Government Policy, Public Investment Drove 99% Drop in Solar Photovoltaic Costs

Government policy and public investment were the key driver of an astonishing 99% drop in the cost of solar photovoltaic (PV) panels over four decades, according to a new paper in the journal Energy Policy.

“It didn’t just happen,” writes Vox.com climate columnist David Roberts. “It was driven, at every stage, by smart public policy.”

In the paper, associate professor Jessika Trancik, post-doctoral candidate Goksin Kavlak, and research scientist James McNerney of the Massachusetts Institute of Technology set out to develop an overall theory of technological innovation, using the precipitous drop in photovoltaic costs as an example. Their research appears at a time when “solar PV has defied all projections, continuing to get cheaper and deploy faster—even as experts predict, again and again, that it will level off,” Roberts states.

“The real lesson of solar PV is simple: We know how to make clean energy cheap. We’ve done it. We can do it again if we want. “

Various studies have looked at the factors that could drive what Roberts calls a “baffling and amazing phenomenon”—from growth in cumulative photovoltaic capacity, which does correlate with the history of cost reductions, to price snapshots of specific PV panel components. “Missing from these studies is a method of accurately quantifying how each change to a feature of the technology or manufacturing process contributes to cost reductions, when many changes occur simultaneously,” the MIT paper notes.

The research team separated out “low-level” factors like wafer area, module efficiency, and manufacturing plant size from top-down processes “like R&D, learning-by-doing, and scale economies that subsume low-level cost reductions,” Roberts explains. The list of production factors shows efficiency, non-silicon material costs, and silicon prices playing the most significant role in cost reductions between 1980 and 2001, with plant size dominating from 2001 to 2012. That was when “solar PV became big business,” he writes, and “with bulk manufacturing in big plants came rapid cost declines.”

But it’s in the review of higher-level influences that public and private research and development emerge as the key factor in PV’s success, with economies of scale becoming slightly more important from 2001 on. “Market-stimulating policies have played a central role in driving down the costs of PV modules,” the paper states, “with private R&D, economies of scale, and learning-by-doing together contributing an estimated 60% of the cost decline in PV modules between 1980 and 2012.”

The research has Roberts pointing to the steps governments can take to “intentionally make clean energy technology cheap,” adding that the timing of policy is one of the most interesting takeaways. “Technologies travel a fairly predictable path down the learning curve, and different kinds of policies can push them along at different stages,” he writes. “When things are working, as technologies get cheaper and closer to commercialization, R&D gives way to performance standards. And when the industry is mature, price signals (like a price on carbon) take over.”

Although market signals like carbon pricing are having trouble taking hold in the case of PVs, he says there’s still a takeaway for clean energy technologies that are still maturing: “It is possible to target public policy toward a technology based on its position on the learning curve and consciously accelerate its development.” In a technology area like algae fuels, that might mean R&D. PVs might benefit more from a mix of accelerated deployment, along with continuing R&D to prevent the technology from levelling off prematurely.

But the overall message is the central role governments play in enabling promising new technologies to get off the ground. “Policies that create incentives for private investors to develop and deploy solar panels are responsible for well over half of the decline in solar PV costs. Most of the rest is public R&D,” Roberts writes.

“Recently, there’s been a great deal of interest among wealthy Silicon Valley types in funding private R&D for clean energy tech. There is a quasi-libertarian pretense among that crowd that government is slow and inefficient,” he concludes. “But this research shows that public policy can be incredibly effective in creating the market conditions in which individuals can innovate. The tech-entrepreneur galaxy brains behind various (laudable) clean energy investment schemes would do well to study it.”