Why Are Residential PV Prices in Germany

So Much Lower Than in the United States?

A Scoping Analysis

Joachim Seel, Galen Barbose, and Ryan Wiser

Lawrence Berkeley National Laboratory

September 2012

For offering comments and/or assistance, thanks to Ted James, Alan Goodrich and Kristen Ardani
(NREL) as wellll as R
(NREL), Rachel
h l Tronstein
T t i (U.S.
(U S DOE)
DOE). Thi
This analysis
l i was ffunded
d dbby th
the S
Solar
l E Energy
Technologies Program, Office of Energy Efficiency and Renewable Energy of the U.S. Department
of Energy under Contract No. DE-AC02-05CH11231.
Table of Contents
• Motivation, Scope, and Limitations
• B k
Background
d and
dEExisting
i ti Lit
Literature
t
– Learning related to overall PV market size
• German Survey Results
– Customer acquisition costs
– Installation labor costs
– Permitting, interconnection and inspection costs
– Sales taxes
– Other soft BoS costs
• Secondary Analysis
– Project development time
– Economies
E i off scale
l iin residential
id ti l system
t size
i
– Chinese module market share
• Summary
• Bibli
Bibliography
h

2
Motivation, Scope,
p and Limitations
• The installed price of residential PV is significantly lower in Germany than
in the U
U.S.,
S due primarily to differences in “soft”
soft costs
– But relatively little is known about how/why soft cost components differ
• In order to better characterize the nature of these differences, LBNL:
– Fielded a surveyy of German PV installers,, adapted
p from NREL’s surveyy of U.S.
installers, to collect data on residential PV soft costs
– Comprehensively reviewed public and private consultant data relevant to the
cost structure of residential PV in Germany
• Focus is the pre-incentive price paid for customer-owned systems
– Residential PV in Germany is almost entirely customer-owned; substantial third-
party ownership in U.S. but pricing sometimes impacted by appraised values
• Analysis
A l i hhere iis iintended
t d d tto b
be a “fi
“firstt cut”
t” and
d serves tto hi
highlight
hli ht specific
ifi
areas where further research could reveal additional insights
– Survey focus was on quantifying differences in specific business process costs
– Additional research needed to confirm and characterize differences in more
detail, as well as to link observed differences to underlying market drivers

3
Germany’s 2011 Additions ~4x Greater, and Cumulative
Additions More than 5x Greater
Greater, than in United States

8000 7485 25000

7408
7000
Germany cumulative
USA cumulative 20000

MW]
6000 USA annual additions
W] 
dditions [MW

Cumulative Addition [M
5000 Germany annual additions 15000
4000 3794

10000
Annual ad

3000
1950 1900
2000
1271 5000
951 843 918
1000 670 473
149 210 338
24 53 32 110 48 110 67 139 94 108
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Data Sources: 
US: IEA and GTM/SEIA; Germany: BNetzA
S d G /S G ( d l G id
(Federal Grid Agency)
)

4
Annual Residential Installations in Germany 2.5x Greater
(9 4x Greater on per Capita Basis) than in United States
(9.4x

Annual residential PV installations
800 761 CA 10.0 9.4
688 USA 9.0 8.5
700
Germany
8.0
600
7.0
500

W / capita
6.0
MW

400 5.0
297
300 268 40
4.0 34
3.4
3.0
3.0
200 128 115 2.0
100 0.9 1.0
1.0
0 0.0
2010 2011 2010 2011
Data Sources: 
US: GTM/SEIA; Germany: BNetzA
S G /S G ( d l G id
(Federal Grid Agency)
)

5
Cumulative Residential Installations in Germany 3.6x
Greater (14x on per Capita Basis) than in United States

Cumulative residential PV installations
4000 CA 45 42
3420 40
3500 USA
35 34
3000 2731
3 Germany
30
2500

W / capita
25
MW

2000
20

W
1500 13
15
934 10
1000 10
637
373 488
500 5 2 3
0 0
2010 2011 2010 2011
Data Sources: 
US: GTM/SEIA; Germany: BNetzA
S G /S G ( d l G id
(Federal Grid Agency)
)

6
Varied Data Sources Are Available for U.S.
and German PV System Pricing
• LBNL Tracking the Sun (TTS): Installed prices for ~70% of PV capacity
installed in the U.S. from 1998-2011
• NREL Cost Modeling Team: Quarterly bottom-up installed price benchmarks
based on interviews with installers and modeling
• EuPD: Project-level price quotes collected through quarterly survey of
German installers (since 2008); used for BSW price reports
• Photon, other consultants: Installed price benchmarks based on interviews
with installers or other market research
• Miscellaneous: Schaeffer et al.,
al 2004,
2004 “Learning
Learning from the Sun”;
Sun ; Haas
Haas, 2004
2004,
“Progress in Markets for Grid-Connected PV Systems in the Built
Environment”; Credit Agency for Reconstruction (KfW); IEA National PVPS
reports; Langen 2010

