All but the Kitchen Sink: A Primer on Solar PV Balance of System

Travis Lowder's picture

With PV module prices currently in freefall, there is quite a bit of talk about the coming age of solar PV grid parity (when the cost of PV is equivalent to electricity from your utility). It is important to remember, however, that the module represents only half of potential cost reductions; the other half accounts for everything else that goes into the installation of a PV system: finance, siting and permitting, electrical and structural components, labor, etc. This category of costs is called the "balance of system" or BOS. Until recently it comprised a minority percentage of a PV installation's price tag, but as module prices have plummeted, the less dynamic BOS costs have not kept pace. Consequently, this category has overtaken the module as the majority of the system price and this has sparked a nascent interest in BOS cost solutions amongst industry stakeholders.

Why a BOS Approach?

Photo of a kitchen sink

Source: Wikicommons

Panel prices have been in decline for over half a century, with some especially dramatic plunges in 2011. Averaged over the 30 years between 1980 and 2010, PV module price reductions trend at 7% per year [1]. So BOS's increasing share of the total aggregate price pie isn't so much that its component costs are rising, but that they have remained more or less constant while the module prices have receded. By some estimates, BOS costs have already become the majority cost component of a PV system [2].  And if this alone isn't enough to warrant a BOS cost reduction approach, consider the findings from a recent NREL report on PV system costs: authors Alan Goodrich et al. determined, through a series of cost models, that even if module prices continue along their historic learning curve, these reductions alone will not be enough to realize the U.S. Department of Energy's (DOE) SunShot goals for 2020 [3]. The DOE seems to recognize this, and has recently issued a Funding Opportunity Announcement (FOA) dedicated specifically to breaking through BOS market barriers.

But while the case for a BOS approach may be strong, there are two overriding challenges to innovating within the BOS space. 1) The BOS category is composed of a multitude of cost sources (Figure 2 offers a nice roundup). Unlike the "module" category, which accounts for a single end-product, BOS is the proverbial kitchen sink, and this complicates a category-wide cost-reduction scheme. 2) Most PV installations, especially rooftop systems, are tailored to specific locations and customer needs, making them highly individualized [4]. The one-off nature of installation means that a unique set of BOS components and processes are required on a per project basis, and this, again defies a comprehensive strategy.

This graphic shows an estimated cost breakdown for PV systems with a detailed breakout of the balance of systems costs, which include Business processes, structural installation, racking, site preparation, attachments, electrical installation, wiring, transformer, and inverter.

Figure 2: Cost Breakdown of Conventional U.S. PV Systems cs. 2010 [4]
Used with permission, © Rocky Mountain Institute 2010. For more information, see www.RMI.org

Opportunities

BOS cost reductions will therefore have to come from two major sources: 1) The economies of scale, standardization and consolidation, and progress along the learning curve that naturally comes with industry expansion (witness the maturity of Germany's solar market and the resulting reductions in installed prices); and 2) Piecemeal through individual reductions in the various industries, materials, and processes that comprise the BOS category.

As with most other market opportunities, there is some low-hanging fruit and there are more challenging opportunities higher up. On the low side, industry consolidation and the integration of BOS products and services under single company umbrellas is already observable. For example, several manufacturers of PV mounting structures have recently begun to diversify beyond their local markets and have set up offices in a number of international end-use markets [6]. This will foster some consolidation and product standardization, which will ultimately contribute to a shrinking of the aggregate BOS pie.

Higher up on the tree are improvements to be made in PV project development. At issue here are the "soft costs" of the development process: project finance, site control, permitting, interconnection and transmission, and other such non-hardware costs (all part of the "Business Processes" category in Figure 2). Each of these imparts its own challenges, (and this places the project development approach higher on the tree) but many can be addressed through a favorable and comprehensive policy environment. Enforcing more efficient business processes, reducing duplication of effort, and standardizing the range of transactions that currently must occur, often before a project even begins construction (e.g. PPA contracts, permitting paperwork, interconnection requirements) could very well prove a boon to the system cost of PV in this country.

It is also important to recognize how innovations on the module side can also put downward pressure on BOS costs. Gains in module conversion efficiencies, particularly for thin film technologies, could have a significant impact on BOS costs in the near term. Higher efficiency means less modules for the same power output, and less modules per system will reduce labor, structural, electrical, and other costs. Building integrated PV (BIPV) systems also offer the potential to cut expensive materials out of the cost equation, though these types of installations may have their own additional costs (and to date there is hardly a market to speak of).

Looking Forward

The concept of the learning curve is based on the notion that experience drives cost reductions. For the past several years, PV modules have been on a steady learning curve of 20% cost reductions for every doubling of global module shipments. Now that BOS costs are on the radar, we can hopefully expect to see a learning curve of similar magnitude develop in this category as well. A recent Greentech Media Research report on BOS forecasts a total BOS cost decrease of 5.7% from current levels by 2013 for utility-scale installations, and an 8.8% and 9% drop for commercial (100 KW) and residential (5 KW) rooftops respectively [5, 6].

The BOS market is large—on the order of $25 billion or so [6]—and there are a lot of spoils to be had by the companies which can proceed along their learning respective curves faster than the others. With this incentive in place, with the growing industry emphasis on the BOS category, and with a continued decline in module prices, solar grid parity may very well be on the horizon in several markets.

References

[1] Naam, Ramez. "Smaller, Cheaper, Faster: Does Moore's Law Apply to Solar Cells?" In Scientific American, March 16, 2011.

[2] "PV Balance of System Market to Reach $24 Billion in 2016." IMS Research, February 2012.

[3] Goodrich, Alan et al. Residential, Commercial, and Utility-Scale Photovoltaic (PV) System Prices in the United States: Current Drivers and Cost Reduction Opportunities. National Renewable Energy Laboratory, February 2012.

[4] Bony, Lionel, and Stephen Doig, Chris Hart, Eric Maurer, and Sam Newman. Achieving Low-Cost Solar PV: Industry Workshop Recommendations  for Near-Term Balance of System Cost Reductions. The Rocky Mountain Institute, September 2010.

[5] Calculation assumes a 10MW fixed tilt blended crystalline silicon project in the U.S. A similar rate of decrease (5.6%) was forecasted for a thin film project with the same conditions. These are base case scenarios, and are considered by the author of the report to be more accurate than the accelerated case provided for comparison.

[6] Aboudi, Manhal. Solar PV Balance of System (BOS): Technologies and Markets. Greentech Media Research, June 2011.