Cost- and Price Dynamics of Solar PV Modules

46 Pages Posted: 4 Feb 2016

See all articles by Stefan J. Reichelstein

Stefan J. Reichelstein

Stanford University - Stanford Graduate School of Business; CESifo (Center for Economic Studies and Ifo Institute)

Anshuman Sahoo

Stanford University

Date Written: December 23, 2015

Abstract

This paper develops a model framework and a corresponding empirical inference procedure for estimating long-run marginal cost in industries where production costs decline over time. In the context of the solar photovoltaic module industry, we rely on firm-level financial accounting data to estimate the long-run marginal cost of PV modules for the years 2008 -2013. During those years, the industry experienced both sharp price declines and significant expansions of manufacturing capacity. By comparing the trajectory of average sales prices with the long-run marginal cost estimates, we are in a position to quantify the extent to which actual price declines were attributable to excess capacity as opposed to reductions in production costs. While we find a significant effect attributable to excess capacity for some quarters in our sample period, the dynamics of this industry also points to a rate of cost reductions that is even faster than the 80% learning curve which has described the trajectory of average sales prices over the past three decades.

Keywords: long-run marginal cost, cost estimation, learning-by-doing, price dynamics

JEL Classification: D410, L110, L630, M210, Q420

Suggested Citation

Reichelstein, Stefan J. and Sahoo, Anshuman, Cost- and Price Dynamics of Solar PV Modules (December 23, 2015). CESifo Working Paper Series No. 5674. Available at SSRN: https://ssrn.com/abstract=2727089

Stefan J. Reichelstein (Contact Author)

Stanford University - Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-736-1129 (Phone)
650-725-7979 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Anshuman Sahoo

Stanford University ( email )

Stanford, CA 94305
United States

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