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Transcript of R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 1 Experience Curves and Photovoltaic Technology...
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 1
Experience Curves and Photovoltaic Technology Policy
Robert M. Margolis
Human Dimensions of Global Change Seminar
Carnegie Mellon University
October 16, 2002
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 2
Outline• History/Origins of Experience Curves• Background on PV• Application to Solar PV• Thinking Prospectively Using Experience Curves• Concluding Thoughts
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 3
Origins of the Learning Curve• The “learning curve” describes how marginal
labor cost declines with cumulative production (for a given manufactured good and firm).– Wright’s 1936 study of airplane manufacturing found
that the number of hours required to produce an airframe (an airplane body with out engines) was a decreasing function of cumulative airframes, of a particular type, produced.
– Learning curves reflect a process of learning-by-doing or learning-by-producing within a factory setting.
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 4
Origins of the Experience Curve• The “experience curve” generalizes the labor
productivity learning curve to include all the cost necessary to research, develop, produce and market a given product.– Boston Consulting Group’s 1968 study across a range
of industries.
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 5
Boston Consulting Group’s 1968 Study – Empirically BCG found that, “costs appear to go down
on value added at about 20 to 30% every time total product experience doubles for the industry as a whole, as well as for individual producers.”
– In BCG analysis cost included, “all costs of every kind required to deliver the product to the ultimate user, including the cost of intangibles which affect perceived value. There is no question that R&D, sales expense, advertising, overhead, and everything else are included ” (p. 12).
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 6
The General Form of the Experience Curve is the Power Curve
• P(t) = P(0) x [q(t)/q(0)]^-bWhere:
P(t) = average price of a product at time t
q(t) = cumulative production at time t
b = learning coefficient
• PR = 2^-bWhere:
PR = progress ratio. For each doubling of cumulative production the MC decreases by (1-PR) percent.
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 7
Illustrative Learning for Three Progress Ratios
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
0 50 100 150 200 250 300 350
Cumulative Units Produced
Ave
rage
Pri
ce (
per
unit
)
PR = 90%
PR = 80%
PR = 70%
$1
$10
$100
1 10 100 1000
Cumulative Units ProducedA
vera
ge P
rice
(pe
r un
it)
PR = 90%
PR = 80%
PR = 70%
Where: P(0) = 100
q(0) = 1
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 8
Example from BCG Study: Silicon Transistors, 1954-1969
Key Milestones:1947: 1st Demonstration (Bell Labs)1954: 1st Commercial Production (TI)1960s: Expansion into Televisions (Sony)
0.01
0.1
1.
10.
100.
0.01 0.1 1. 10. 100. 1,000. 10,000.
Cumulative Units Produced (million)
Ave
rage
Rev
enue
per
Uni
t (c
onst
ant
$)
PR = 90%
PR = 80%
PR = 70%
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 9
Why Might Marginal Cost of Production Decline?
• Changes in production– process innovations, learning effects and economies of
scale.
• Changes in the product itself– product innovations, product redesign, and product
standardization.
• Changes in input prices Experience curves typically aggregate all of these
factors.
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 10
Distribution of Progress Ratios 22 Field Studies (Dutton and Thomas 1984)
0
2
4
6
8
10
12
14
50 60 70 80 90 100
Progress Ratio
Fre
quen
cy
Note: These progressratios are firm level (notindustry wide) studies.
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 11
Distribution of Energy Progress Ratios(McDonald and Schrattenholzer 2001)
0
1
2
3
4
5
6
7
60-65 70-75 80-85 90-95 100-105 110-115
Progress Ratio
Fre
quen
cy
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 12
Background on PV• PV technology overview
– Types of cells
• PV market overview– Historical Production
– Shifting Market Segmentation
– PV Module Historical Experience
– An Industry Projection
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 13
Two Main Classes of PV Cells• Mono/Polycrystalline Crystalline Silicon Cells
– Industry standard
– Multiple cells assembled into a module
– Accounted for > 80% production during the 1990s
• Thin-film Solar Cells– Main contenders include: Amorphous Silicon,Cadmium
Telluride (CdTe), and Copper Indium Diselenide (CIS)
– Monolithic design
– Emerging technologies
* A Single Learning Curve?