7
 Residential PV System Prices Have Often
Been Higher in the U
U.S.
S Than in Germany
Median Installed Price of Customer‐Owned PV Systems ≤10 kW*
12
US system prices
10
German system prices
8
$2011//W

6.91
6 21
6.21
6.56 module factory‐gate prices
6 5.88
5.26
4 CA
4.25
3.42
2 NJ
1.81 1.35
0 AZ
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
** Note: Focusing on systems ≤10kW serves as a proxy for the residential market, as the project‐level installed price data for German 
N t F i t ≤10kW f th id ti l k t th j t l l i t ll d i d t f G
systems used for this figure do not include host customer type

Data Sources:
U.S. System Prices are derived from LBNL’s TTS dataset and are equal to the median of customer‐owned systems ≤10kW 
installed in each year German System Prices are the averages of individual price quotes in EuPD
installed in each year.  German System Prices are the averages of individual price quotes in EuPD’ss dataset (2008‐2011) or 
dataset (2008 2011) or
the average of prices reported by IEA, Photon, KfW, and Schaeffer  (2001‐2007).
Module Factory‐Gate Prices are the average of prices reported by IEA, GTM, IRENA, Navigant, and Photon (annual 
currency exchange rates were used for module prices estimates)
8
 As of Q4 2011, the Installed Price
Differential Was About $2
$2.8/W
8/W
Median Installed Price of Customer‐Owned PV Systems ≤10 kW
8.50
7.36 US system prices
7.50 7.05 6.80
6.50 6.44 6.28
6.50 6.16 5.90
German system prices
6.31
$2011/W
W

5.50 5.56 CA
4.38 4.32 5.11
4.20 4.09
4.50 3.67 NJ
3.61
3.26 3.08
3.50
AZ
2.50
2010  2010  2010  2010  2011  2011  2011  2011 
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
I
Installation Date
ll i
*Note: German system prices are available based on the date of price quote, rather than by installation date.  However, the 
average time lag between price quote and installation date is much shorter in Germany than in the US., as described further within 
the secondary analysis

Data Sources: US: TTS;  Germany: EuPD

9
Installed Prices in the U.S. Are Also Much
More Varied Than in Germany
Frequency Distribution:
Installed Price of ≤10 kW Customer Owned Systems Installed in 2011
Installed Price of ≤10 kW Customer‐Owned Systems Installed in 2011
40%
USA • Some U.S. systems
35%
have reached
ems

30% Germany
German prices
Perrcent of syste

25%
20% already
15%
• Greater variation in
10%
the U.S.
U S indicative
5%
0%
of greater market
fragmentation
1.0‐1.5
1.5‐2.0
2.0‐2.5
2.5‐3.0
3.0‐3.5
3.5‐4.0
4.0‐4.5
4.5‐5.0
5.0‐5.5
5.5‐6.0
6.0‐6.5
6.5‐7.0
7.0‐7.5
7.5‐8.0
8.0‐8.5
8.5‐9.0
9.0‐9.5
9.5‐10
>10
across jurisdictions
1
1
2
2
3
3
4
4
5
5
6
6
7
7
8
8
9
$2011/W
* Note: German data come from a survey of system price quotes from roughly 100 installers per quarter, 
and are thus based on a much smaller sample than the US data and may not reflect the full extent of 
price variability in the German market.
Data Sources: US: TTS;  Germany: EuPD

10
Learning Curve Analyses of BoS Costs

Question: To what extent are lower BoS costs in Germany

potentially due to larger overall market scale and associated
learning-induced cost reductions?
• Traditional PV learning ccurve
r e anal
analyses
ses often foc
focus
s on PV modules
mod les and
relate global module production and module prices
• Some business process costs (e.g., installation labor, customer
acquisition) may also be subject to local learning effects
• We compare the relative impact of local BoS learning in the U.S. and
Germanyy based on implied
p non-module costs for <10 kW PV systems
y and
cumulative national PV capacity installed
• BoS progress ratios may help predict future U.S. price reductions that
accompany larger market scale

11
 Differences in Market Size Alone May
Explain Roughly Half of the Price Gap
Implied Average Annual Non‐Module Costs* 
• Total non-module costs in 2011
vs Cumulative Capacity:
vs. Cumulative Capacity:
were ~$2.8/W
$2 8/W hi
higher
h iin the
h UU.S.
S
Customer‐Owned Systems ≤10 kW, 2001‐2011
than in Germany
10
9 USA Germany • But, at the same cumulative
8 capacity
it th
thatt the
th U.S.
U S had
h d
7 installed at the end of 2011 (4
2011/W

6
2011 GW), non-module costs for
5
4 $1 30
$1.30 residential PV in Germanyy were
$2

3 only $1.3/W less than in the U.S.

$1.50
2
1
2011 • One might (crudely) infer that the
0 remainingg $1.5/W of the total g
gap
100 1000 10000 in 2011 non-module costs may be
cumulative national PV capacity installed [MW] due simply to the larger base of
* Note: Implied average annual non‐module cost = average annual system  German experience
price minus global average factory gate module price
Data Sources:  See slide 8.

