Drivers of Cost Reduction in Solar Photovoltaics

Using a new dataset of costs, output, sales, technical characteristics, and capital expenditures of firms in the solar industry during 2005–2012, this paper investigates the factors that have contributed to the decline in the cost of producing solar panels. While previous studies have attributed learning-by-doing and economies of scale as important drivers of cost reduction, these do not have any significant effect on cost once four other factors are taken into account, namely, (i) reduction in the cost of a principal raw material, (ii) increasing presence of solar panel manufacturers from China, (iii) technological innovations, and (iv) increase in investment at the industry level. These findings suggest that the upstream industries that supply the solar panel industry with raw materials and capital equipment have been important contributors to the reduction in the production cost of solar panels