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 14
Global PV Cell/Module Production
0
40
80
120
160
200
240
280
320
360
400
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
Year
PV
Cel
l/M
odu
le P
rod
ucti
on (
MW
)
0%
10%
20%
30%
40%
50%
60%
70%
80%
ROW
Europe
Japan
U.S.
U.S. Share
5 Year Average Annual
Growht Rate(1996-2001)
= 35%
Note: ROW = Rest of World
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 15
Shifting PV Market Segments
• Industrial (off-grid)– Telcom, Instrumentation,
Warning Signals, etc.
• Rural (off-grid)– Rural Solar Home Systems,
Water Pumping, etc.
• Consumer– Watches, Calculators, etc.
• Grid-connected– Rooftop, Building
Integrated, Central Generation.
Market Segment
1994 1997
Industrial 38% 29% Rural 28% 27% Consumer 14% 8% Grid-connected 20% 36% Source: Strategies Unlimited 1998, p. 14.
Notes: Production grew between 1994 and 1997 from 58 to 110 MW. In 2000 grid-connected systems accounted for approximately 50% of the 300MW market.
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 16
Example Rural PV Applications
Solar Home System (China)
Solar Home System
(Honduras)
PV Water Pumping(Tanzania)
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 17
Example Grid-Connected Applications
BP Service Station (Spain)
Sanyo Building with PV
Façade (Japan)
House withPV IntegratedRoof (Japan)
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 18
Historical Experience for PV Modules, 1976-1998(Data from Various Sources)
1
10
100
0.1 1 10 100 1000
Cummulative Production (MWp)
PV
Mod
ule
Pri
ce (
1996
$/W
p) EIA/DOE(US)
Maycock(PV News)
Harmon(Global)
StrategiesUnlimited
Tsuchiya(Japan)
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 19
An Industry Projection, 2000-2005
0
100
200
300
400
500
600
700
800
900
1999 2000 2001 2002 2003 2004 2005
PV
In
du
str
y M
W
Grid-tied
Large Scale Power
Off-Grid-Rural
Off-Grid Industrial
Source: Strategies Unlimited, April 2000
1 GW
Rooftops (Japan, Germany)Remote HabitationTelecommunicationsCorporate Image (BP)
Non-subsidized Residential RooftopsCommercial Building Facades (BIPV)PV Integrate Products
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 20
Application to Solar PV
• Why should government have a role in encouraging learning?
• Summary tables from other studies• A typical learning based projection for PV
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 21
A Government Role?• Benefits of learning have a tendency to spillover to
other firms. – A firm can hire employees from a competitor, use
reverse engineering, rely on informal contacts with employees at rival firms, or pursue industrial espionage.
– As a result firms tend to under-supply a technology that exhibits strong learning effects.
• For a technology that exhibits strong learning effects and provides public benefits, the case for government sponsored demand-pull efforts is particularly strong.
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 22
PV Progress RatiosStudy Progress
Ratio # of obs
Years Scope Cost/Price Measure
Maycock and Wakefield (1975) 78% 16 1959-1974 US PV Module Sale Price Williams and Terzian (1993) 81.6% 17 1976-1992 Global Factory Module Price, based
on Strategies Unlimited Data (from 1993)
Cody & Tiedje (1997) 78.0% 13 1976-1988 Global Factory Module Price, based on Strategies Unlimited Data (from 1989)
Williams (1998) 82.0% 19 1976-1994 Global PV Module Price Maycock (1998) 68.0% 18 1979-1996 Global PV Module Price, from text
Tsuchiya (2000) 83.8% 20 1979-1998 Japan PV Module Government Purchasing Price, vs. Japanese cum. Production (sign. fluctuation over time)
Harmon (2000) 79.8% 21 1968-1998 Global PV Module Price, based on mix of sources (including Maycock, Ayres, NREL, Thomas, and Watanabe)
IEA (2000) 65% 11 1985-1995 EU PV Electricity Costs (ECU/kWh), vs. cum. kWh produced using a PV system (includes BOS and shift from SHS to BIPV)
IEA (2000) 84% 53% 79%
9 4
10
1976-1984 1984-1987 1987-1996
EU PV Module Price, based on EU-Atlas project data, vs global production.
