Evaluating the Changing Causes of Photovoltaics Cost Reduction

22 Pages Posted: 31 Dec 2016  

Goksin Kavlak

Massachusetts Institute of Technology (MIT)

James McNerney

Massachusetts Institute of Technology (MIT)

Jessika E. Trancik

Massachusetts Institute of Technology; Santa Fe Institute

Date Written: December 29, 2016

Abstract

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

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

Goksin Kavlak

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

James McNerney

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Jessika E. Trancik (Contact Author)

Massachusetts Institute of Technology ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Santa Fe Institute

1399 Hyde Park Road
Santa Fe, NM 87501
United States

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