax credit: $4,200 (over 2-3 years)
            State tax credit: $5,800 (over 4 years)

            So that’s zero dollars out of my pocket once I get the tax credits back in 4 years. There were a few more add-on costs that weren’t in the original estimate, leaving me about $1000 out of pocket.

            That is all assuming that I have enough tax liability to earn the credits and that my installer is doing the tax credit math right. We’ll see what happens when I file my taxes.

            This is for a 2800W (DC) system that should yield about $200-250 in offset electric bills per year at my local (cheap!) rates. YMMV.

            The utility and state tax credits are per-watt with a dollar cap that makes 2800W the sweet spot for getting you, my fellow taxpayers and utility ratepayers, to pay for my solar PV system. The federal tax credit is 30% of project costs.

          • Bob_Wallace

            Well, it may well be that your fellow rate payers are saving money because you and others are installing solar.

            We’ve seen in Germany that once solar reaches a critical level (and that level is surprisingly low) that it causes a drastic decrease in midday wholesale electricity costs.
            Peak period electricity can be very expensive to purchase. Just look at places that use TOU pricing.

            The utility company can help you purchase solar, leverage their money with your investment, real estate and insurance along with existing federal and state subsidies and gain your midday input which they can pay back with much cheaper off-peak electricity. I can see that subsidy making a lot of sense for them.

            The federal subsidy is self-deflating. It’s based on 30% of system cost.
            I might be time for the state to consider reducing their subsidy or at least make it self-lowering by using the federal model.

            But, consider this. Keep subsidies high for a while. Let solar installers make some decent money. Those profits will attract others to the industry and create the competition which will bring down prices for all. We need “Costco” installers rather than “cottage industry” installers. That’s what is working in Germany. High volume, low advertising/customer acquisition costs.

          • Nice. My sister lives in Oregon and just bought a house, going to pass this on the her. 😀

    • Jonesey, I want to agree with you. But then my brain turns on and I ask what about all the oil, coal, gas, nuclear subsidies. I know I sound like a broken record, but I feel the same every time I hear someone say make PV/wide/new power stand on it’s own two feet. But lets keep the old boys help up with support. Just the externalized health cost of coal in this the US is $0.5 Trillion a year.

  • The Germans have become ridiculously efficient at solar installations.

    It will take a while for any country to duplicate that.

    • Bob_Wallace

      Seems to me that is would take only a few months to change the permitting process.

      As supple as the American private enterprise system is and considering how many experienced construction people are looking for work I would expect we could ramp up installation number very rapidly.

      Most of the labor is low-skilled grunt work. Get the rack mounts attached to the roof. Attach panels to roof. Run conduit and pull wire. Panels are becoming ‘plug and play’. The only skilled job is seeing that the service panel tie-in is done correctly.

      • The issue is that permitting is under local control. While having a national standard template would help. It takes years for those to work their way out to all the local counties where PV hits the roof. Look how long the national build code standards take to get adopted.

        • Bob_Wallace

          Local, yes, but local often simply involves the local city/county supervisors signing on to state recommended regs. If the feds put out a boilerplate for states to adopt then things could roll on quite fast for many states.

          We don’t need all 50 states to shape up at the same time, just some to take off and demonstrate a better way. If even a couple of states got going we would see increases in installation rates. Our three largest states have the population of Germany.

          At some point even the reddest of state citizens will get fed up with the prices they are forced to pay and push for change.

  • Bob_Wallace

    John, would you please post the numbers on which those bar segments are based (4kW cost graph)?

    What would be nice is a table with four columns – 1) Category (Panel, Inverter, etc., 2) Germany price, 3) US price, and 4) Percent Difference.

  • Plus many of the costs are interconnected. When it takes 365 day (or even a 100 as the NYC goal) to permitting. It cost more to get customers, you spend more time/money getting people to commit to a system.

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