Catherine Wolfram at the Haas School of Business reviews the new book “How Solar Energy Became Cheap” by Greg Nemet. It traces Solar PV’s history from Bell Labs in 1954 through to the present. The phenomenal price drops mean today’s cost/kWh is 1,000 times lower than in the 1970s. The analysis is split into four epochs when output was dominated by US, Japanese, then German and finally Chinese production. How much were improvements thanks to sheer scale versus learning-by-doing? And government programs. Did success piggy-back off the exponential rise of the semiconductor industry? The role of – and cooperation between – academia and entrepreneurs is also looked at.Wolfram asks if the solar experience can be replicated for energy storage, carbon capture, small nuclear reactors or other clean technologies. But she agrees with Nemet: even if other industries can replicate this path, the decline in solar prices took a long time, so they must find a way to do it much more quickly.
One of the most remarkable trends in energy economics over the last 50 years is the tremendous reduction in solar photovoltaic (PV) prices. The figure below charts prices on a log scale. In words, it shows that prices in 1970 were about 1,000 times higher than they are currently.
I’ve been on a quest to understand this phenomenon – I’d heard conjectures about scale economies driven by generous subsidies for rooftop installations under the German Energiewende or massive subsidies from the Chinese government, but hadn’t dug into it myself.
It turns out that Greg Nemet, a professor at the University of Wisconsin, recently published a book called, How Solar Energy Became Cheap, which provides a number of insights. And, because there are so many promising energy books to review this year (more on that to come!), I’m going to break my book reviews into pieces and devote this post to Nemet’s book.
Can we replicate the Solar PV price reductions?
Understanding the decline in solar PV prices is a hugely important exercise. If we can replicate the solar experience for energy storage, carbon capture and sequestration, small nuclear reactors or other clean technologies, we’d make a lot of progress addressing climate change. Plus, I’ve had a nagging fear that the current ultra-low PV prices were unsustainable, perhaps reflecting huge subsidies that could disappear with the stroke of a pen.
So, how much of the solar experience actually can be applied to other industries? Was it pure serendipity? For example, did solar PV benefit from advances in the computer industry, which similarly use silicon’s semiconductor properties for microprocessors, that were driven by forces completely outside the energy industry? Or, are there key policies or business practices that can be replicated for other clean energy technologies?
Nemet’s book is based on 70 interviews across 18 countries and also draws on quantitative work that he and others have done for academic publications. It’s a pretty good read, especially given the format – there are footnotes, references, tables and figures, so it’s not exactly a light beach read.
The case for cross-technology replication
At a high level, Nemet comes down on the side of replicability. In fact, the subtitle of his book is, “A Model for Low-Carbon Innovation.” I must admit that I started the book with some skepticism – I was worried that he would be so intent on drawing lessons for other industries that he would ignore the serendipitous explanations. I came away more convinced.
Nemet traces solar PV from the first Bell Lab application in 1954 through to about 2016. He argues that there were essentially four epochs when worldwide PV output was dominated by US, Japanese, then German and finally Chinese production. He devotes a chapter to each country and explores the local demand-pull policies (e.g, Japan’s first-of-a-kind net metering policy in 1998) and technology-push policies (e.g., research and development subsidies, such as the creation of the Solar Energy Research Institute, which later became the National Renewable Energy Lab (NREL)).
Nemet also points out that solar PV benefited from the fact that it was hugely scalable and could be applied across a number of niche markets. The Japan chapter explains how companies like Sharp invested in very small-scale solar cells for calculators and bigger niche applications such as lighting offshore oil platforms.
Academic R&D + entrepreneurs
Solar PV prices really plummeted in the last 15 years, so I found the two chapters on the German and Chinese epochs most interesting. In the chapter on China, Nemet tells the fascinating story of Suntech, the first large-scale Chinese solar module manufacturer. The company was founded by Zhengrong Shi, who spent 15 years as a researcher at an electrical engineering lab at the University of New South Wales in Australia before he returned to China in 2001 with a business plan to build a plant to produce 3 MW of solar modules per year. By 2008, Suntech was producing 1,000 MW per year and had over $1 billion in sales. Suntech went bankrupt in 2013 due in part to its decision to acquire an Italian solar developer later accused of massive fraud, but current powerhouse companies such as Trina Solar, JinkoSolar and JA Solar developed closely on Suntech’s heels.
Shi’s story highlights the importance of academic R&D, as Shi was able to convince German customers that Suntech’s modules were high quality based on his relationship to the university research lab. And, Nemet emphasises how, “Shi’s experience in the lab [gave] him a broad expertise in PV technologies that allowed him to switch technologies quickly when an opportunity for cost-reductions emerged.”