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 23
PV “Buy-down” Cost EstimatesStudy Time
PeriodTarget Level
Estimated Buy-Down Cost
Notes
Neij (1997) 1995-various
5 cents/kWh
$100 billion(0.8 PR) $20 billion(0.7 PR)
Subsidize all future purchases above target cost. Total system cost.
Wene (1999) 1997-not specified
$0.5/Wp $60 billion Subsidize all future purchases above target cost. PV module only.
Wene (1999) 1998-2007
$3/Wp $1.2 billion Japanese government learning investment. Total system cost. (Global subsidies are estimated to be $18 billion.)
Williams (1998) 1997-2006
$1000/kW $50 billion (x-Si)$120 million (a-Si targeted program)
Subsidize all future purchases above target cost. PV module only.
Williams and Terzian (1993)
1995-2020
$1100/kW $5.4 billion (Net benefits accounting for env. ext.)
Subsidize only additional purchases relative to baseline. Total system cost.
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 24
A Typical Learning Based Projection for PV
0.1
1.
10.
100.
0 1 10 100 1,000 10,000 100,000 1,000,000
Cummulative Production (MWp)
PV
Mod
ule
Pri
ce (
1996
$/W
p)
Maycock(PV News)
80% PR
70% PR
90% PR
Note: Total US Electricity Capacity in 1998 was 775,000 MW
13,000 MW
51,000 MW
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 25
Thinking Prospectively
• What is the right target level?• Module vs. System Costs• Need to calculate impacts relative to a baseline • Single progress ratio is an over simplification• What are realistic cost reductions over time?
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 26
What’s the Right Target Level?
• Depends on targeted applicationRooftop/BIPV: Retail Electricity Rate
– Large-Scale Power: Wholesale Rate
– Telecom: Currently competitive in many remote locations
– Solar Home Systems: Economically viable when remote from the grid
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 27
Average Residential Electricity Prices for Selected Countries, 1997
Country
Average Price (cent per kWh)
USA 8.5 Japan 20.7
Germany 16.1 Switzerland 13.6 Netherlands 13.0
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 28
PV System vs. Electricity Costs
0
4
8
12
16
20
24
28
32
36
40
44
$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00$8.00$9.00
Installed PV System Cost ($/Wp)
Cos
t of
Gen
erat
ed E
lect
rici
ty (
cen
ts/k
Wh
)
Pennsylvania Retail Rate
Japanese Retail Rate
German Retail Rate
Additional Assumptions:System Lifetime = 20 yearsReal Interest Rate = 6%O&M = 0.1 cent per kWh
Capactiy Factor = 0.25(South West U.S)
Capacity Factor = 0.2(U.S. Average)
California Retail Rate
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 29
Module vs Systems Costs
• Really a compound learning curve– PV module– Balance of System components
• Rooftop/BIPV offers many opportunities for cost reduction– Elimination of Storage– Substitute structurally– Elimination of frame
– Installation
• Different components may have different learning rates.
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 30
Impacts Relative to a Baseline• PV has niche markets that are likely to grow • Can target subsidies (as in Japan and Germany)• A simple illustration:
– Baseline annual growth: 10% or 20% (?)– Subsidy increases annual growth to 30%– PR = 0.8, System Cost in 1998 = $7/WpAchieve $3/Wp: 2020 (10% growth); 2012 (20%
growth); 2009 (30% growth).Subsidy required:
All Production = $11 billion;Extra Prod. = $6 billion (increase growth from 10% to 30%);Extra Prod. = $4 billion (increase growth from 20% to 30%).
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 31
Projected PV Annual Production Under Three Growth Scenarios
0
500
1,000
1,500
2,000
2,500
3,000
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Year
An
nu
al G
lob
al P
V M
odu
le P
rod
uct
ion
(M
W)
30% Growth
20% Growth
10% Growth
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 32
Projected PV System Price Three Growth Scenarios (PR = 0.8)
0
1
2
3
4
5
6
7
8
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Year
Ave
rage
PV
Sys
tem
Pri
ce (
$/M
W)
30% Growth
20% Growth
10% Growth
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 33
Using a Single Progress Ratio?
• There is considerable uncertainty in historical progress ratios– What is the relationship between R&D and progress
ratios?