12
Soft-Cost Learning for <10 kW Systems Occurs
More Slowly in the U
U.S.
S and Is Less Effective

Regression variable (2001‐2011) United States Germany

Global level cumulative 
installations  Total system prices PR: 91.7%, R2: 0.90 PR: 82.1%, R2: 0.92

(all PV systems, not just  Non‐module
Non module costs
costs PR: 94 2% R2: 0 48
PR: 94.2%, R2: 0.48 PR: 79 7% R2: 0 95
PR: 79.7%, R2: 0.95
residential)
Country level cumulative 
installations  Total system prices PR: 90.4%, R2: 0.92 PR: 86.9%, R2: 0.83

(all PV systems, not just  Non‐module costs PR: 93.3%, R2: 0.48 PR: 84.6%, R2: 0.91

residential)
* Notes: PR is the Progress Ratio, defined as 2^(slope of line of best fit of log-log plot). 

• The development of non-module costs is less correlated with market growth in the
US than in Germany (52% vs. 9% explained by other factors)
• The learning
g rate for non-module costs (p
(proxy
y for soft costs)) is lower in the US than
in Germany (7% vs. 15%)

13
 Regular FiT Adjustments Pressure
German Installers to Reduce Prices
German FiT and system prices (<10kW systems) • BNEF (2012) indicates the
14 1.00 presence of value-based
value based
pricing in both the US and
12
0.80 Germany

$ 2011/kkWh
10
$2011 /W

0 60
0.60 • Following this hypothesis,
8
the iterative reduction of
6 0.40 the FiT presses German
4 installers to lower system
0.20
2 prices
i tto maintain
i t i attractive
tt ti
0 0.00 investments for their
customers
Jan‐04
Jul‐04
JJan‐05
Jul‐05
JJan‐06
Jul‐06
JJan‐07
Jul‐07
JJan‐08
Jul‐08
JJan‐09
Jul‐09
JJan‐10
Jul‐10
JJan‐11
Jul‐11
JJan‐12
Jul‐12
JJan‐13 • Similar forces may operate
J

southern FiT NPV ($2011/W) northern FiT NPV ($2011/W) less efficiently in the U.S.,

German system price $/W FiT $2011/kWh yielding higher “value-
based” prices, even for
Data Sources: EuPD (2008‐2011), IEA, KfW, Photon customer-owned d systems

14
 Hypotheses Explored for Why German
and U
U.S.
S Residential PV Prices Differ
• General: • Installation labor:
– Residential systems are larger in Germany yes – US installers need longer for the installation
– US installers develop projects more slowly  yes process  yes
(semi-addressed) – US installers have higher wages  yes for
– US installers have higher net-profit margins, after installation labor, no for other labor (semi-
recovering all overhead expenses  likely (semi- addressed)
addressed)
• P
Permitting,
itti IInterconnection
t ti and
d IInspection
ti
• Component costs: Costs
– Hardware component costs are lower in Germany – US installers have higher labor hour requirements
 possibly true for inverters, but uncertain (semi- for PII  yes
addressed) – US has higher permitting and interconnection
– US has a lower share of cheaper Chinese modules fees  yes
 no
• Taxes
• Customer acquisition: – The US charges higher sales taxes on PV
– US installers have higher customer acquisition systems than Germany  yes
costs  yes
– US installers have lower customer success rates
 yes
– US installers have higher marketing and
advertising costs  yes

15
Additional Hypotheses Not Explored Here

• Overhead costs • Regulatory issues

– US has higher business overhead costs (e.g.
i
insurance costs,
t material
t i l storage
t costs)
t )
– German installers have higher sales volume per
year, spreading fixed costs over larger
denominator and profiting from economies of
scale, allowing for volume discounts
– US installers have higher cost of capital for their • Installation timing
own business operations
– US installers face higher transaction costs
associated with arranging financing for customers
– US has a longer supply chain for PV modules
and other hardware
– US requires each panel and rack component to
b grounded
be d d tto th
the DC switchbox
it hb lleading
di tto
higher material costs and installation labor hours
– Less onerous requirements for roof mounting
structures
– US systems are installed more steadily
throughout the year, whereas German
installations were traditionally concentrated at the
end of the year when prices are lower, leading to
seemingly lower annual price averages

• Profit margins • Exchange rate dynamics are more

– US has a lower degree of competition among beneficial for German system costs
installers, maintaining higher profit margins
– Value based p pricing
g allows for higher
g prices
p in the
US, given better irradiation, high retail rates in
some regions, and more generous subsidies

