John Farrell on the sorry state of solar in America

Jul 16 2012 Published by under European and German energy law

I would like to discuss this excellent article by John Farrell titled “Why We Pay Double for Solar in America (But Won’t Forever)”.

The author compares the cost for a typical 4 kW rooftop solar installation in Germany and the United States. They are more than double in America. And he explains the reasons, showing individual factors that lead to that end result.

For starters, it is very interesting to note that the price of the solar panels as such is just about identical. That makes sense. Even with the United States starting to slap some anti-dumping tariffs on Chinese solar panels, this is still very much a world wide market. If solar panels could be sold at twice the price in the United States compared to Germany, people would start shipping them from Germany to America. The panels are a commodity now, with a world wide identical price. Much like oil, only that it is going down all the time, while oil is going up.

That part of the cost is where the German feed-in tariffs are working in the whole world, since Germany started the solar mass market and brought the price of panels down.

Unfortunately, that doesn’t help with the part of American prices that comes from local problems. Let’s have a look at them in order of the amount they contribute to the unnecessarily high prices in the United States.

The biggest chunk comes from costs of the supply chain. American costumers pay about as much for that as for the solar panels. In contrast, the supply chain costs are almost invisible in Germany.

That of course means a big chance for someone to reduce these costs. I hear the Americans have access to the Internet and a large pool of very talented people interested in setting up a business. Why can’t someone get those solar panels delivered at about 20% of the present lavish cut the supply chain is getting?

The next largest chunk comes from “overhead”. I am unable to comment on that, since I don’t understand exactly what Farrell means with that category. But again, it is invisible in Germany.

The cost for customer acquisition are next in line. They are also very high, coming on top of what customers already pay for the supply chain. Again, those costs should go way down in a society with a working Internet infrastructure and a market-based economy.

Next in line is labor, which means the cost of having someone walk on the roof and actually physically install the solar panels. Again, much higher in the United States. The reason for that might be that with a larger market in Germany the actual work to be done becomes more standardized and efficient. So the only way for the United States to catch up would be to have a larger market.

And then there are the costs of permits, which are again almost invisible in Germany. Farrell says there is room for improvement here by cutting red tape. He is right, but this part of the unnecessary cost is much less than that of supply chain, overhead, customer acquisition, and labor. All of these can go down by simple market forces, there is no need to wait for the government to do something about the red tape.

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