Nature of Innovations Affecting Photovoltaic System Costs

Abstract

Innovations improve technology costs through a diversity of engineering advancements, including changes to materials choices and device or process designs. Understanding how these innovations relate to cost change can reveal aspects of the process of technology evolution, yet developing such understanding is often not possible with a strictly quantitative approach due to data limitations. In this paper we develop a hybrid quantitative-qualitative framework for relating specific innovations to cost change by using the variables in a quantitative technology cost change model as an organizing principle. We demonstrate this framework by applying it to the cost decline in photovoltaic (PV) systems over the last five decades, to generate an understanding of a set of innovations that contributed to PV modules’ sustained cost decline and the more modest trends observed in balance-of-system (BOS) costs. We find differences in the characteristics of innovations that reduced the cost of PV modules compared to innovations influencing BOS costs. A large set of module innovations reduced costs mainly through improving material quality by developing new tools and manufacturing processes. Many BOS innovations reduced costs through a combination of component design changes, integration, automation, digitalization, and standardization. Overall, most innovations in our sample affected PV hardware. However, there is an emerging emphasis on targeting ‘soft technologies’ such as task durations, through innovations like fast-track permitting, which require improved collaboration and process streamlining across different locations. Studying the origins of the innovations also provides insight on the nature of spillover between technologies. Both module and BOS hardware innovations show the benefits of PV’s position within an ‘ecosystem’ of continuously advancing technologies in many industries, in particular semiconductors and electronics, and also point to the importance of public institutions to accelerate testing, permitting, and training.

Keywords: Innovation, cost model, technological change, spillover, photovoltaics (PV), module, balance-of-system, soft cost, solar energy

JEL Classification: O30,O31,Q40,Q42,Q55