16
A Small Body of Literature Explores the
German U S PV Price Gap
German-U.S.
• Few have sought to explain the underlying reasons behind the German-U.S. PV price
gap or to quantify differences in specific soft costs
– Photon 2011a, Photon 2011b, BNEF 2012, Langen 2010, Podlowski 2008, Goodrich et al. 2012
• Possible reasons for the price gap that have been postulated:
– “Value-based pricing” in the U.S. (e.g., associated with more generous subsidies and/or less
competition among installers)
– Preference for premium products in the U.S.
– Lower customer-acquisition costs in Germany due to simpler/more certain value proposition (FiT),
critical mass of demand, and economies of scale
– Lower installation labor costs in Germany due to greater experience and economies of scale
– L
Lower permitting
itti costs
t iin G
Germany ddue tto ffewer requirements
i t and
d greater
t standardization
t d di ti
– Less onerous electrical requirements and interconnection processes in Germany
• Our analysis complements that literature by:
– Deriving estimates for specific business process costs via a survey of 24 German residential installers
– Using large samples of ssystem
stem prices to compare price de
developments
elopments and distrib
distributions
tions
– Estimating the impact of differences in project development times on reported prices
– Analyzing residential module market composition
• Complements NREL cost modeling team efforts that draw on in-depth interviews with
i t ll
installers

17
Survey Results
Survey Results

18
LBNL Surveyy of German PV Installers

• Overview of surveyy approach

pp
• Sample characterization
• Survey respondents
respondents’ build
build-up
up of installed price
• Individual business process costs (with comparisons to NREL
surveyy of U.S. installers*))
– Customer acquisition costs
– Permitting, interconnection and inspection
– Installation labor costs
• Sales/value-added tax for PV
* Note that a slight temporal misalignment exists, as the NREL survey of U.S. installers was focused on 2010 
g p g , y
installations, whereas the LBNL survey of German installers was focused primarily on 2011 installations.

19
Overview of Surveyy Approach
pp
Installer Survey Sample
• German survey focuses on standard
DOE soft cost categories: Germany  U.S. 
2011 2010*
• Customer acquisition
• Permitting,
g interconnection, inspection
p Residential 
24 56
• Installation labor installers
• Adapted from NREL survey of U.S. Residential 
2056 6038
installers to allow comparisons systems
• Average labor hours per system for PII Residential 
17,819 34,396
and installation capacity [kW]
• Total annual expenditures on customer * Sample sizes shown for U.S. 2010 refer to 
analysis by Ardani et al. 2012
analysis by Ardani et al 2012
acquisition
i iti
• Respondents asked about costs of residential systems installed in 2011
• Survey instrument, written in German, distributed by email to 300 German
residential installers and fielded online via www.photovoltaikstudie.de

20
 Raw Sample
p Characterization
Number of Residential Systems Installed
• Most are small-volume installers

nts
10

er of Responden
- Plurality of respondents 8
6
completed 10-49 residential 4
systems in 2011

Numbe
2

- Median value: 26 systems 0

<9 10‐49 50‐99 100‐199 >200
completed in 2011 Number of Residential Systems installed in 2011

• Installer-average
I t ll residential
id ti l A erage Residential S stem Si e (kW)
Average Residential System Size (kW)

Number off Respondents
8
system sizes (total MW divided
6
by total systems) are relatively
4
l
large*
*
2
- Half of installers have average
residential system sizes >8 kW 0
<4 4‐8
4 8 8‐12
8 12 12‐16
12 16 >16
Average Size of Residential Systems installed in 2011

* Note that two respondents may have over‐reported MWs installed, leading to a large calculated average system size 
(potentially due to multi‐family houses) 21
 Total Soft BoS Costs + Profit Represent
Roughly $0.62/W
$0 62/W or 20% of System Price
Residential PV System Price Build‐Up Reported by German Installers 
(Averages* and 25th/75th Percentiles for Systems Installed in 2011 )
(Averages* and 25 Percentiles for Systems Installed in 2011 )
3.5 3.44 EuPD 
Reported Average System Price by 24 Installers: $3.00/W 3.05 2011
3.0
0.28 2.70 Photon 
0.15
25
2.5 0.18 Excludes 2011
0.23
$ 2011/W

Includes  Includes  overhead  BNEF Q4 

2.0 0.33 overhead,  costs
installation  2011
cost of failed 
1.5 labor cost, 
PII,  direct  bids, general 
$

advertising
1.0 customer 
1.82 acquisition 
0.5
0.0
module
d l i
inverter other 
h other project 
h j other non‐
h net profit
fi other system 
h
hardware cost project cost price 
estimates
* Notes: Survey results  are summarized in terms of the average of responses across survey respondents, weighted by each respondent’s 
reported 2011 residential capacity installed.  This chart summarizes responses to the survey question asking installers to identify the 
t d 2011 id ti l it i t ll d Thi h t i t th ti ki i t ll t id tif th
average price of residential systems sold in 2011, and to allocate that price across the categories identified along the x‐axis.

