The global photovoltaic (PV) industry has experienced significant cost reductions over the past decade, with both PV module and system prices declining sharply. From 2009 to 2012, PV module prices dropped by an average of 27% per year, while system costs fell by about 19% annually. In 2010, PV modules accounted for 45% to 60% of the total cost of a photovoltaic power generation system, making them the most critical component in the overall price structure. However, as time passed, the cost of modules has fallen dramatically, with global component prices dropping by as much as 80%. This has shifted the focus from hardware costs to other areas, such as “soft costs.â€
Today, hardware costs are no longer the main driver of photovoltaic project expenses. In many developed countries where labor and administrative costs are high, the “soft costs†— including permitting, installation, grid connection, and financing — have become the dominant factor in the overall cost structure. For instance, in Germany, the average installation cost is around $2.6/W, while in the U.S., it has risen to $5.2/W, and Japan even exceeds that at $5.9/W. These figures highlight how much room there is for improvement in reducing non-hardware costs.
In China, although component costs are lower than in developed nations, there are still inefficiencies in the soft cost structure. For example, in a 10MW photovoltaic project, approval fees can account for up to 600,000 to 700,000 RMB, which represents a large portion of the total investment. The application process for large-scale ground-mounted projects is often overly complex, leading to unnecessary delays and increased costs. Some companies even bypass proper procedures, resulting in additional complications and higher construction expenses.
Similar issues exist in the U.S., where the cost of obtaining permits and approvals for residential solar systems can be as high as $0.50/W. According to research by the Rocky Mountain Institute (RMI), in 2013, soft costs in the U.S. still accounted for more than 50% of the total installation cost, with each system costing between $10,000 and $15,000 in soft costs alone. This shows that there is still a lot of potential for cost reduction through better policy, streamlined processes, and improved efficiency.
To reduce these soft costs, several strategies can be employed. First, improving access to financing is crucial. Banks often charge high interest rates due to a lack of understanding of the PV industry. However, tools like kWh Analytics' evaluation system can help investors assess projects more efficiently, potentially cutting financing costs by $0.4/W. Second, customer acquisition costs are also high, especially in the U.S., where third-party ownership models require more effort to find suitable sites. Companies like Clean Power are using digital tools to streamline this process, helping reduce soft costs and increase consumer adoption.
For China, shifting from a reporting-based to a registration-based system could simplify approvals and reduce administrative burdens. Additionally, focusing on quality over quantity in subsidy programs may lead to more efficient project development and lower overall costs. Experts believe that if soft costs can be reduced significantly, the global competitiveness of the PV industry will improve substantially.
While hardware costs have reached a "narrow alley" with limited room for further declines, the future of the PV industry depends on addressing these soft costs. As the industry moves forward, innovation in both technology and policy will play a key role in driving down the total cost of solar energy and ensuring its long-term sustainability.
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