Knowledge spillovers between PV installers can reduce the cost of installing solar PV

Abstract

We analyze pricing in PV systems using data from 2008-2014 to identify the effects of knowledge spillovers in reducing the installed cost of PV. This paper estimates the size of the effects of learning by doing and knowledge spillovers using multiple formulations of spillover related variables. We found knowledge spillovers between firms within a county to be a significant and substantial factor in reducing the costs of PV. However, these spillovers reduce costs only for firms over a certain size threshold, and no cost-reducing spillovers were found for smaller installers. Geographic spillovers, within a firm from one county to another were also significant although not as large as the local between-firm effects. We ran 43 specifications on the data and generally found these main results to be robust, although not in every specification. One implication of these results is that policies that subsidize demand for PV are leading to the creation of new knowledge that would not exist at lower levels of demand. That the spillovers become stronger at higher levels of experience suggests that these subsidies would need to be substantial, particularly in new markets with many small firms.