Identify the right levers

A virtuous cycle can be created in areas like climate change where supportive policy can help cut cost of carbon reduction technologies

Given demand and supportive policy, there can be spectacular advances in technology and concomitant reductions in costs. The first hard disk drive was the IBM Model 350 disk file of 1956. It had 50 discs, each of 24-inch circumference, with a total capacity of just under 5 megabytes (5 Mb). The first 1 gigabyte hard drive (1 Gb = 1024 Mb) also from IBM, came out in 1980. It weighed 250 kg and cost over $100,000 at the time. Even low-end 2018 smartphones offer 64 Gb storage space. 

The solar power industry has seen a similar spectacular progression in the development of photovoltaic (PV) modules, to give solar panels their proper name. Light shining on certain materials produces electricity. This photoelectric, or photovoltaic effect, was found in the 1830s, by Edmond Becquerel. How photoelectricity worked, was explained by a patent clerk named Albert Einstein, in a 1906 paper, “Concerning an Heuristic Point of View Toward the Emission and Transformation of Light”. That won Einstein the Nobel.  

The first modern silicon panels were made in the mid-1950s at Bell Laboratories (now AT&T Labs). These were adopted for military use, and in space programmes by the 1960s. In the 1960s, a solar panel cost about $100/watt to make. It cost about $100,000 in 1965 money, to light up ten 100 watt bulbs. (There are extra costs for the “balance of systems” — inverter, wiring, and everything else, apart from panels.) 

By 1980, those costs reduced to about $20/watt. Circa 2018, a 1 watt solar panel costs around $0.60 (about Rs 45). Costs have come down by over 99 per cent, and by over 60 per cent since 2010 itself. A modern solar power system (not just the panel) produces power at costs comparable to buying power at commercial tariffs from the grid. 

Grid parity calculations are often contentious. Definitions of “levelised cost” for power plants vary, and power tariffs also differ from place to place and indeed, from consumer to consumer, and may depend on time of day etc. But broadly solar is cost-competitive with thermal grid power. 

Globally, investments in solar power have stagnated for the last five or six years, at around $330 billion. China was the only major economy to actually hike solar investments by 30 per cent in value terms in 2017 over 2016. India’s investments fell by 20 per cent, and Japan cut back by 15 per cent. 

Part of the reason is that dramatic drop in costs. Another reason is that many nations that offered generous renewables subsidies have begun cutting back. The EU for example, offered $850 billion in renewable subsidies (not only solar) between 2000 and 2014. During 2009, 2010 and 2011, EU renewable investments amounted to over $100 billion per annum. In 2017, after subsidy cuts, the EU’s renewables investment reduced to $58 billion, according to the Institute for Energy Research (IER), a non-profit research organisation. 

In India, the subsidy structure remains in place. But solar tariffs declined to lows of Rs 2.44/unit in 2017 (an unit is a kilowatt/hr, enough to keep ten 100 watt bulbs going for an hour). That has reduced the demand for solar installations, though the market is still growing, with 5,528 megawatt of solar capacity (including 1,700 mw of rooftop installations) installed in 2017. 

An MIT team researched what triggered the fall in costs in a recent paper. The team looked at the technological factors and the policy factors.

Changes in modules technology and manufacturing processes have had an impact. Solar cell technology has become much more efficient. The cost impact of R&D and economies of scale are also considerable. Quality control has improved, leading to less wastage. Larger manufacturing facilities have led to economies of scale. The researchers also say that alternatives to crystalline silicon should be investigated and there’s room for further efficiency gains in the manufacturing processes. 

Covering 1980 to 2012, the MIT paper says six technological developments accounted for more than 10 per cent each of the overall drop in costs. The relative importance changed over time. In earlier years, research and development was the most dominant cost-reducing mechanism. Then, scale became more important. Government policy also seems critical. The paper claims policy accounted for about 60 per cent of overall cost reduction. This included multiple subsidies, and government-funded R&D also played a role. This paper and the case study in solar panels indicate that a virtuous cycle can be created through policy in areas like climate change, where for example, the costs of carbon reduction technologies could decline in a similar way if the right policy levers are found.