Source of Cost Reduction in Solar Photovoltaics

Pillai, Unni and Cruz, Kyle (2013): Source of Cost Reduction in Solar Photovoltaics.

Abstract

The price of solar panels has fallen rapidly over the last few decades. Using an extensive dataset of prices, costs, output, sales and technical characteristics of firms in the solar industry during 2005-2011, this paper investigates the factors that have contributed to the decline in costs and prices. While previous studies have attributed learning-by-doing and static scale economics as the main drivers of cost reduction, we find that these do not have any significant effect on cost once four other factors are taken into account, namely, (i) reduction in the cost of a principal raw material, (ii) increasing presence of solar panel manufacturers from China, (iii) technological innovations, and (iv) increase in investment at the industry level. Together, these suggest that innovations in the upstream industries that supply the solar panel industry with raw materials and capital equipment have been important drivers of technological progress in the solar panel industry.

• Item Type: MPRA Paper
• Language: English
• Keywords: Solar, Photovoltaics, Technological Change, Learning
• Subjects: L - Industrial Organization > L6 - Industry Studies: Manufacturing; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O30 - General; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q40 - General; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q42 - Alternative Energy Sources

References

Adler, P.S., Clark, K.B., 1991. Behind the learning curve: A sketch of the learning process.Management Science 37, 267–281.

Algoso, D., Braun, M., Chiaro, B.D., 2005. Bringing solar to scale: California’s Opportunity to Create a Thriving, Self-Sustaining Residenital Solar Market. Technical Report. California Research and Policy Center.

CPUC, 2009. About the California Solar Initiative. Technical Report. California Public Utilities Commission.

DOE, 2012. Sunshot Vision Study. Technical Report. Department of Energy.

Epple, D., Argote, L., Murphy, K., 1996. An empirical investigation of the microstructure of knowledge acquisition and transfer through learning by doing. Operations Research 44, 77–86.

Frondel, M., Ritter, N., Schmidt, C.M., Vance, C., 2010. Economic impacts from the pro- motion of renewable energy technologies: The german experience. Energy Policy 38, 4048–4056.

Gabor, A.M., Mehta, S., 2012. Innovations in Crystalline Silicon PV 2013: Markets, Strate- gies and Leaders in Nine Technology Areas. Technical Report. Greentech Media.

Goodrich, A., James, T., Woodhouse, M., Noufi, R., Margolis, R., 2011. Solar PV Manufac- turing. Technical Report. NREL. IEA, 2000. Experience Curves for Energy Technology Policy. Technical Report. International Energy Agency.

Jarmin, R.S., 1994. Learning by doing and competition in the early rayon industry. RAND Journal of Economics 25, 441–454. Lieberman, M.B., 1984. The learning curve and pricing in the chemical processing industries. RAND Journal of Economics 15, 213–228.

Mehta, S., 2011. 27th annual data collection results. PV News , 3–8.

Mishina, K., 1992. Learning by new experiences. Mimeo . Nemet, G.F., 2006. Beyond the learning curve: factors influencing cost reductions in photo- voltaics. Energy Policy 34, 3218–3232.

Pillai, U., McLaughlin, J., 2012. Polysilicon price declines and solar grid parity. Working Paper .

Prior, B., Campbell, C., 2011. Polysilicon 2012-2016: Supply, Demand and Implications for the Global PV Industry. Technical Report. Greentech Media.

Rapping, L., 1965. Learning and world war II production functions. Review of Economics and Statistics 48, 81–86. van Sark, W.G., 2008. Introducing errors in progress ratios in determined from experience curves. Technological Forecasting & Social Change 75, 405–415.

Schmalensee, R., 2012. On a level with dentists? Reflections on the evolution of industrial organization. Review of Industrial Organization 41, 157–179. Sheshinski, E., 1967. Test of the learning by doing hypothesis. Review of Economics and Statistics 49, 568–578.

Sinclair, G., Klepper, S., Cohen, W., 2000. What’s experience got to do with it? Sources of cost reduction in a large specialty chemicals producer. Management Science 46, 28–45.

Thompson, P., 2001. How much did the liberty shipbuilders learn? New evidence for an old case study. Journal of Political Economy 109, 103–137.

Williams, R.H., Terzian, G., 1993. A benefit/cost analysis of accelerated development of photovoltaic technology. Technical Report.

Winegarner, R.M., 2011. Polysilicon (supply and demand). http://www.sageconceptsonline.com/docs/report2.pdf. Wright, T.P., 1936. Factors affecting the cost of airplanes. Journal of Aeuronautical Sciences 3, 122–128.

Van der Zwaan, B., Rabl, A., 2004. The learning potential of photovoltaics: Implications for energy policy. Energy Policy 32, 1545–1554.