How Solar Energy Became Cheap

A Model for Low-Carbon Innovation

Gregory F. Nemet

• Publisher: Routledge
• Year: 2019
• ISBN:
  9780429640681
• Edition: 1
• Topic: Commerce
• Subtopic: Immobilier

Solar energy is a substantial global industry, one that has generated trade disputes among superpowers, threatened the solvency of large energy companies, and prompted serious reconsideration of electric utility regulation rooted in the 1930s. One of the biggest payoffs from solar's success is not the clean inexpensive electricity it can produce, but the lessons it provides for innovation in other technologies needed to address climate change.

Despite the large literature on solar, including analyses of increasingly detailed datasets, the question as to how solar became inexpensive and why it took so long still remains unanswered. Drawing on developments in the US, Japan, Germany, Australia, and China, this book provides a truly comprehensive and international explanation for how solar has become inexpensive. Understanding the reasons for solar's success enables us to take full advantage of solar's potential. It can also teach us how to support other low-carbon technologies with analogous properties, including small modular nuclear reactors and direct air capture. However, the urgency of addressing climate change means that a key challenge in applying the solar model is in finding ways to speed up innovation. Offering suggestions and policy recommendations for accelerated innovation is another key contribution of this book.

This book will be of great interest to students and scholars of energy technology and innovation, climate change and energy analysis and policy, as well as practitioners and policymakers working in the existing and emerging energy industries.

1

INTRODUCTION

We desperately need new ways to accelerate technology development and its adoption in order to address energy related challenges such as climate change. We need models that show what it takes to be successful. My approach is to look for successful outcomes that might provide models for early stage technologies to follow. There are many candidates for case studies exemplifying elements of success: nuclear power made the largest new contribution to electricity supply; vehicle fuel economy provides an example of rapid policy-driven adoption; hydraulic fracturing illustrates rapid market-driven adoption; pollution controls show that actors will adopt technologies even when their benefits are purely external; and smart grid technology is novel in that consumers interact with the energy system more directly. In searching for an appropriately successful case to study, I prioritize learning—new knowledge that improves technology—because that will make the case’s lessons most applicable to nascent technologies that still need to develop further. I thus select the energy technology that has improved the most, solar photovoltaics (PV). PV represents the technology effort that involved not the largest investment but the most dramatic technological outcome, the most learning. It is the technology that most clearly shows what support for innovation can achieve.

The costs of solar PV modules have fallen by more than a factor of 10,000 since they were first commercialized and are now cheaper in sunny places than any other form of electricity. Since its first application—on a satellite—in 1957, PV has always found customers who value it. PV has served a sequence of increasingly large niche markets with decreasing willingness to pay. This niche market strategy worked in part because the technology could function at any scale—the largest PV applications are a billion times larger than the smallest. Entrepreneurs were crucial throughout PV’s history, from California in the mid-1950s to China in the 2000s. Public institutions played critical roles—especially funding R&D and subsidizing early markets. The German feed-in tariff of 2000 was instrumental in enabling the industry to achieve scale, and catalyzing investment in installation, production facilities, and PV-specific manufacturing equipment. Five key countries—the US, Australia, Japan, Germany, and China—made distinct contributions that emerged from each country’s national innovation system. Each built on the work of previous leader countries with global flows of knowledge, in people, devices, and machines, catalyzing a truly global innovation system. However, all of this occurred too slowly.

Motivation

My motivation for writing this book is that even though PV’s potential as a climate change mitigation tool is vast, it can contribute even more to climate stability by serving as a generalizable model for other low-carbon technologies. If we decide that PV is a useful model to follow, having the broad outlines of how PV worked is insufficient to apply to other technologies. We need a detailed understanding, we need to include variables that may be omitted in statistically-based regression analysis, and we need to make all of it happen faster because PV took far too long for its path to be directly applicable to other technologies we will need to address climate change.