22
Reported Installation Labor Costs and Profit Are
Lower than Estimates Reported Elsewhere

Comparison of Survey Responses to Other Estimates for Residential PV in Germany

Survey
2.50
EuPD low

2.00 EuPD high

EuPD high
BNEF Q4 2011
011/W

1.50 PHOTON Q2 2011 small commercial
$20

1.00

0 50
0.50

1.82 0.33 0.23 0.04 0.29 0.28 0.61

0.00
Module Inverter Other  Installation  Other  Profit Total Soft BoS
Hardware Labor Overhead

23
 Soft Costs for Residential PV in Germany
Are ~$2
~$2.7/W
7/W Lower Than in the U U.S.
S
Total soft costs for residential PV in Germany, including margin, are just
19% of the implied soft costs for UU.S.
S residential PV ($0
($0.62/W
62/W vs
vs. $3
$3.34/W)
34/W)
7.00
$6.19 LBNL TTS: Residential systems of any size, 
excluding 3rd party owned systems 
6.00

5.00 Implied soft‐BoS + profit 

3.34 (residual of TTS system prices and hardware costs) soft BoS + profit
$ 2011 // W

4.00 other hardware

other hardware
$3.00 inverter
3.00 NREL cost
0.47 modeling H2 2011
0.62 module
0.55 0.23
2.00 0.33
GTM/SEIA*
1.00 1.83 1.82

0.00
USA 2011 Germany 2011
* Notes: US module and inverter prices are based on average factory gate prices for Q4 2010‐Q3 2011 as reported 
by GTM/SEIA with an adder of 10% to account for supply chain costs. Inverter efficiency assumed to be 85%. 24
Labor Rates Are Higher in Germany Than in the
U S for Some Functions
U.S. Functions, but Lower for Others

Fully burdened wages at PV installation companies [$2011/hr]
USA German survey German Statistical Agency*
70 62 60
60 53
48 47
50 42 42
38 35
40 32 35
31
30 27 25
20
20
10
0
electrician installation  non‐electrician  system design  sales representative administrative labor
labor installation labor engineer

• The results that follow this slide rely on German wage rates derived from the survey
• In the above graphic, data from the German statistical agency are also shown for
comparison (these data cover all sectors, so are not specific to PV)
• U.S. labor rates are from RS Means (as used by NREL cost modeling team and as
used in NREL BoS survey analysis for the U.S.)
25
Residential Customer Acquisition Costs
Average $0.07/W
$0 07/W in Germany
• Most respondents reported customer acquisition costs <$0.15/W; several small-
volume installers reported somewhat higher costs
• On average, customer acquisition labor includes 3 hrs/system for sales representative
and 2 hrs/system for design engineer
Average Customer Acquisition 
g q Average Customer Acquisition Costs for Each Installer
g q
Costs Across Installers
$0.8
$0.08 System 
$.07 $0.7
$0.07 Design
0.01 $0.6
$0.06
$2011/W
W

$0.5
$0.05 0.02 Marketing  $2011/W
$0.4
$0.04 and 
Advertising $0.3
$0.03
$0.2
$0 02
$0.02 0 04
0.04 Other 
Other
Customer  $0.1
$0.01
Acquisition $0.0
$0.00
0 200 400 600
Germany 2011 Total Residential Installations (#)
Notes: Other Customer Acquisition Costs include such items as: sales calls, site visits, travel time to and from the site, contract negotiation, bid 
preparation. Marketing & Advertising and Other Customer Acquisition costs are based on reported annual expenditures, while System Design 
costs are based on reported labor hours and wages for system design engineering.
26
 Customer Acquisition Costs in Germany
Are $0
$0.6/W
6/W Less Than in the U
U.S.
S
• Mean bid success rate is Average Customer Acquisition Costs
slightly
li htl lower
l iin th
the US $1.20
(30% in US vs. 40% in 1.1
System Design

Germany) $1.00
1.07

• German installers leverage Non‐project 

$0.80 specific Marketing 
partnerships with equipment $0.69 & Advertising
manufacturers

11/W
0.11 Other project‐
p j
$0 60
$0.60

$201
specific Customer 
• Langen (2010) points to Acquisition
simpler and more certain $0.40 0.34 0.4
Woodlawn 
value p
proposition
p in Associates 2012
Associates 2012
Germany (i.e., FiT), installer $0.20
$0.07
learning, and critical mass 0.24
0.02
Langen 2010
for word of mouth $0.00 0.04
USA Germany
G
(2010) (2011)

Notes: Bar chart of US customer acquisition costs derives from NREL survey of U.S. installers (Ardani et al. 2012).
27
 PII Costs Are Negligible for Residential
PV in Germany
• Total PII costs of $0.03/W on average
• Fewer than 10 hours of labor required
q for all PII activities,, and no fee
– Average labor requirement of 5 hrs (confirmed by PV legal survey, lowest for all
European countries)
– Permit requests and incentive application are done online; usually no permit
inspection
p required
q

Total PII Labor Hours  Per Respondent Average PII Costs
10 $0.04
9 0 03 $/W
0.03 $/W Permit Fee
Total labor hours/install

