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Cost- and Price Dynamics of Solar PV Modules

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  • Stefan J. Reichelstein
  • Anshuman Sahoo

Abstract

This paper develops a model framework and a corresponding empirical inference procedure for estimating long-run marginal cost in industries where production costs decline over time. In the context of the solar photovoltaic module industry, we rely on firm-level financial accounting data to estimate the long-run marginal cost of PV modules for the years 2008 -2013. During those years, the industry experienced both sharp price declines and significant expansions of manufacturing capacity. By comparing the trajectory of average sales prices with the long-run marginal cost estimates, we are in a position to quantify the extent to which actual price declines were attributable to excess capacity as opposed to reductions in production costs. While we find a significant effect attributable to excess capacity for some quarters in our sample period, the dynamics of this industry also points to a rate of cost reductions that is even faster than the 80% learning curve which has described the trajectory of average sales prices over the past three decades.

Suggested Citation

  • Stefan J. Reichelstein & Anshuman Sahoo, 2015. "Cost- and Price Dynamics of Solar PV Modules," CESifo Working Paper Series 5674, CESifo.
    • Handle: RePEc:ces:ceswps:_5674
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    References listed on IDEAS

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    Cited by:

    1. Comello, Stephen & Reichelstein, Stefan, 2016. "The U.S. investment tax credit for solar energy: Alternatives to the anticipated 2017 step-down," Renewable and Sustainable Energy Reviews, Elsevier, vol. 55(C), pages 591-602.
    2. Jia, Teng & Dai, Yanjun & Wang, Ruzhu, 2018. "Refining energy sources in winemaking industry by using solar energy as alternatives for fossil fuels: A review and perspective," Renewable and Sustainable Energy Reviews, Elsevier, vol. 88(C), pages 278-296.
    3. Sébastien Houde & Wenjun Wang, 2022. "The Incidence of the U.S.-China Solar Trade War," CER-ETH Economics working paper series 22/372, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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    More about this item

    Keywords

    long-run marginal cost; cost estimation; learning-by-doing; price dynamics;
    All these keywords.

    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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