It’s Capitalism That Made Solar Panels Cheap. Capitalism And Markets, Not Public Policy

The lads over at Vox.com are quite obviously going to squeal in pigletty pleasure at the idea that smart public policy has led to some desirable goal – here a paper which claims that just that, wonks directing the economy meant that solar PV has become cheap. There’s a problem with this thesis which is, well, cheap compared to what?

No, not cheap compared to other forms of energy generation or capture, that’s not the point at all. Rather, compared to other methods of making things cheap how has this smart people in offices telling people what to do worked? That’s not something that either the original paper nor Vox.com even consider. Which is a pity because it’s the only interesting question here.

How cheap would solar have become if there hadn’t been smart public policy about it? Would capitalism and free markets red in tooth and claw have done better? Entirely government manufacturing of the things? Perhaps Al Gore pooping them onto a grateful nation would have done better? Yes, of course, that middle idea is ridiculous but that is the question we’d like an answer to. Sure, there’s been public policy about Solar PV. Solar PV has become cheaper. But to judge the effectiveness of the public policy we need to know how much cheaper, or more expensive, or how quickly or slowly to a price point, solar PV would have been in the absence of the public policy?

As we can rather observe other things have become cheaper over the years without public policy. It’s rather the defining virtue of this capitalist free marketry in fact. Think right back to when it first started. That Industrial Revolution was in textiles at first. As Mises (I think? Maybe Schumpeter) observed we know that Elizabeth I had a pair of stockings, we even know the day she received them as a present suitable for a princess. It took those Dark Satanic Mills to make them cheap enough that the mill hands owned their own pairs too. But they did become that cheap. And no one is stupid enough to think that Georgian England was a hot bed of public policy on industrial development – well, I hope not, anyone who does will be too stupid to breathe. Today’s decline in clothing costs driven by Bangladeshi sweatshops supplying Zara and H&M aren’t really about public policy now, are they?

Or perhaps we’d use the example of Henry Ford? That Model T was cheap enough that the working man could afford what had been, only a decade before, the preserve of the rich eccentric. So much so that the Model T changed the incidence of virginity at marriage so enticing was that back seat. Or would you like to look at that computer in everyone’s pocket? The first mobile phone calls in Britain took place into my own adult lifetime. £1 a minute – when £1 was a decent hourly wage, one I’ve worked for. And the capital cost was about that of a decent used car. Now a burner can be had for what, two hours minimum wage? And does anyone actually charge by the minute any more? Sure, there was public policy involved in the military applications of computing but really, not in the mobile phone. In the commons property of spectrum, sure, but the phone hardware?

No, Mariana Mazzucato’s blatherings do not count.

And no, this isn’t unusual.

This year’s Nobel Laureate is famed for his study of the declining price of lumens. Yes, this is even true of something like retail. New retail technologies like Walmart make things cheap.

We can even be specific about solar. We used to make PV cells out of the scraps and under specced pieces of silicon we made for the computer chips. As solar expanded this wasn’t a large enough supply. So, people started to make directly for solar. I’ve been in one of the places that did this, talking to the research boffins. Their problem was to work out how to make the lower quality required. At one point silicon crystal bar – what is sliced up to make the wafers:

Traditionally, the silicon for solar cells was taken from the offcuts and rejected ingots from computer wafer manufacturing. Then the market took off and the price of Si ingots soared to $450 per kg. There just wasn’t enough crud being rejected to feed the new market. So inquiring commercial minds thought about how you might produce Si ingot more cheaply: and they succeeded in doing so. The current market price is around $18 a kg and a fully loaded (ie, including capital costs etc) production cost might be around $25/kg or thereabouts.

The basic method was to break the operation out into its various component parts. You’ve a raw material cost, of course, and an energy cost, and then the actual manufacturing cost. The first two are pretty much static per kg of material, but that last bit, manufacturing cost, is hugely variable. The thinner (smaller diameter really) the ingot, the more the manufacturing part will cost you per kg of material. So, obviously, to bring costs down you want to be making fatter ingots.*** This is exactly what the Si industry has done. Over recent years, ingots have just been growing ever fatter and production costs have been slumping.
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As the sapphire is made in ever fatter ingots, the price per kg will come down. Currently, at least with the pieces I’ve seen, it’s about the shape and size of the sort of candle you might put on a dinner table. In the coming years we all expect it to get wider and wider, as silicon has done, fattening to the girth of a fat candle carried in the church parade all the way up to the “elephant’s tampon girth” of current silicon ingots. We would also expect production costs to come down as they have with silicon: perhaps not a 10x reduction, but no one can see why a 3x or 4x wouldn’t be achievable.

All of which is the problem with this claim at Vox.com:

That technology: good old solar photovoltaic (PV) panels, which have declined in cost by around 99 percent over recent decades.

The authors are MIT associate professor Jessika Trancik, postdoc Goksin Kavlak, and research scientist James McNerney. They are part of a team that, working with the Department of Energy’s Solar Energy Evolution and Diffusion Studies (SEEDS) program, is attempting to develop an overarching theory of technology innovation, using solar PV as its focus.

“Evaluating the Causes of Photovoltaics Cost Reduction” lays out the results — what caused PV costs to decline so fast, and when.

The details are worth examining, but the big lesson is pretty simple: It didn’t just happen. It was driven, at every stage, by smart public policy.

The paper itself doesn’t even consider the only interesting question here:

Photovoltaic (PV) module costs have declined rapidly over forty years but the reasons remain elusive. Here we advance a conceptual framework and quantitative method for quantifying the causes of cost changes in a technology, and apply it to PV modules.

So, here are our facts. There has been public policy about Solar PV. Solar PV has become cheaper. Excellent.

There has not been public policy about other items and things. Other items and things have become cheaper.

So, what we want to know is, has the public policy done a better job of making Solar PV cheaper than the no-public policy methods which made other things cheaper would have done? And here’s our problem with this research. They’ve not only not provided us with the answer they’ve not even asked the question. Worse, Vox hasn’t even realised that the only interesting question hasn’t even been addressed. But they’re still claiming victory.

Sigh.