8 0.00
7 $0.03 Incentive 
6 Application
0.02 Completing 

$2011//W
5
4 $0.02 Interconnection
3 0.001 Completing Permit 
0.001
2 Inspection
1 $0.01 Submitting Permit 
0 01
0.01 Package
0
0 100 200 300 400 500 600 Preparing Permit 
$0.00 Package
Residential PV systems installed in 2011 (#)
Germany 2011 28
 PII Costs Account for Roughly $0.2/W of
the German-U.S.
German U S PV Price Gap
hrs/system PII requirements
$2011/W Differences due to both PII
25 0.30
22.6h
SunRun
Incentive 
labor costs and permit fee
$.28/W
3.7 $.24/W 0.25
Application • PII labor costs are $0.12/W
20
Completing  lower in Germany*
29
2.9
0.20
I t
Interconnection
ti • Remainder of gap ($0.09/W)
0.09
15 Completing  is associated with permit fee
4.3
0.15 Permit  (assuming an average of
0.02
0.01
p
Inspection $430 p
$ per system
y in the U.S.))
10 3.2 Submitting 
0.03 0.10 Permit Package • Langen (2010) estimates PII
5.2h 0.03 Preparing 
costs for the US at $.80/W,
5
85
8.5
0.0
0 05 Permit Package
0.05 Permit Package and Germany at $.10/W
3.0 $.03/W
$ 03/
0.2
0.3 0.06 0.00
0.02 Permit Fee • SunRun (2011) figure of
0.00
0
1.7 0.01 0.00 $.50/W includes sales &
USA 2010  Germany  USA 2010  Germany  marketing costs & variations
[h/ t ]
[h/system] 2011
2011  [$/W] 2011
2011  [$/W]
[$/W] i b
in building
ildi requirements
i t
[h/system]

* Fully‐burdened labor rates assumptions: 70% design engineer and 30% administrative labor; averaging $41/hr for 
Germany (based on survey questions) vs. $26/hr for the U.S. (based on RS Means data, per NREL PV cost modeling team)29
 German Installers Report Surprisingly Low
Installation Labor Requirements
• All 24 respondents indicated fewer than 15 hrs/system required for
i t ll ti llabor
installation b (electrician
( l t i i + construction
t ti llabor)
b )
– Averaged 7.5 hrs/system, equating to less than $0.04/W, based on reported fully-
burdened wage rates*
• This is much lower than other estimates; warrants further examination
– BNEF estimates 24 person-hours for 3kW system; EuPD estimates $0.39-$0.45/W

Total Installation Labor per system
p y Average Installation Labor Time and Cost
electrician non‐electrician
20 8 0.04
15 1.71 0.009
hrs/system

6 0.03
hrs/systtem

$2011//W
10
4 0.02
5 5.74 0.028
2 0.01
0
0 100 200 300 400 500 600 0 0
Residential Installations in 2011 (#) labor time labor cost

* Fully‐burdened German labor rates: electrician wage = $48/hr, non‐electrician wage = $38/hr (averages of survey 
responses) 30
Not Surprisingly Then, Installation Labor
Costs Are Much Lower Than in the U U.S.
S
Installation Labor • Survey results indicate that,
electrician installation labor non‐electrician installation labor
80 0.7
on average, systems
t are
75h
$0.59/W installed roughly 10 times
70 0.6 faster in Germany than in
60 the U.S.
U S (7.5
(7 5 vs.
vs 75 hours
EuPD 0.5
per system)
50 49 $0.42/W
0.33

011/W
h/ssystem

0.4 • Leading to total installation

40
labor costs that are $0
$0.55/W
55/W

$20
BNEF 0.3
30
24h lower than in the U.S.
0.2
20 • Other estimates of labor
0.26
10
26 7 5h
7.5h $0 04/W
$0.04/W 01
0.1 costs for German PV also
2
6 0.01 show savings relative to the
0 0.03 0
U.S., though differential is
USA 2010  Germany  USA 2010  Germany 
[h/system] 2011
2011  [$/W] 2011 [$/W]
2011 [$/W] smaller  warrants further
[h/system] investigation

31
Nationwide Sales Tax Exemptions in
Germany Further Reduce Soft Costs
• Survey respondents confirmed that German residential PV systems are
effectively exempt from revenue taxes/ sales taxes/ value added taxes
– Regular tax rate of 19% can be exempted either via “Kleinunternehmer”
or “Vorsteuererstattungs” clause
• I the
In th U.S.,
U S 23 states
t t assess salesl
tax on residential PV systems,
usually 4-8% of system prices, as
do many local governments
• Given the spatial distribution of PV
systems, and accounting for sales
tax exemptions in some states
states,
state and local sales taxes added
$0.21/W to the price of residential
PV in the U
U.S.
S in 2011

32
PII, Customer Acquisition, and Installation Labor
Total Just $0
$0.14/W
14/W for Residential PV in Germany

For residential PV in Germany, PII, customer acquisition, and installation

l b are estimated
labor ti t d tto representt 23% off allll non-hardware
h d costs
t ((which
hi h
primarily consists of overhead and profit) and 5% of the total system price.
100%
profit
90%