Before proceeding with an overview of the case of PV, I first briefly outline two premises that support this motivation. First, climate policy competes with other social objectives, even within the energy policymaking domain. Climate stability is only one of many societal benefits of an improved energy system. Second, the idiosyncrasies of the climate problem itself make its innovation needs distinct. We need to account for public goods, a role for government, long time horizons, and consequently, urgency in technological development.

Multiple objectives

Despite its efforts, social science is missing the inviolable laws that physical sciences use to build a foundation of understanding complex phenomena. For example, social science does not have rules comparable to the generality of gravity or the first and second laws of thermodynamics. When patterns do emerge, hyperbole is typical, and social scientists arrive at “iron laws” (Pielke, 2010). If there is an iron law of energy policy I suggest it is this: energy policymaking always involves multiple objectives.

A foundational premise that I take in understanding approaches to addressing energy related challenges is that energy policymaking inherently involves reconciling multiple objectives. As a society, we want energy that is cheap, reliable, and clean. Cheap energy means it is affordable, but also that the economy avoids macro-economic shocks as experienced in the 1970s. For about a third of the world’s population, cheap means moving up the energy ladder to access modern energy carriers; away from traditional biomass and toward electricity. Reliable energy is about having a secure source of supply. Much of that emphasis is rooted in past military conflicts, in which access to fuel was decisive. Reliability implies domestic supply sources, or at least friendly international ones. It is not just about the prices paid but also the ways in which energy security affects the ability of actors to negotiate on areas outside of energy. Clean is multifaceted as well. It includes avoiding the human health and ecosystem effects of air pollution, as well as the damages from an unstable climate.

Billions of people have a stake in the outcome and they do not agree on whether to prioritize affordability, reliability, or cleanliness. This disagreement matters because substantial tradeoffs exist among the alternatives. Fossil-derived synthetic fuels can give us reliability but are not cheap or clean. Nuclear power is clean but is not cheap. Coal is cheap in many places but is not clean. These objectives have shifted over time. Concerns about resource depletion in the early 1970s, as well as about pollution, generated nascent activity in US energy policymaking. With the 1973 Arab Oil Embargo, the focus shifted to energy security and affordability. Much progress has been made but those challenges still remain. In climate change, over the past 30 years we have added an even more demanding energy-related challenge.

One approach to these competing priorities is to do the best we can with these tradeoffs and make a compromise among the goals of cheap, clean, and reliable energy. Deliberative democracy provides one avenue to negotiate a solution (Ryan et al., 2014). But because people’s preferences can shift over time, we often see instability in policy and even sudden shifts (Nemet et al., 2014). The energy system is inherently slow to change, and the climate system even more so. We thus need approaches that are persistent (Nemet et al., 2016) otherwise, the tradeoffs will recur in a cycle, as one insufficiently addressed objective demands attention, for example during a crisis, while others lose salience setting up conditions for the next crisis (Downs, 1972). Another approach is to change the choices we have available to us so that the cheap, clean, and reliable goals do not conflict. Changing the choices we face requires innovation. For many, that approach is unrealistic because it evades the harsh reality of tradeoffs and making difficult choices among alternatives. It’s been referred to as “magical” thinking, of betting that things that do not exist today will exist in the future (Klein, 2015). But this “magic” is exactly the promise of innovation. It is the magic that has transformed the world from a Hobbesian competition for scarce resources to one in which ideas, and crucially their application, can help generate the goods and services that society wants with fewer resources involved in producing them. The continuous reduction in energy input per output of GDP provides the most comprehensive evidence of the effects of innovation on resource use (Ausubel and Waggoner, 2008). Energy innovation is powerful because it can alleviate these tradeoffs and thus provide solutions that are more persistent than democratically achieved compromises.

