Hello esteemed readers! As you know, the cost of solar electric systems has plummeted in recent years. A decade ago when I started, the average cost per watt was an unbelievable $8 per watt. Back then, different rebate programs were needed to drive the price down and make it cost effective for the average homeowner and business. Module prices were $4.50/watt. Now what are you seeing for module cost? $0.40/w? $0.45/w? Effectively, modules are now one tenth the price. PV system costs have gone way down.
Two weeks ago I ran an analysis on system costs. I have been saying for a while that the PV system Balance of System (BOS) costs are becoming a bigger deal, one that we as an industry can no longer ignore. Today I wanted to share those results with you.
Ten years ago, at the end of 2006, modules and inverters made up 60% of the total system cost. And they were commoditized. When a project was being sold, you knew what those modules will cost, or at least you should have.
Over those 10 years, module prices have plummeted, and inverter prices are following suit, though not as dramatically. According to NREL’s 2016 PV System Cost Benchmark report, pricing for commercial level inverters has dropped by about a third over the last 7 years. Module pricing has dropped to almost one tenth. The net result of this material drop is a higher impact of the BOS. In 2007, the Balance of System costs were around 40% of the system cost. Now, they are around 70% of total PV system costs. The BOS portion has become a vast majority of the system cost.
To compound the problem, system cost decrease has caused smaller profits and forced the overhead to become a bigger portion of the total PV system cost. Companies have consistently pulled a 2% profit but the overhead expense has gone from 20% (which is huge) to almost 40 percent. Why? I’d argue that the cost of doing business isn’t going to change much and the error in estimating is becoming a bigger deal.
Here’s the crazy thing: a 5% error in 2007 would eliminate a company’s profit though they wouldn’t lose any money. As a result, now that same 5% error will lose a company almost 1.5% of the system cost. That’s almost twice what their profit would have been. That’s a big deal. Basically, every time a company is off on their BOS costs by 5%, they have to drum up another project and bid it correctly just to break even. Because of this, we have worked so hard to bring you a great product. The right bidding software can make the difference between losing money and turning a profit.
Does this ring true to you? I’d love to hear your thoughts and experiences with diminished PV system costs. Leave a comment below.