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  • Writer's picturePacific Sun Technologies

What made solar panels so cheap? Thank government policy.

From an economic perspective, the core challenge of climate change is that the standard way of doing things — the dirty, carbon-intensive way — is typically cheaper than newer, lower-carbon alternatives.

Solving the problem means driving down the cost of those alternatives. Simple, right?

But in practice, it’s not so simple. In fact, we still don’t have a very good grasp on exactly what drives technological innovation and improvement. Is it basic scientific research? Early-stage R&D? Learning by doing? Economies of scale?

If we want to make clean technologies cheaper, we need a better understanding of how the process works. Among other things, Silicon Valley types are spending billions on “moonshot” startup initiatives — it would be nice if that money were spent effectively.

There is a voluminous academic literature on these subjects, but a new paper in the journal Energy Policy helps to cut through the fog. It focuses on one specific technology and seeks to identify, and quantify, the various forces that drove down costs.

That technology: good old solar photovoltaic (PV) panels, which have declined in cost by around 99 percent over recent decades.

The authors are MIT associate professor Jessika Trancik, postdoc Goksin Kavlak, and research scientist James McNerney. They are part of a team that, working with the Department of Energy’s Solar Energy Evolution and Diffusion Studies (SEEDS) program, is attempting to develop an overarching theory of technology innovation, using solar PV as its focus.

“Evaluating the Causes of Photovoltaics Cost Reduction” lays out the results — what caused PV costs to decline so fast, and when.

The details are worth examining, but the big lesson is pretty simple: It didn’t just happen. It was driven, at every stage, by smart public policy.

Solar PV has gotten cheaper at a positively ridiculous rate

First, by way of background, it’s important to wrap your head around the remarkable evolution of solar PV. Again, solar module costs have dropped by around 99 percent over the past 40 years.

Suffice to say, those declines have continued since 2015, and market experts expect them to accelerate for the foreseeable future.

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.

This headlong decline in costs is a baffling and amazing phenomenon. It demands explanation.

There have been many studies on the subject, of course, but most have relied on “correlational analysis,” tying the drop in PV costs to other ongoing trends. For instance, it is popular to point out, based in part on this paper, that PV costs drop by about 20 percent for every doubling of cumulative capacity (the two trends correlate).

There are also device-level studies that examine the components of PV systems, and their contribution to costs, at a snapshot in time.

“Missing from these studies,” the team at MIT writes, “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.” That’s what the team has attempted to create — a dynamic model that can distinguish and quantify the component causes of price declines over time.

Drivers for PV cost declines have changed over time

The team breaks out two basic types of drivers for cost declines, low-level and high-level. The former are “measurable and technology-specific determinants of cost,” things like wafer area, efficiency of modules, and manufacturing plant size. The latter are “processes like R&D, learning-by-doing, and scale economies that subsume low-level cost reductions.”

The idea is to bridge bottom-up and top-down approaches to understanding technology evolution. There’s a long explanation of the modeling methodology, replete with equations, in the paper, if you’re into that sort of thing.