How to Evaluate Soft Cost Reduction Strategies: A Pre-SPI 2014 Guide

Planning soft cost reductions is a strategy game; one affected heavily by policy framework. The wider an installer’s territory, the more complexity they must work within. This complexity requires tracking details like an AHJ’s design requirements/code cycles/turnaround timelines, incentive program deadlines and changes, and local utility interconnection policies to name a few.

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The result of tracking and accounting for such wide variations is that business owners must staff their operations accordingly to track and, often times, react to changes. It means building or integrating software tools to account for many variables including utility rate databases, flexible pricing engines, ever-changing equipment schedules and so on. The larger the company and territory, the more complexity the installer must manage all while trying to make the process simpler and more straightforward for the end customer.

Since the SunShot initiative launched in February of 2011, analysts have published research which has launched the soft cost reduction movement including NREL’s seminal 2013 paper Benchmarking Non-Hardware Balance of System (Soft) Costs for U.S. Photovoltaic Systems, Using a Bottom Up Approach and Installer Survey – Second Edition, Rocky Mountain Institute’s SimpleBOS studies written up in their December 2013 Reducing Solar PV Soft Costs: A Focus on Installation Labor and June 2014’s international benchmarking in Lessons From Australia: Reducing Solar PV Costs Through Installation Labor Efficiency (both available for download here).

You can read our thoughts about what US solar installers can learn from the Australian market in our SolarCurator article Time, motion, and solar installation labor efficiency. The US residential solar market has much more to learn from other markets.

Lawrence Berkeley National Labs recently released Tracking the Sun VII: An Historical Summary of the Installed Price of Photovoltaics in the United States from 1998-2013. The paper tracks the nuances in changes to cost of solar since 1998 and concludes:

Achieving deep reductions in soft cost thus likely requires a broad mix of strategies, including: incentive policy designs that provide a stable and straightforward value proposition to foster efficiency and competition within the delivery infrastructure, targeted policies aimed at specific soft costs (for example, permitting and interconnection), and basic and applied research and development.

Small and mid-size installers are the backbone of the US solar industry. While they may find it challenging to participate in affecting policy matters, as the result of the LBNL study asks us to focus, it’s critical that their voices are heard in matters as diverse as the future of net metering and the value of solar, interconnection streamlining, and yes, even utility rate design. Small installers are often overwhelmed enough by running their own businesses and staying afloat but should consider supporting local policy advocacy groups and contributing to simple calls-for-action whenever possible.

As the LBNL study suggests, aside from policy work applied research and development will play an important role scaling and streamlining the solar industry of tomorrow. Applied research is targeted research that applies results to a specific problem. This can include tactics as diverse and complex as business model development and financial services engineering but as simple as A/B testing of process changes, piloting new installation techniques, and looking at methods and techniques working well in other industry sectors and applying those principles to delivering solar projects- like scheduling and logistics algorithms.

Companies serving the solar industry have brought many software platforms and hardware products to market. Small solar installers should look carefully at these offerings and ask themselves:

  • In my market dynamic, will this product/service actually lower my soft costs, or just push it somewhere else?
  • What data or study backs up the claims of the product/service?
  • What guarantee exists if I am not satisfied with the results?
  • How can I most successfully integrate the product/service into my operations in order to ensure it will successfully achieve the soft cost reductions I want?

This is how whole-systems Lean Thinking will be benefit installers. By viewing products and solutions in context of the totality of operations, installers can better contextualize benefits that are less obvious. Engaging employees in these activities can yield even greater results, as those on the ground performing the work often have a more nuanced understanding of integration issues and seen and understand the seven forms of waste that hold back smooth sailing.

Solar Power International is right around the corner. If it follows the trend of other solar trade shows this year, exhibitors and speakers are ready to explain to you how their products and services are going to lower your soft costs.

Remember, sometimes an investment in a product or service will result in a much higher return somewhere else. Without looking at your company as a whole system, you might miss a crucial opportunity for much greater soft cost reductions. For example, some integrated racking products might be more expensive upfront, but will they actually produce significant savings in installation. Engage solution providers with an open mind and ask questions that move beyond point solutions (lowering customer acquisition costs- which may RAISE other soft costs downstream in your operations) and speak to lowering TOTAL soft costs.

Photo: "Puzzle" by Olga Berrios is licensed under CC BY 2.0

Posted on October 15, 2014 and filed under operations.