80% overhead and other 
$0.28 residual soft costs
70%
sales tax ($0)
60%
Non‐ permitting fee ($0)
Hardware:  Hardware:  50%
$2 38/W
$2.38/W $
$0.62/W 40% $0.20 PII

30%
customer acquisition 
20% $0.03 and system design
y g

10% $0.07 installation labor

$0.04
0%
33
 Summary of Soft Cost Differences for
Residential PV in the U
U.S.
S and Germany
Comparison of Soft Costs for Residential PV in Germany and the U.S.
(customer owned systems)
(customer-owned
1.8
1.61
1.6
USA Germany
1.4
1.2
$ 2011 / W

1
0.8
0.59
$

0.6 0.48
0.4 0.34 Profit 
0.24 0.21 0.28
0.2 0.11 0.15
0.04 0.09 0.04
0.02 0.01 0.03 0.00 0.00
0
customer  customer  customer  PII labor cost permitting fee installation  sales tax profit, 
acquistion:  acquisition:  acquisition:  labor overhead, and 
marketing +  system design other other residual 
advertisement soft costs

Notes: “Profit, overhead, and other residual soft costs” is calculated as a residual term based on the difference between total soft costs and the 
sum of the individual business process costs quantified through the German and U.S. installer surveys.  This residual term includes such items 
as property‐related expenses (rent, utilities, etc.), inventory‐related costs, additional insurances and fees, and general administrative costs.

34
 Summary of Soft Cost Differences for
Residential PV in the U
U.S.
S and Germany
Breakdown of Cost Differential Between German and U.S. Residential PV
(customer owned systems)
(customer-owned
7.00
6.00 Cost  1.13
5 00
5.00 difference 
0.12 0 09
0.09 0 21
0.21
of 
$ 2011/W

0.62
4.00 $3.19/W
0.01 0.55
0.22 0.24
3.00
2 00
2.00
3.00
1.00
0.00
German  module inverter other  installation  customer  PII permitting  sales tax profit, 
system hardware labor acquisition  fee overhead 
and  and other 
system  residual 
design costs
Notes: “Profit, overhead, and other residual soft costs” is calculated as a residual term based on the difference between total soft costs and the 
sum of the individual business process costs quantified through the German and U.S. installer surveys.  This residual term includes such items 
as property‐related expenses (rent, utilities, etc.), inventory‐related costs, additional insurances and fees, and general administrative costs.

35
Secondary Analyses

36
Questions Explored through Secondary
Data Sources

1. To what extent do shorter p

project
j development
p times in
Germany contribute to the apparent price gap (i.e., quicker
pass-through of module price declines)?
2. Are residential PV systems larger in Germany, leading to
potential price differences due to economies of scale at the
system level?
3. Are a larger percentage of German systems comprised of
Chinese modules than in the U.S.?
Note: Item 2 is not additive to the differences in specific business process costs presented previously, but rather helps 
to explain those differences (e.g. larger system sizes in Germany might partly explain why marketing costs, on a per 
Watt basis, are lower).

37
 Longer U.S. Project Development Time
Contributes to Apparent Price Gap
Median PV prices for systems ≤10 kW • Based on TTS data and German survey
responses residential projects take 126
responses,
8.50
USA completion days to develop in the U.S. vs. 35 days
7.36 USA application in Germany
7.50 7.05 Germany • When comparing g German and U.S.
6.80
7.05 6.50 6.44 system prices based on installation date,
6.50 6.28 6.16
6.80
6.50 6.44 5.90 some of the difference is due to the
011/W

6.28 6.16
5.90
longer development time in the U.S., i.e.,
5.50
German system pricing is effectively
$20

4.38 4.32 “shifted” one quarter relative to the U.S.

4.50 4.20 4.09
3.67 3.61 • In Q4 2011, this effect contributes
3 50
3.50 3.26 3.08
3 08 ~$0.18/W
$ ($
($3.26 minus $3.08)
$ ) to the
apparent price gap
2.50 • Larger or smaller impacts in other
2010  2010  2010  2010  2011  2011  2011  2011  quarters, depending on speed of price
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 declines

38
German Residential Systems Are
Generally Larger Than U.S.
U S Systems

SSize Distribution of PV Systems ≤10kW Installed in 2011
e st but o o Syste s 0 sta ed 0
20% US median:  German median: 
4.95kW 6.8kW
ms

15%
Percentt of System

10%

5%

0%
0‐1kW 1‐2kW 2‐3kW 3‐4kW 4‐5kW 5‐6kW 6‐7kW 7‐8kW 8‐9kW 9‐10kW
USA Germany

US data based on TTS; German data reflects all grid‐connected PV systems (in front + behind the meter) 
as collected by the Federal Grid Agency (Bundesnetzagentur, BNetzA) 39
 If the Size Distribution of U.S. Residential
Systems Were the Same as in Germany,
Median Prices Would Be $0.15/W Lower
Median PV prices for U.S. systems ≤10 kW in 2011
7 50
7.50
6.94
6.52
6.50 6.25
5.97 5.84 5.82 5.81
5.71
$2011/W
W

