Study Reveals Factors Responsible for Dramatic Cost Reduction of Photovoltaic Modules

In the last four decades, there has been a significant reduction in the cost of solar photovoltaic (PV) modules by as much as 99%—a trend that has often been hyped as a considerable success story in the field of renewable energy technology. However, one question that has never been fully addressed was what exactly accounts for that dramatic drop?

Now, MIT researchers have performed a new study that has pinpointed the factors behind the savings, including the technology changes and policies that mattered most. For instance, the team discovered that government policy intended to aid the development of global markets played an important role in decreasing the cost of this technology. At the device level, the leading factor was the amount of power produced from a specified amount of sunlight, or an increase in “conversion efficiency.”

These understandings may help to inform upcoming policies and assess whether comparable improvements can be realized in other technologies as well. The study findings have been published in the journal Energy Policy, in a paper by MIT Associate Professor Jessika Trancik, research scientist James McNerney, and postdoc Goksin Kavlak.

The researchers initially changed the modules and the production process to look at the technology-level or low-level factors that have influenced the cost. Solar cell technology has enhanced to a large extent; for instance, the solar cells have turned out to be much more efficient at changing solar energy to electricity. Such factors fall in a group of low-level mechanisms that tackle with the physical products themselves, explained Trancik.

In addition, the researchers estimated the cost impacts of “high-level” mechanisms, such as research and development (R&D), learning by doing, and economies of scale. Instances include the way enhanced production processes have reduced the number of defective cells manufactured and consequently improved yields, and added to this is the fact that relatively bigger factories have resulted in major economies of scale.

The analysis, which covered the years from 1980 to 2012 (during which the costs of the modules decreased by 97%), discovered that six low-level factors existed that were responsible for over 10% each of the overall reduction in costs, and among these, four factors were responsible for at least 15% each. The outcomes indicate “the importance of having many different ‘knobs’ to turn, to achieve a steady decline in cost,” stated Trancik. If more different opportunities are available to decrease costs, they will be less likely to be exhausted rapidly.

The study shows that the corresponding significance of the factors has changed over time. In the past, the main cost-reducing high-level mechanism was R&D, through enhancements to the devices themselves and to the production methods. However, for approximately the last 10 years, economies of scale have been the largest single high-level factor in the ongoing cost decline, with solar cells and modules manufacturing facilities becoming increasingly larger.

This raises the question of which factors can help continue the cost decline. What are the limits to the size of the plants?

Jessika Trancik, Associate Professor, Massachusetts Institute of Technology

Trancik further added that with regards to government policy, policies that motivated market growth accounted for approximately 60% of the overall reduction in cost, so “that played an important part in reducing costs.” Policies that stimulated market growth across the world included measures like feed-in tariffs, renewable portfolio standards, and a range of subsidies. The other 40% percent was accounted for by government-funded R&D in numerous countries—albeit public R&D played a major role in the past years, stated Trancik.

This information is vital, she added, because “for a long time there has been a debate about whether these policies work—were they really driving technological improvement? Now, we can not only answer that question, we can say by how much.”

This latest discovery, which is based on modeling device-level mechanisms instead of purely correlational analysis, offers a strong proof of a “virtuous cycle” that can be developed between policies and technology innovation to cut down emissions, stated Trancik. With the implementation of emissions policies, there is an enhancement in technologies, low-carbon technology markets grow, and the costs of future emissions reductions can come down. “This analysis helps us understand why this happens, and how strong the feedbacks can be.”

Along with her co-workers, Trancik intends to apply analogous methodology to examine other technologies, like nuclear power and also the other parts of solar installations—the so-called balance of systems, such as the power controllers and mounting structures required for the solar modules—which were not considered in this work.

The method we developed can be used as a tool to assess costs of different technologies, both retrospectively and prospectively.

Goksin Kavlak, Postdoctoral Associate, Massachusetts Institute of Technology

This opens up a different way of modeling technological change, from the device level all the way up to policy measures, and everything in between. We’re opening up the black box of technological innovation.

Jessika Trancik, Associate Professor, Massachusetts Institute of Technology

Going forward, we can improve our intuition about what factors in general make technologies improve quickly. The application of this tool to solar PV is just the beginning of what we can do.

James McNerney, Research Scientist, Massachusetts Institute of Technology

Although the work concentrated on earlier performance, the factors pinpointed by it indicate that “it does look like there are opportunities for further cost improvements with this technology.” Moreover, the findings indicate that scientists should continue to work on alternative technologies to crystalline silicon, which happens to be the main form of solar photovoltaic technology at present. However, several other varieties are also being actively investigated with possibly lower materials costs or higher efficiencies.

In addition, the study emphasizes the significance of continuing progress in enhancing the manufacturing systems’ efficiency, which played an important role in reducing the costs. “There are likely more gains to be had in this direction,” stated Trancik.

Gregory Nemet, a professor of public affairs at the University of Wisconsin at Madison, who was not part of the study, stated that “This work is important in that it identifies that the growth in demand for solar PV in the past 15 years was the most important driver of the astounding cost reductions over that period. Policies in Japan, Germany, Spain, California, and China drove the growth of the market and created opportunities for automation, scale, and learning by doing.”

Their model is simple and general, which could make it useful for designing policies for other technologies that will be needed to address climate change and other energy-related problems.

James McNerney, Research Scientist, Massachusetts Institute of Technology

The U.S. Department of Energy supported the research.