The story of Suntech and its competitors also emphasises the doggedness of a number of Chinese entrepreneurs including Shi, who shopped his business plan around China for months before he finally found $5 million in financing. Though Nemet mentions Chinese government policies to invest in renewables to spur demand and says obliquely that, “many of these [solar] firms received substantial funding from the local governments,” I was left with the impression that Chinese solar manufacturing was really launched and developed by scrappy, capitalistic entrepreneurs.
Incremental improvements: sheer scale + learning-by-doing
The scale economies in solar PV are pretty mundane – a bunch of incremental improvements in manufacturing processes, panel efficiency, supply chain optimisation, and automation rather than one or two breakthroughs in someone’s R&D lab. For example, Nemet describes how early module manufacturers used second-hand manufacturing equipment repurposed from computer microprocessor plants, but as the industry expanded, suppliers for solar-specific machinery emerged.
He also describes how Shi led the switch from using poly-crystalline silicon to cheaper and more efficient mono-crystalline silicon, which is perhaps as close as we come to an “ah-ha” insight that drove costs down. It’s splitting hairs a bit, but this last example could be learning-by-doing rather than scale economies as the insight didn’t necessarily require huge volumes of production.
In the end, some of Nemet’s messages are encouraging: the forces of capitalism, nudged by government programs, encouraged entrepreneurs who saw a growing market for solar to invest capital and a fair amount of blood, sweat and tears into fine-tuning manufacturing processes that led to significant cost-reductions. I’m going out on a limb a bit as I’m pretty averse to making forecasts without a lot of evidence to back them up, but I don’t see an obvious reason why the price reductions have been exhausted.
As Nemet points out, though, the decline in solar prices took a long time, so even if other industries can replicate this path, they’ll have to figure out a way to do it much more quickly.
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Catherine Wolfram is the Cora Jane Flood Professor of Business Administration at the Haas School of Business, University of California, Berkeley
This article is published with permission
Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.
Roger Arnold says
Hi Catherine. You’re dealing with an important topic here, and I’m happy to see you doing so. The topic doesn’t get nearly the attention it deserves, IMO. I haven’t read prof. Nemet’s book yet, but will do so now that I know about it.
My first job out of college in 1967 was with IBM Components Division, working in semiconductor device physics. I detoured into systems analysis and software engineering for a time before returning to IC technology and microprocessor design. Though I never worked in manufacturing of PV panels, it’s an area I’ve tracked pretty closely. The development history there, for the true nerds among us, is a fascinating story.
You probably know about the generalized industrial learning curve rule — that cost per unit declines by about 20% for every doubling of production volume. That’s not a law, of course, but a heuristic rule of thumb that holds surprisingly well over a broad range of products. Or perhaps it’s not surprising; it comes down to the return on investment that can be expected from pretty mundane improvements in new machinery and tooling when market projections justify the expansion.
The reductions in cost per kilowatt of nominal capacity for PV panels over the last 50 years has exceeded what the generalized industrial learning curve could be expected to deliver. It’s interesting to look at why. As it happens, there have been several step changes in production technology that have been able to shift PV manufacturing from one technology learning curve to another, steeper curve.
An important example is the switch from manufacturing PV cells from scrap electronics grade silicon to bespoke “PV grade” silicon. Scrap electronics grade silicon was cheap (it *was* scrap after all and couldn’t be reused for electronics) and enabled silicon PV cells to be manufactured at a cost suited to a small but profitable PV market. However it was a niche market and destined to remain so, since reliance on scrap silicon from IC manufacturing put a hard cap on how much could be produced.
It’s important to note that the switch to custom produced PV grade silicon was *not* driven by the market as it then existed. It was a “field of dreams” leap of faith (“build it and they will come”) by select groups of deep pocket investors. Any buttoned-down business analyst would have called it crazy — not remotely justified by the market at the time the investments were made. And it did in fact take years of operating losses and subsidy-driven growth in the PV market before the new technology investment began to pay off. But once it got rolling, it payed off big.
As to whether the potential for further price reductions has been exhausted, the answer is complicated. There is always the potential for some incremental price reduction, but for the PV industry as we have known it, I’d say that the potential is now limited. The rate of reduction will at least slow drastically. The problem is that PV cell prices have fallen to the point that they’re no longer a big factor in the cost of PV installations. We’re getting down near the cost of toughened cover glass, aluminum frames, seals, mounting hardware, and the labor-intensive installation process itself. Over time, there will be price reductions in these areas too, but they’re mostly mature technologies already serving larger markets. Hence price reductions will come slower.
