Learning-by-Doing in Solar Photovoltaic Installations

Abstract

The solar photovoltaic (PV) industry in the United States has been the recipient of billions of dollars of subsidies, motivated both by environmental externalities and spillovers across firms from learning-by-doing (LBD) in the installation of the technology. This paper investigates installation cost reductions due to localized LBD using comprehensive data on all solar PV installations in California between 2002 to 2012, during the initial growth state of the PV market. Evidence for LBD can be hard to observe when examining the difference between installation prices and hardware costs, since it be masked by changes in firm market power and dynamic pricing incentives. Using a dynamic model of demand and supply, we control for these factors. We find that LBD can explain a small decline in non-hardware costs of around 12 cents per watt, with small learning spillovers. This suggests that the California incentives are difficult to justify based on economic efficiency arguments alone; in a counterfactual analysis, we find that the combination of environmental benefits and increase in consumer surplus from the subsidies exceeded the costs of the program.

Keywords: learning-by-doing, innovation, imperfect competition, diffusion, new technology, energy policy

JEL Classification: Q42, Q48, L13, L25, O33, O25