Soft Costs a Focus in Drive to Cut Solar Energy’s Price

The United States is in a "fierce race" to compete in global solar energy markets, and its success depends on innovation and deploying solar energy at scale, said Steven Chu, secretary of the Department of Energy. He spoke at the SunShot Grand Challenge summit and technology forum in Denver last week. Chu called on the solar industry to drive down costs to enable the technology to compete against natural gas at a price of around $4 per million Btu.

And he said solar cell manufacturing is a commodity business but that "on the flip side, it’s a very high tech commodity."

Manufacturers who spoke at the conference said labor costs were a relatively minor part of the equation. Their comments contrasted with long-standing complaints by some that low-cost labor from places such as China makes it hard for domestic producers to compete.

Labor costs for manufacturing crystalline cells is around 10% of the total cost, said Gordon Brinser, president of Solar World Industries America. When rolled into total system cost, labor accounts for "a couple of percentage points," he said. Arguments about high labor costs have been "a crutch, a scapegoat" to avoid innovation and manufacturing in the U.S., he said. "Labor cost gets too much blame."
Dan Armbrust, president and CEO of Sematech, agreed and said labor costs "ultimately are not the driver. It’s the skills you derive from the labor."

SunShot is a DOE initiative to achieve four principal goals by the end of the decade:

  • Develop subsidy-free solar electricity.
  • Achieve a 75% cost reduction by the end of the decade.
  • Enable utility-scale solar at a cost of $0.05 to $0.06 per kilowatt-hour.
  • Help U.S. solar manufacturers compete in global markets.

SunShot focuses on long-standing efforts to increase solar cell efficiencies and drive down cell production costs.

Richard Swanson, president emeritus of SunPower, said that two Chinese manufacturers—Yingli and Trina—have set a goal of manufacturing solar cells this year for $0.70/watt, down substantially from the $3.00/W manufacturers quoted in late 2007.

"Scale advantage is very large for module manufacturers," he said. What’s more, increasingly sophisticated supply chains are bringing costs down. For U.S. manufacturers trying to compete "it’s a moving target issue. They find the price points have gone down" and need to tailor their products to be cost competitive. Swanson said a "massive manufacturing investment" is required for U.S. solar manufacturers to make a meaningful contribution to global supply markets.

Solar cell costs are only one of SunShot’s focuses, however. At the urging of White House renewable energy advisor Cyrus Wadia, the initiative also takes aim at soft costs such as installation and permitting for residential systems. For example, out of a system price of about $5.71/kW in 2010, around $2.04 was attributable to soft costs.

One idea to address soft costs is to develop "plug and play" rooftop installations that can be set up in a day and eliminate much of the local permitting process. As an example, Chu pointed to natural gas–fired residential water heaters that can be installed by a certified plumber and require no special permits or inspections. He said water heaters can be installed quickly and with no permitting or inspections despite the risk posed by natural gas and its combustion. By contrast, relatively benign rooftop solar energy systems are far more difficult to permit and install.

"The last thing we want to do is keep red tape certification high because ultimately we want to focus on the technology," Chu said. "You don’t make a lot of money by keeping [solar] a niche market." He acknowledged that most soft cost issues are local and that the DOE is limited in what it can do to streamline the installation process.

Issues related to grid interconnection remain to be addressed, as do questions regarding compensating utilities for investments to ensure reliability as more distributed energy sources are deployed.
"The question we have is how do we make a market structure such that we can accommodate customer choices," said Thomas Brill, director of regulatory and policy analysis with Sempra Energy. Many states have yet to address how utilities may be compensated for installing and maintaining generating capacity and distribution infrastructure that might be used only occasionally as residential or community-based solar reduces electricity demand from traditional utility sources.

Current utility business models and regulatory structures often don’t allow for the sort of fast market response that technologies such as solar require.

"Utilities are operating under a 20th-century financial recovery system that doesn’t fit," said Patrick Dinkel, vice president of Power Marketing, Resource Planning and Acquisition, Arizona Public Service Co. "We’re asked to be nimble and turn on a dime," but utilities remain obligated to repay investors for long-term infrastructure investments. Solar photovoltaic power has arrived from a cost perspective, he said. "Policy is where we need more maturation."

Source: POWERnews

—David Wagman, POWER executive editor

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