Cost- and Price Dynamics of Solar PV Modules

Details

Author(s):
  • Stefan Reichelstein
  • Anshuman Sahoo
Publish Date:
November 1, 2015
Publisher:
Graduate School of Business & Steyer-Taylor Center for Energy Policy and Finance
Place of Publication:
Stanford
Format:
Working Paper
Citation(s):
  • Stefan Reichelstein and Anshuman Sahoo, Cost- and Price Dynamics of Solar PV Modules, Graduate School of Business & Steyer-Taylor Center for Energy Policy and Finance (2015).
Related Organization(s):

Abstract

This paper develops a model framework and a corresponding empirical inference procedure for estimating long-run marginal cost in industries where production costs decline over time. In the context of the solar photovoltaic module industry, we rely on firm-level financial accounting data to estimate the long-run marginal cost of PV modules for the years 2008-2013. During those years, the industry experienced both sharp price declines and significant expansions of manufacturing capacity. By comparing the trajectory of average sales prices with the long-run marginal cost estimates, we are in a position to quantify the extent to which actual price declines were attributable to excess capacity as opposed to reductions in production costs. While we find a significant effect attributable to excess capacity for some quarters in our sample period, the dynamics of this industry also points to a rate of cost reductions that is even faster than the 80% learning curve which has described the trajectory of average sales prices over the past three decades.