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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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A Spanner In The Works Of The Solar Revolution

A Spanner In The Works Of The Solar Revolution

Moore’s Law famously postulates that the number of transistors on an integrated circuit doubles every two years. That relationship has held true for fifty years and has led to the rapid development of a myriad array of new electronic devices from calculators to mobile phones. A few years ago, an analogous prediction by SunPower Corp. founder Richard Swanson started making headlines. In an article in The Economist, Swanson’s law was characterized as a twenty percent fall in solar power panel prices for every doubling of capacity.

Solar power advocates point to the impressive fall in solar power panels over the last few decades as evidence of a technological revolution akin to Moore’s law. Unfortunately, Moore’s Law is a technological observation based on physics while Swanson’s Law is simply a restatement of an old axiom in Economics called the experience curve. The experience curve is one of the driving factors behind economies of scale. And to be fair, those economies of scale are a big part of the reason why modern standards of living are so high. Related: The Greenest Oil Companies In The World

An individual who had to make their own ballpoint pen would probably spend hours doing it and still end up with an inferior product. Yet when Marcel Bich took up the task and dedicated a factory in the 1950s, solely to the manufacture of ballpoint pens, the cost of those pens fell to pennies. But today the ballpoint pen is essentially the same as it was 60 years ago, and the price of pen has long since ceased to fall. Economies of scale have a limit which is reached at some point. Related: What Is Holding The Green Revolution Back?

For that reason, Swanson’s Law is unlikely to survive the decades as Moore’s Law has. Solar power today is simply too big a contributor to global energy for it to continue doubling over the long run. Alternative energy sources make up more than 10% of global energy output with solar itself over 2%. Given that, it’s hard mathematically to envision a scenario in which solar capacity can double more than roughly five more times. In light of that, even if Swanson’s Law continues to hold, solar panel costs would plateau at a per watt cost of about $0.25. This sounds great in theory, and it would certainly help to make solar power economical, but the costs of solar panels are only one small part of the cost in an overall solar power system. Related: US Postal Fleet’s $6 Billion Upgrade Could See Switch To EVs

Even today almost 80% of the costs of a solar panel system are not for the panels themselves. Solar power systems cost roughly $5 per watt of which the non-materials portion of the system costs $3.32. Now of course, beyond solar panels themselves, there are many other physical parts that have to be installed in a solar power system. So even if the price of panels themselves fell to $0.25 a watt, it would only lower the cost of the overall system installation about 10%. This level of cost reduction is on par with the cost benefits from cheap financing made possible by low interest rates through current Fed policy. Yet, solar has certainly not displaced traditional energy generation in a meaningful way. Hence it is unlikely that simply lowering panel costs is an effective long-term solution to a solar revolution.

The technological revolution brought about by Moore’s Law and Intel has been about more than just falling prices. It has been about increasing technological capabilities. In contrast, like the ballpoint pen, solar panels today are not substantially more effective than they were a decade or more ago. Until technological advancement finds a way to fundamentally transform the efficiency of gathering solar energy and converting it into electrical power, the solar revolution will probably continue to proceed at a snail’s pace.

By Michael McDonald of Oilprice.com

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  • zipsprite on May 08 2015 said:
    The comparison to ballpoint pens is not a valid one. To suggest that solar panels will not become more efficient and even cheaper has got to be one of the more ridiculous things I've read lately. The two main things currently holding back solar are A. storage and B. the entrenched power structure (think not only Koch brothers/fossil fuel interests, but also inertia- moving to a whole new paradigm requires people to think differently about what is possible and then act on that). Both of those problems will be solved. There are hundreds of billions of dollars being invested in battery research, and it WILL bear fruit. There are scores of different types of solar being developed. Most will not be economically viable, but if even one is radically more efficient/cheaper than the current solar options (which, by the way are pretty darn good), it will be game over, solar wins. We are at the very infancy of solar development (think cars in the early 1900s). To suggest that solar won't get any better than it is right now is laughable.
  • NorEastern on May 09 2015 said:
    The Scientific American article cited was significantly miss represented in the above article. The article explicitly states that the decreases in solar panel manufacturing and installation costs are exponential, and estimates that PV panels will produce electricity at below average grid costs by 2020.
  • islandboy on May 10 2015 said:
    Tony Seba, a Lecturer in Entrepreneurship, Disruption and Clean Energy at Stanford University has views that are quite different from those presented in this article. If one follows Seba's reasoning the installed capacity of solar power is doubling every couple of years while the cost is going down and eventually ALL new capacity will be solar!

    All solar, including solar thermal, is likely to generate at least one percent of US demand this year and if that percentage doubles 8 times, solar would be supplying all of the electricity in the US! If the assumption is that growth rate of solar is slowing, such that the next doubling will take three years rather than two and each subsequent doubling takes a year longer than the previous one, the eight doublings will have taken place by 2057, with the 100% solar contribution occurring sometime between 2048 and then. Seba believes that the adoption rate will accelerate rather than slow down to the point that, he predicts that by 2030 all new capacity additions will be solar!

