Falling Renewables Prices and Experience Curves

The pace of the cost decline in the solar PV industry isn’t random. It tracks with a known pattern called an experience curve. An experience curve plots the per-unit cost of power against the total installed capacity. The amount of cost decline for every doubling of capacity, is called the learning rate, and it demonstrates how efficiently an industry makes progress in reducing prices. For example, between 1980 and 2003, the cost per watt of solar PV fell 18% with each doubling of installed capacity (1, 109). These learning rates are a challenging but critical component of renewable power modelling and forecasting.

Cost declines are substantial in early stages because product and process innovation opportunities are abundant (2, 549). However, declines are limited by the inelasticity of fundamental input costs, the fading effect of scale, and the falling number of lower cost opportunities. Experience curves are mostly applicable to emerging technologies that benefit from scale opportunity, but once it has matured, costs are overwhelmingly influenced by changes to input prices (2, 550).

Although learning rates vary between technologies, an individual technology’s learning rate is quite uniform with each doubling of capacity. The critical point is that speeding along with capacity additions will produce perceivable price declines, and speed should be the focus. For private companies and industry, it’s critical to create cost reductions, improve speed, and find performance efficiencies with each manufacturing run. For public institutions and governments, they should focus on creating conditions for rapid adoption, particularly on the electricity grid, where they have outsized influence. A clear energy transition goal and a clear path to adoption will enable swift advancement of renewable energy technologies.

(1) Bradford, Travis. (2006). Solar Revolution: The Economic Transformation of the Global Energy Industry. The MIT Press.

(2) Bradford, Travis. (2018). The Energy System: Technology, Economics, Markets, and Policy. The MIT Press.