22 Pages Posted: 31 Dec 2016
Date Written: December 29, 2016
Photovoltaics (PV) module costs have declined rapidly over forty years but the reasons remain elusive. Here we advance a conceptual framework and quantitative method for analyzing the causes of cost changes in a technology, and we apply this to PV modules. Our method begins with writing down a cost model that breaks down a technology’s cost into variables that changed over time, and then deriving cost change equations that quantify the contribution of each variable. We draw a distinction between changes observed in variables of the cost model – which we term low-level mechanisms of cost reduction – and R&D, learning-by-doing, and scale economies, which we refer to as high-level mechanisms. We find that increased module efficiency was the leading low-level cause of cost reduction in 1980-2001, contributing almost 30% of the cost decline. The most important high-level mechanism was R&D in these earlier stages of the technology. After 2001, scale economies became a more significant cause of cost reduction, approaching R&D in importance. Policies that stimulate market growth have played a key role in enabling the cost reduction in PV, through privately-funded R&D and economies of scale, and to a lesser extent learning-by-doing. The method presented here can be adapted to retrospectively or prospectively study a wide range of technologies and performance metrics other than cost.
Suggested Citation: Suggested Citation
Kavlak, Goksin and McNerney, James and Trancik, Jessika E., Evaluating the Changing Causes of Photovoltaics Cost Reduction (December 29, 2016). Available at SSRN: https://ssrn.com/abstract=2891516 or http://dx.doi.org/10.2139/ssrn.2891516