25 Pages Posted: 31 Dec 2016 Last revised: 21 Sep 2017
Date Written: August 9, 2017
Photovoltaics (PV) module costs have declined rapidly over forty years but the reasons remain elusive. We advance a conceptual framework and quantitative method for quantifying the causes of cost changes in a technology, and apply it to PV modules. Our method begins with a cost model that breaks down cost into variables that changed over time. Cost change equations are then derived to quantify each variable’s contribution. We distinguish 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. Increased module efficiency was the leading low-level cause of cost reduction in 1980-2012, contributing over 25% of the decline. Government-funded and private R&D was the most important high-level mechanism over this period. After 2001, however, 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 PV’s cost reduction, through privately-funded R&D and scale economies, and to a lesser extent learning-by-doing. The method presented here can be adapted to retrospectively or prospectively study many technologies, and performance metrics besides cost.
Suggested Citation: Suggested Citation
Kavlak, Goksin and McNerney, James and Trancik, Jessika E., Evaluating the Causes of Photovoltaics Cost Reduction (August 9, 2017). Available at SSRN: https://ssrn.com/abstract=2891516 or http://dx.doi.org/10.2139/ssrn.2891516