That said, I believe that there *is* a viable path to much cheaper solar power. Much more reliable as well, and immune to weather issues. It’s the “Stratosolar” approach that founder Ed Kelly has been promoting for some time (http://www.stratosolar.com). The approach is to deploy lightweight PV cell arrays on a tethered platform floating in the lower stratosphere. Power from the platform would be transferred to the ground over high voltage DC lines integrated with the tethers. The reasons that this approach would reduce the ultimate cost of renewable:
– No cover glass, cell encapsulation, or panel frames needed. The air at 65,000 feet is bone dry, nothing corrodes, and there are no rain or hail storms from which the cells need protection;
– The very low temperature at that altitude improves PV cell efficiency by around 10%;
– Solar intensity at that altitude is 35% greater than on the ground at noon on a clear day. Moreover, it remains at that intensity from just a few minutes after sunrise to a few minutes before sundown. The PV arrays are never shaded by clouds;
– The stratospheric platform allows for a large scale and very efficient form of gravity energy storage at low specific cost. By raising and lowering bags of fine sand weights, it becomes feasible for a platform to deliver 24/7 load-tracking power.
The stratospheric platform would have no ground footprint beyond the tether anchor points and the electrical power substation. It would not even be visible during the day, since it would be above the layers of the atmosphere that scatter sunlight and make the sky blue.
By eliminating the more costly elements of groundside solar installations and greatly boosting output per square meter of PV cells, Stratosolar would set a new and much lower floor on the ultimate price of solar power. Of course there’s the unproven cost of the stratospheric platform on which the blankets of PV cells would be deployed. But there’s reason to believe that if the platform is large enough, the cost per square meter can be quite low. There’s little to it beyond hydrogen gas, thin plastic balloons, and ultra-light truss structures tying everything together.
Ed has not managed to catch the interest of any deep-pocket investors of the sort who transformed solar energy when they backed new technology for production of PV-grade silicon. There’s a lot of skepticism about the possibility of deploying a tethered platform to the stratosphere. The benefits — not just for solar power but for communications, military surveillance, and weather tracking — seems so obvious that the mere fact that it has never done suggests that it must be impossible.
The skepticism is almost justified. Outside of rare periods of low winds overhead at all levels of the troposphere, it is in fact impossible to keep a small platform tethered at stratospheric altitude. It’s not a problem of strength of available tether materials; there are several that could do the job well enough. The problem is in the ratio of wind drag on the platform and tether to vertical lift that the platform can provide. Although wind drag in the stratosphere is normally very low, the same does not hold for the troposphere below it. With 20 km of tether between the platform and the ground, substantial winds in the troposphere will create enough drag on the tether to pull the platform down.
For the stratosolar concept to work, the platform must be BIG. Drag on the platform scales with its surface area, while buoyant lift scales with its volume. For tethers, wind drag scales with diameter, while tensile strength scales with cross sectional area. So for a sufficiently large platform, buoyant lift and the resulting tension in the tethers holding it down will be enough to resist drag forces and keep the platform aloft within a few kilometers of its anchors.
That’s the theory, anyway. If it’s correct, then stratosolar could deliver not just cheap energy as weather permits, but genuinely cheap carbon-free power on demand 24 / 7. It would be nice to know, one way or the other. The stakes are getting pretty high.
Sally Leong says
I believe that monocrystalline panels are the more expensive and efficient panels. Polycrystalline came later. I just googled Suntech and it is still in business and has developed a more efficient polycrystalline panel recently along with testing non silicon panels.
https://www.eenewspower.com/news/suntech-sees-20-efficiency-silicon-solar-cells
Roger Arnold says
You’re right, but it’s gone back and forth. The earliest silicon PV cells were monocrystalline, because initially that’s all that would work. Then somebody got polycrystalline cells going. They were substantially cheaper in terms of area, but less efficient. It took more area for them to deliver the same capacity. Still, after some refinement, they came out ahead on cost per watt of capacity and stayed there for a time. They dominated the mass market, while monocrystalline cells held the premium market where efficiency and stability mattered most.
Over time, the cost of both monocrystalline and polycrystalline cells declined. So did the relative cost differential between the two. Monocrystalline remained more expensive in terms of cell area, but not by much. Its efficiency advantage eventually gave it rough parity with polycrystalline in cost per watt of capacity. The lower installation costs for the smaller panel areas that were needed for a given total capacity began to give it a slight edge. So some Chinese producers switched over to monocrystalline exclusively. But others (Wuxu Suntech in the article you referenced) are working with ways to make thinner cells that aren’t monocrystalline, yet have larger crystal domains than older polycrystalline silicon cells. The competition remains a horse race. Perovskites and a couple of thin film technologies are also in the frame, and could disrupt the race. The future market looks huge, so there’s incentive to innovate.
A threat looms over the whole PV industry, however. Global investment in new PV installations has failed to grow or even declined for a couple of years now. Batteries are not an adequate solution for the intermittency problem at high levels of PV penetration of the grid. Unless better solutions can be fielded soon, innovation in PV cells and panels could grind to a halt. Innovation depends critically on the expectation of market growth.
Peter Varadi says
“The earliest silicon PV cells were monocrystalline, because initially that’s all that would work. Then somebody got polycrystalline cells going.”
The “somebody” was Solarex Corporation in the USA and Wacker in Germany. Please see: “Peter F Varadi – Sun above the Horizon” pages 82 – 90.