Massachusetts Institute of Technology researchers have dissected the causes of solar price drops over the last four decades — a trend that analysts say will continue.

In a report last month, the MIT team identified public and private research and development (R&D) and improvements in cell efficiency as the major factors contributing to a 99 percent reduction in module costs since 1980.

The researchers divided solar module cost reduction factors into three categories for the purpose of analysis.

Of the "low-level" mechanisms — or variables that directly affected the cost of technology, such as the price of silicon — cell efficiency was found to be the most important.

It accounted for 24 percent of overall low-level cost reductions observed between 1980 and 2012, although five other mechanisms also contributed at least 10 percent of the effect.

Separately, the study looked at various high-level mechanisms, such as economies of scale, which might have an impact on low-level factors.

The most important high-level mechanism was found to be public and private R&D, which was particularly important in bringing down costs between 1980 and 2001. Finally, the MIT team also looked at the impact of market-stimulating policies such as feed-in tariffs.

Here again, measures that supported R&D emerged as having the biggest impact on PV cost reduction. The MIT analysis also showed, however, that the top factors contributing to PV cost reduction are not static over time.

Thus, while change in efficiency was the biggest low-level mechanism for cost reduction between 1980 and 2001, over the following decade the largest contribution came from increases in plant size.

Similarly, the impact of manufacturing economies of scale grew significantly between 2001 and 2012, overtaking public and private R&D in importance.

MIT Associate Professor Jessika Trancik, who led the study, said the research indicated that PV’s spectacular drop in price was probably ultimately due to the presence of multiple mechanisms that were able to influence cost.

“There were a number of different low-level mechanisms that were able to kick in over time,” she told GTM. “The relative importance of the drivers shifted over time, but there were many different drivers that mattered.”

MIT’s research suggests these drivers could help to cut PV costs even further in the future. For future cost reduction, “the most influential variables are efficiency, plant size and non-silicon materials costs,” said the team in its paper.

Furthermore, it said: “Plant size contributes substantially, though as plants become larger it may become more difficult to increase plant sizes by factors large enough to realize significant further gains.”

Ben Gallagher, a senior solar analyst with Wood Mackenzie Power & Renewables, said: “All those things are intimately tied together.”

In the past, early cost reductions were led by R&D investments mainly in Europe and North America, he said, until China stepped in to support manufacturing for local demand. This allowed companies to scale rapidly, along with the solar supply chain.

Today, the emphasis is returning to R&D, he said. “Now is when we’re starting to see more interesting developments on the cell architecture and the way that modules are designed,” he commented.

Wood Mackenzie forecasts that spot prices for modules could fall from $0.30 per watt-DC to $0.18 per watt-DC in the next five years, a 40 percent drop. And R&D is only part of the equation.

According to Wood Mackenzie, the main factors contributing to this decrease will be the growing automation of factories and the use of diamond wire saws to cut material loss in the silicon wafer manufacturing process.

Finally, cell manufacturing equipment is becoming increasingly efficient, reducing power consumption. “All of the material inputs to making a solar panel are still falling,” Gallagher said.

Declining module costs are not the whole story in solar pricing, of course. Gallagher said that for U.S. utility-scale solar, modules were less than one-third of the overall plant development cost. “Obviously, there is only so much room to fall,” he said. “Modules aren’t going to be free.

“But even if module prices don’t fall, solar is cost-competitive with natural gas and coal in most geographies in the United States. We’ve already reached that threshold.”

Will solar become the world's dominant energy technology? And how will cost reductions impact deployment trends? In an episode of The Interchange from earlier this year, Shayle Kann talked with Varun Sivaram about the technological future of solar.

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