Lynch opined in mid-2021 that the media is now full of stories about the rising cost of photovoltaic panels, which opponents point to with glee and proponents try to downplay. I have argued many times that short-term trends should be considered with care, and this is definitely one of those times. Recall that the Obama Administration loaned hundreds of millions to Solyndra which was planning to produce copper indium gallium selenide cylinders, a more expensive approach that appeared viable because of a short-term increase in silicon panels, due to a demand boom. Similarly, the current surge in costs should not be blindly assumed to be evidence of permanent trends.
Advocates have long argued that the learning curve effect explains most of the decline in costs for solar and wind power over the last decade or so, and I feel like Dogbert who, when confronted with an MBA saying ‘what about the discount rate?’ whacked him with a ruler. The learning curve effect is very real—whole careers have been built on it—but it is not only the only thing driving down costs, and it’s not clear that it is a very major factor.
The learning curve cliché seems to have gained popularity because it serves as a rationale for subsidizing or mandating ‘good’ energy that is not cost competitive (i.e., solar and wind). Indeed, one might ask why climate change activists don’t promote heavy subsidies for nuclear power plants or carbon capture and sequestration projects. Since almost no carbon capture projects have gone forward, shouldn’t we expect their costs to plummet as we start building them?
Most of the cost declines in solar and wind appear to be driven by innovation (better materials, better manufacturing processes) and economies of scale. Big factories produce stuff cheaper than artisan workshops (to be a bit facetious). It is possible that cheap labor has helped Chinese manufacturers drive down costs, but most factories are not very labor intensive and I’m not convinced this is a major factor.
It is always possible that Chinese panel costs have dropped because of a combination of government support and irrational exuberance—overbuilding of factories to gain market share. The latter element would mean that panel costs might have been cyclically low recently and would tend to rise (mean-reversion). The former is less predictable: government support for manufacturers could continue indefinitely.
On the other hand, competitors might ask the World Trade Organization to find that China has been unfairly subsidizing its industry, and/or pressures from trading partners could see prices rise. Major buyers might slap tariffs on imports to support domestic manufactures, as the U.S. has done. Political pressure over the mining of minerals using forced labor could increase the cost of materials—although lithium ion batteries seem to be more vulnerable there.
Finally, the growing opposition to large-scale, land-gobbling renewable power installations could mean more legal and regulatory cost for the industry. If you don’t think it could happen here, examine the history of nuclear power in this country.
Ultimately, solar panel costs will probably drop some from recent highs, but it does seem increasingly as if the prospects for continued declines in costs, as seen in the past decade, are not very bright.
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