Cost-Reduction Strategies in the Solar Photovoltaic Industry: Economies of Scale in Soft Costs and Industry-Level Modularity as Tools to Increase Competition
University of Delaware
This is an independent research study highlighting scale benefits of soft costs and modularity as strategies for increasing cost-competitiveness in the solar PV industry. On the economies of scale front, an analysis of the implied soft costs over time presents a general trend of a decline in unit costs per watt due to decreasing module costs rather than soft cost declines, suggesting that modularity may be an effective strategy to drive down costs in solar PV project development. To that end, this analysis sought to index the level of modularity present in different US industries to see if the theory held true across the US economy and could be sustained and applied to the solar PV industry. Using a binary probit regression model: this research yielded an index of the level of modularity present in each US industry, as delineated by the NAICS codes, that was based on the following variables: intermediate transport levels, inter-industry interactions, energy intensity of industries, Cost of Goods Sold (as a percentage of All Returns), and level of technology. Energy intensity was found to be insignificant on the regression. The study revealed substantial skewedness in the distribution of index values, with a high concentration of points centered around the low end of the index, followed by a definitely sparsely populated central band, followed by a smaller but yet significant concentration of industries that were highly modular. Many of the modular industries are centered on capital production in a few select sectors. Unfortunately, the North American Industry Classification System data presently available does not capture the renewable energy industry with enough specific detail to be able to draw specific conclusions about the presence of economies of modularity in utility-scale solar PV as originally desired. However, these results represent a powerful framework that can be replicated to draw solar PV industry-specific conclusions when more detailed energy sector input-output data tables become available in the next 12 to 18 months.
Energy & Environmental Policy