Drivers of cost reduction in solar photovoltaics

Using a new dataset of costs, output, sales, technical characteristics, and capital expenditures of firms in the solar industry during 2005–2012, this paper investigates the factors that have contributed to the decline in the cost of producing solar panels. While previous studies have attributed learning-by-doing and economies of scale as important drivers of cost reduction, these do not have any significant effect on cost once four other factors are taken into account, namely, (i) reduction in the cost of a principal raw material, (ii) increasing presence of solar panel manufacturers from China, (iii) technological innovations, and (iv) increase in investment at the industry level. These findings suggest that the upstream industries that supply the solar panel industry with raw materials and capital equipment have been important contributors to the reduction in the production cost of solar panels. •The drivers of cost reduction in solar panels during 2005–2012 are investigated.•The study uses a new panel dataset of 15 solar panel companies during 2005–2012.•Learning and economies of scale are not significant in explaining variation in cost.•Firms from China have 22.4% lower cost than other firms.•Changes in polysilicon price, polysilicon usage, conversion efficiency, and industry investment account for most of the reduction in panel cost.