Modeling Technology Innovation to Accelerate Clean Energy Development

Wind and solar energy installations have grown rapidly in recent decades as their costs have fallen but questions remain about whether these trends will continue, and the degree to which these industries will contribute to climate change mitigation. Understanding why these technologies’ costs improved in the past can shed light on the potential for further cost decline, but requires understanding technological improvement mechanisms at multiple levels.

This presentation will cover research on the drivers of technological improvement, spanning the devices themselves, human efforts to improve these technologies, and the policies that incentivized these efforts. This research points to several key determinants of cost improvement, and quantifies their significance.

The method employed to study cost changes begins with writing down a cost equation, and then deriving cost change equations. A distinction is drawn between changes observed in variables of the cost model – termed low-level mechanisms of cost reduction – and R&D, learning-by-doing, and scale economies, referred to as high-level mechanisms.

In the case of photovoltaics, increased module efficiency was the leading low-level cause of cost reduction, but many other device level changes were important as well. The most important high-level mechanism was R&D, both government and privately-funded. In the last decade, scale economies became a more significant cause of cost reduction. Importantly, policies that stimulate market growth were found to play a key role in enabling the cost reduction in PV, through privately-funded R&D and economies of scale, and to a lesser extent learning-by-doing.

To study the potential for further cost improvement, the cost change model can be employed using various scenarios for changes to variables in the cost equation. Engineers, private investors, and policy makers can use this prospective version of the model to identify promising pathways for further cost reduction in photovoltaics and other technologies.

In addition to understanding the drivers of cost reduction at the global level, it is important to consider how they change over time and space. Recent results will be presented on how policies driving innovation in solar and wind energy have varied over time and across nations. The presentation will end with an overview of clean energy development prospects under near-term climate change mitigation pledges, and lessons learned for accelerating technological progress.