– The potential for breakthroughs is difficult to quantify
• Results are highly sensitive to progress ratio Need to include sensitivity analysis.
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 34
Sensitiveity of Global PV System Subsidy Cost to PR
$0
$20
$40
$60
$80
$100
$120
$140
70% 75% 80% 85% 90%
Progress Ratio
Subs
idy
Cos
t (b
illi
on $
)
Assumes:System Cost in 1998 = $7/WpBuy down all systems to $3/Wp
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 35
Japanese Rooftop Program Experience, 1994-2000
0
2
4
6
8
10
12
14
16
18
1993 1994 1995 1996 1997 1998 1999 2000 2001
Year
PV
Sys
tem
Pri
ce (
1998
$/W
p)
0
20
40
60
80
100
120
PV
Roo
ftop
Sys
tem
s In
stal
led
(M
W)
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 36
PV Budget Comparison (Million US$)
Program Area U.S (FY2002)
Japan (FY2002)
Germany (FY2001)
R&D 72 56 27
Demonstration -- 41 6
Market Stimulation
* 473 30
Total 72 570 62
Source: Maycock (2002); EIA (2001)* There is considerable activity at the state level in the U.S.
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 37
Illustrating a Breakthrough in PV Technology
0.1
1.
10.
100 1,000 10,000 100,000 1,000,000
Cummulative Production (MWp)
PV
Mod
ule
Pri
ce (
1996
$/W
p)
x-Si Curve
Alternative PV Curve
Tra
nsiti
onP
erio
d
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 38
What are Realistic Cost Reductions?
• Material Costs– Crystalline Silicon: $0.43-0.68/Wp (silicon, glass,
EVA, other), for 13% efficient cell (Maycock 1998)
– Amorphous Silicon: ~ $0.31/Wp (Carlson 1993)
– CdTe: ~ 0.48/Wp (Zweibel 1999)
• Average Module Production Cost in 2000 for U.S. PVMaT participating companies was $2.94/Wp
• Average Module Price in 1998 was $3.82/Wp
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 39
PVMaT Cost-Capacity Historical Data (1992-2000) and Projection (2001-2006)
0
1
2
3
4
5
0 100 200 300 400 500 600 700 800 900
Cummulative Production CAPACITY (MWp)
Ave
rage
PV
Mod
ule
Pro
du
ctio
n C
OS
T
(199
6$/W
p)
Historical
Projected
1992
2000
2006
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 40
Concluding Thoughts• Process of innovation is inherently uncertain
– prospects for learning with existing technologies,
– breakthroughs (i.e., through R&D investments),
– market developments (i.e., how rapidly will the grid-connected and rural home markets grow).
Need to be cautious!– Simplistic use of industry-wide experience curves can
easily mask the underlying dynamics of the process of innovation.
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 41
Concluding Thoughts (cont.)• With respect to PV technology we are in what
Cowan (2000) calls the “narrow windows” and “blind giants” stage of technology development.*– There is a wide range of emerging PV technologies. – It is currently unclear which PV technology will
dominate the market in the long-run. Government should strive to encourage the
development and diffusion of a diverse set of PV technologies (to avoid lock-in to an inferior PV technology).
* That is, effective policy-making is only possible during the early stages of competition between technologies, yet that is when analysts and policy-makers know the least about what to do.
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 42
Policy Recommendations
• Pursue (demand-pull and supply-push) policies that will encourage the range of emerging PV technologies to continue to advance from the laboratory into production: – Demand-pull: net metering, setting interconnection standards,
instituting a federal subsidy (tax credit or loan subsidy) for rooftop and building-integrated PV systems, and instituting a renewable portfolio standard (RPS) that would include distributed PV systems.
– Supply-push: Expand R&D programs like the Thin-Film PV Partnership project and the PVMaT project. These projects have fostered innovation in a wide array of PV technologies and should continue to pursue a multi-technology strategy.
R. M. Margolis, HDGC Seminar, Oct. 16, 2002, page 43
Directions for Research• Need to improve our understanding of the
mechanisms underlying the process of technological change – How do demand-pull and supply-push policies interact?
– How much can we speed up the process of learning?
• Can we quantify the value of R&D?