The decarbonization challenge

While innovation can make reconciling conflicting energy objectives less contentious, for climate change innovation isn’t just helpful, it is essential. Avoiding a substantial portion of the future damages from climate change—while affordably meeting the world’s growing need for energy services—will require a fundamental transformation of the means by which energy is produced and used (Nemet, 2013). Addressing climate change in a material way requires deep and broad innovation. While the focus of climate policy is typically on emissions or temperature targets, the scale of the transformation required elevates incentives for innovation to a central concern of climate policy itself. Decisions involving energy technology policy, and more specifically, policies intended to accelerate the development and the deployment of low-carbon energy technologies, lie at the center of climate policy debates.

Addressing other energy concerns—for example, affordability, reliability, and air pollution—have also involved innovation (Taylor et al., 2003). But they have tended not to require fundamental changes to the technological and regulatory systems that provide energy services. Electricity became affordable in developed countries in the 20th century through economies of scale in power plants and increased load factors achieved through large interconnected electric grids. Reliability improved by reducing demand through higher fuel economy in vehicles and expanding supply through offshore drilling and hydraulic fracturing. Air pollution improved by switching to low sulfur coal and installing pollution controls on existing power plants. In each case, the energy system was modified incrementally, rather than radically transformed. For example, most of the changes did not require changes to the supporting infrastructure.

Addressing climate change is different from these other energy problems because it will involve deep changes to the way energy is used and produced. The more ambitious targets discussed in policy debates and then adopted, such as the Paris Agreement (UNFCCC, 2015), imply rates of technological change that are well beyond historical precedents (Nemet, 2013) and will likely require non-incremental technological improvements (Rogelj, 2017). Such radical innovations may require new forms of public incentives as they often require new infrastructures. Further, it may be more difficult for private actors to capture the value in them due to their technological radicalness and tendency to provide public goods in the form of knowledge spillovers.

Energy technologies are also different from other technologies. The existing systems have been in place a long time because the equipment lasts a long time (Knapp, 1999). Contrast this longevity to smart phones, which get replaced and upgraded on a 2-year cycle—or prescription drugs that get refilled, with an opportunity to be switched, every 30 or 90 days. Power plants, transmission lines, pipeline, buildings last decades. Because of the up-front costs, energy technologies tend to have long payoff times and require many complementary, slower innovations.

Scale and urgency

Two aspects of the climate problem—scale and urgency—have profound implications for efforts to innovate to address climate change. First, the scale of the problem requires that we fundamentally transform a system that serves the entire world. The global energy system is expanding to serve new demands of people emerging from subsistence and industrializing to live modern lifestyles. Further, when dealing with climate, gigatons—billions of tons—are what matter. While solutions that have smaller impacts and do not scale to large ones may be helpful and are increasingly available, they struggle to justify attention and investment in them; we need to think in solutions at the scale of billions of tons, gigatons, of CO₂ (Herzog, 2011).

Second, despite the inertia discussed above, there is urgency to the climate problem. Certainly, inertia exists, both with energy systems and with the climate. That resistance to change is what necessitates urgency. The world first got serious about climate change in 1988. Three decades later and one would have to squint to see a bend in the curve on global greenhouse gas emissions (Jackson et al., 2017). As another perspective, consider these gigatons as a rate of change. Emissions need to decline (decarbonize) at about 5% per year for the next several decades (Millar et al., 2017). That is a far larger decline than what we have seen over the past three decades, during which emissions have continued to rise (Peters et al., 2017). We can look at previous examples. Over the past three decades, six countries have decarbonized their economies at rates faster than 5% sustained over 10 years or more (Nemet, 2013). These include China’s modernization in the 1980s; Russia, Poland, and Slovakia shutting down inefficient facilities post-communism; and Sweden and France adopting nuclear power in the 1980s. To be fair, these changes had little to do with addressing climate change. If we look just at the data after 1997 when the Kyoto Protocol was signed, only the eastern European countries decarbonized at rates above 5% and only one of these countries (Russia) ratified the protocol and that was at the very end of the data period. Achieving the decarbonization rates implied by recent targets is a formidable challenge that is on the outer fringe of historical precedent. There have been some successes in relatively substantial decarbonization, but the more impressive ones were done without climate change in mind: nuclear in France a...