    This article hints at the problem of soft (non hardware) costs and a couple of reports from the Energy Department's National Renewable Energy Laboratory (NREL) from 2013 reveal that, the labour costs for installing the system and it's wiring make up less than one sixth of the soft cost, which can amount to up to 64% of the total system cost. This suggests that it is not technological advancement but, a reduction in soft costs that will have a larger impact on system costs, as they now stand. The DOE is pushing initiatives to reduce these costs so, it is possible that total system costs will decline dramatically at some point.
  • Eng.Ami Elazari MBA on May 10 2015 said:
    Remarks to Michael McDonald
    Posted on Thu, 07 May 2015 19:58 | 2
    Moore’s Law famously postulates that the number of transistors on an integrated circuit doubles every two years. That relationship has held true for fifty years and has led to the rapid development of a myriad array of new electronic devices from calculators to mobile phones. A few years ago, an analogous prediction by SunPower Corp. founder Richard Swanson started making headlines. In an article in The Economist, Swanson’s law was characterized as a twenty percent fall in solar power panel prices for every doubling of capacity.
    This is still valid and true in ref the last three years in the PV industry
    Solar power advocates point to the impressive fall in solar power panels over the last few decades as evidence of a technological revolution akin to Moore’s law. Unfortunately, Moore’s Law is a technological observation based on physics while Swanson’s Law is simply a restatement of an old axiom in Economics called the experience curve.
    This is not true as Swanson’s law is also based on the fact that 100% of the solar cell the basic building block of Photovoltaic panel is made of Silicon the same raw material that transistors made off, that is the same basis for the technological observation based on physics and economics of scale.
    The experience curve is one of the driving factors behind economies of scale. And to be fair, those economies of scale are a big part of the reason why modern standards of living are so high.
    Related: The Greenest Oil Companies In The World
    An individual who had to make their own ballpoint pen would probably spend hours doing it and still end up with an inferior product. Yet when Marcel Bich took up the task and dedicated a factory in the 1950s, solely to the manufacture of ballpoint pens, the cost of those pens fell to pennies. But today the ballpoint pen is essentially the same as it was 60 years ago, and the price of pen has long since ceased to fall. Economies of scale have a limit which is reached at some point.
    Related: What Is Holding The Green Revolution Back?
    For that reason, Swanson’s Law is unlikely to survive the decades as Moore’s Law has. Solar power today is simply too big a contributor to global energy for it to continue doubling over the long run.
    Once again This is not true as Swanson’s law is also based on the fact that 100% of the solar cell the basic building block of Photovoltaic panel is made of Silicon the same raw material that transistors made off, that is the same basis for the technological observation based on physics and economics of scale. For that reason, Swanson’s Law is more likely to survive the decades as Moore’s Law has. Solar power today based on Swanson’s law henhanced by Moore’s law is simply the biggest contributor to global energy for it continue doubling over the long run.




    Alternative energy sources make up more than 10% of global energy output with solar itself over 2%. Not true according to new EIA and EPIA reports! His data is at least 3-5 years old! Some time even 10 years old!
    Given that, it’s hard mathematically to envision a scenario in which solar capacity can double more than roughly five more times. In light of that, even if Swanson’s Law continues to hold, solar panel costs would plateau at a per watt cost of about $0.25. today thin film solar panel cost $0.25-0.35 per watt !!!This sounds great in theory, and it would certainly help to make solar power economical, but the costs of solar panels are only one small part of the cost in an overall solar power system.
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    Related: US Postal Fleet’s $6 Billion Upgrade Could See Switch To EVs
    Even today almost 80% of the costs of a solar panel system are not for the panels themselves. Solar power systems cost roughly $5 per watt this totally not true it is data of 5 years ago ! of which the non-materials portion of the system costs $3.32. not true this data is from 2011 Now of course, beyond solar panels themselves, there are many other physical parts that have to be installed in a solar power system. So even if the price of panels themselves fell to $0.25 a watt, it would only lower the cost of the overall system installation about 10%. This level of cost reduction is on par with the cost benefits from cheap financing made possible by low interest rates through current Fed policy. Yet, solar has certainly not displaced traditional energy generation in a meaningful way. Hence it is unlikely that simply lowering panel costs is an effective long-term solution to a solar revolution.


    His all assumption based on falls and not updated data from 2011
  • Luís on May 12 2015 said:
    This article seems to have been written in 2005. Present prices of industrial scale PV are in the order of 1.1 €/kW, of which 0.6 to 0.7 €/kW are equipment costs (these prices include VAT).

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