Here is why solar technology costs are plummeting

Sunshine is free. The technology for harnessing it for energy isn’t.

The relatively high prices of photovoltaic technology used to be a considerable drawback, but those prices have been falling steadily in recent years. Just how far have they fallen? The cost of some photovoltaic cells has plunged by up to 99% over the past four decades. In the past two decades the plunge in prices has especially been dramatic.

The question, though, is why?

Some experts at Massachusetts Institute of Technology (MIT), the authors of a new study in the journal Energy Policy, seek to answer that question. Part of the answer lies in so-called “low-level factors” such as technological innovation, greater demand for photovoltaic technologies and increased competition among manufacturers, all of which have had a positive impact on prices, as generally happens with technology.

In the meantime solar cell technology has also improved greatly with cells becoming much more efficient at converting sunlight into electricity. That, too, has boosted demand for solar panels.

“High-level” factors, meanwhile, have included the engagements of governments in supporting renewables through subsidies and other measures, which has served as a boost to the industry. “Policies in Japan, Germany, Spain, California, and China drove the growth of the market and created opportunities for automation, scale, and learning by doing,” observes Gregory Nemet, a policy researcher at the University of Wisconsin at Madison.

In the study, researchers analyzed prices between 1980 and 2012 and found that module costs fell by 97%. The reason for this dramatic drop were what they call “six low-level factors,” which accounted for more than 10% each in the overall drop in costs. Four of those factors accounted for at least 15% each.

These correlations in market forces highlight “the importance of having many different ‘knobs’ to turn, to achieve a steady decline in cost,” says Associate Professor Jessika Trancik, an author of the report. “The more different opportunities there are to reduce costs, the less likely it is that they will be exhausted quickly.”

When it comes to “high-level factors” government policies that stimulated market growth, such as feed-in tariffs and a variety of subsidies, accounted for about 60% of the overall cost decline. “[T]hat played an important part in reducing costs,” Trancik says. Government-funded research and development accounted for the other 40%.

By understanding the complex interplay of these low-level and high-level factors, we can ensure that renewables will continue to become cheaper still and ever more widespread. “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,” Trancik says. “We’re opening up the black box of technological innovation.”