5 50
5.50

4.50

3 50
3.50

2.50
2‐3kW 3‐4kW 4‐5kW 5‐6kW 6‐7kW 7‐8kW 8‐9kW 9‐10kW

• Applying the price distribution shown here for U.S. systems to the system size
distribution for German systems (shown on the previous slide) yields a median
system price that is $0.15/W lower than the actual median price for the 2011
U.S. systems in the TTS data sample ($6.21/W)
$

40
Installer Purchase Prices for Chinese Modules Are
Lower than for Non-Chinese
Non Chinese Modules in Germany

Module purchase price for German installers
p p
3.00

2.50

2.00
011/W

1.50
$ 20

1.00

0.50

0.00
Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011
Chinese modules non‐Chinese modules

Data source: EuPD
41
 The Price Gap Is Not Due to Differences
in Chinese Module Market Share
Share of module manufacturers by country of headquarters Chinese modules are
o custo
for customer-owned
e o ed ≤10kW
0 syste
systemss in 2011
0 cheaper but
cheaper, but…
USA Among customer
Germany
n=20,761 owned systems ≤10
n=3,041 kW, the U.S. and
China+Taiwan Germany had similar
shares of Chinese
8% USA 27% modules*
25%
20% Thus differences in
Japan Chinese module
53% market share do not
Germany 6% contribute significantly
22% 24%
to the German-U
German-U.S. S
Rest of the  5%
price gap for ≤10 kW
World 9% customer-owned
systems

Sources: TTS, EuPD
* Third‐party owned systems in the U.S. have a higher share of Chinese modules (see BNEF 2012, for example), but for the 
purpose of assessing the price gap in this analysis, we focus specifically on customer‐owned systems. 
42
Summary of Findings from Survey of
German Installers
• Total non-hardware costs for residential PV in Germany are ~$2.70/W lower
than in the U
U.S.
S
• Customer acquisition costs average just $0.07/W in Germany, or roughly
$0.60/W lower than in the U.S.
• IInstallation b requirements
t ll ti llabor i t reportedly
t dl average 7
7.5
5hhours ffor G
German
systems, leading to $0.55/W lower costs than in the U.S. (though these survey
data diverge substantially from other estimates)
• PII processes require 10 hours of labor
labor, on average
average, in Germany
Germany, with no
permitting fee, resulting in PII costs roughly $0.20/W lower than in the U.S.
• German residential systems are exempt from sales/value-added tax, while
U.S. systems are subject to an average sales tax of roughly $0.20/W
(accounting for sales tax exemptions in many U.S. states)
• The remaining gap in soft costs between Germany in the U.S. (~$1.15/W) is
associated with overhead, pprofit, and other residual soft costs not captured
p
in the categories above

43
Summary of Findings from Secondary
Analysis
• Shorter project development times in Germany contribute to apparent
price
i gap ((e.g., ~$0.2/W
$0 2/W effect
ff t for
f Q4 2011 installations)
i t ll ti )
• Residential PV systems are larger in Germany (partly due to differences
in policy design), benefitting from economies of scale ($0.15/W effect)
• Not additive to the differences in soft costs presented previously, but rather
helps to explain those differences (e.g. larger system sizes in Germany are
partly why marketing costs, on a per Watt basis, are lower)
• Market share of Chinese modules is similar for customer-owned
residential systems in Germany and U.S., and thus does not contribute
to price gap

44
Suggestions
gg for Further Research

• Initiate a more refined analysis

y of overhead costs and margins
g
among installers
• Better understand the pricing decision of installers and competition
between installers (i
(i.e.,
e degree of “value
value-based
based pricing
pricing”))
• Clarify installation labor hours in Germany and the U.S. and
potential efficiency
p yggains
• Compare supply-chain margins between the two countries and
average prices paid by installers for modules and inverters
• Assess the role of FIT policies in Germany in stimulating price
reductions and potential implications for U.S. solar policy

45
 Questions?
Joachim Seel, Galen Barbose, Ryan Wiser
jseel@lbl.gov glbarbose@lbl.gov rhwiser@lbl.gov

Download LBNL Electricity Markets & Policy Publications:

http://eetd lbl gov/ea/emp/re html
http://eetd.lbl.gov/ea/emp/re.html
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52
 Appendix:
pp Currency
y Conversion

Inflation and exchange rate factors
German inflation + 2011 x‐rate variable x‐rate and US inflation
US inflation factor German inflation factor
1.7

1.6

1.5

1.4

1.3

1.2

1.1

0.9
00

01

02

03

04

05

06

07

08

09

10

11
200

200

200

200

200

200

200

200

200

200

201

201
First German prices were normalizes for 2011 €, which were then converted to $ using the average 
exchange rate of the year 2011 of $1.39/€.  53