Common Tragedies

Thoughts on Environmental Economics

Is our solar pv panels learning?

Posted by Rich Sweeney on November 17, 2008

In last week’s RFF policy commentary, Stanford’s Jim Sweeney, Kenny Gillingham, and Arthur van Benthem explain that learning is key when evaluating whether the California Solar Initiative (CSI) is good policy or not. Citing results from a paper they published in the Energy Journal this year, they argue that environmental benefits alone are not sufficient to justify the CSI. However, when they add even conservative estimates of learning by doing into their model, they find that the policy becomes worthwhile and improves economic efficiency. They find:

The present value of the decreased costs of future installations due to LBD caused by one additional installed kilowatt of solar is estimated to be $1,140; the present value environmental benefit from reduced carbon dioxide (CO2), if we assume a CO2 damage of $50/ton of CO2, is only $192. This numerical estimate indicates that the primary motivation for solar policy in California should be LBD. If we do not believe that there are LBD spillovers, the environmental reasons alone are not sufficient to justify the ambitious CSI.

While the authors have a somewhat detailed discussion of the literature on learning by doing (LBD) in the paper, more empirical work needs to be done to understand the true source of these costs improvements. Home PV systems involve the panels themselves, as well as inverters and, often, battery or storage devices. Cost improvements are possible in all three of these areas, as well as in the cost if installation and maintenance. Understanding where and how learning is actually taking place will allow us to better structure and evaluate policies to promote PV in the future.

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