Cheap Solar Power is a Gift to Political Science

Hemingway has a great quote on how bankruptcy happens: “Gradually, then suddenly”.  Pricing trends work much the same way – initial prototypes are expensive curiosities.  A steam engine is a mechanical wonder, usable only for short power-intensive tasks and with a huge store of fuel nearby.  Well-suited for the niche use case of pumping water out of coal mines, but not for much else.  Thomas Newcomen invented this first steam engine in 1712 and it languished in obscurity for decades.  But when James Watt made some tweaks to improve efficiency five decades later,  the steam engine changed the world.  All of a sudden, there was a power source that not only produced more power than water wheels, but could operate anywhere.  Within a scant few decades more, steam engines were criss-crossing the English countryside and the world’s oceans.

Michael Sankowski points to a potentially similar dynamic with solar power.  The crazy price drops of the past few years have completely remade the economics of solar power, but to some degree it’s happening sub rosa in the context of a global recession.  As the crazy global growth of the 90s/2000s slowed in 2008, commodity prices like oil, coal and natural gas dropped dramatically and so solar power continued to be uncompetitive.  But the price trajectory of solar power seems set to continue whereas commodity prices can fluctuate up or down wildly, and are unlikely to drop below the levels set in the depths of the Great Recession.  Furthermore, even a small subset of existing utility customer switching to rooftop solar power could ruin utilities’ economies of scale and drive up retail electricity prices by 20%.  That last link, by the way, is from an electrical utility trade group – they are taking the threat from solar very seriously.

Solar power’s price trajectory should provide an extremely powerful natural experiment for social scientists.  It has the beautiful property of having a different “levelized cost” in different locations – lower in sunny areas and higher in cloudy areas.  Levelized cost refers to the price of electricity for a given system that will allow the generation system to pay for itself.  Therefore, it will become cost-competitive in different locations at different times.  Today, for example, if you’re building a utility plant in the Sonoran desert putting in a solar plant is the clear right move economically, but not if you’re building a plant in upstate New York.

This will provide a ton of raw material for theories about political economy.  If you believe that governments and utilities basically respond to incentives, you should see massive abandonment of coal infrastructure in advance of solar competitiveness – after all, if you know exactly when your coal plants will become economic deadweight you will begin making plans in advance of that.  If you favor interest-group theories, you should predict that the main determinant of solar adoption will be the relevant actors – so once the threshold is crossed, there will be faster adoption of solar with public utilities than with private utilities which will attempt to seek regulatory subsidies.  Or perhaps the interest group politics will play out differently.

These kinds of natural experiments are rare, and it’s a nice little fringe benefit to cheaper and cleaner solar energy.

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