Streetwise Professor

April 29, 2024

Learning by Doing in Solar, Even if Proven, Would Not Imply Solar Was Subsidized Too Little, Too Late

Filed under: Climate Change,Economics,Energy,Politics,Regulation — cpirrong @ 10:01 am

The estimable Francis Menton has noted repeatedly that the “energy transition” has set loose upon the world a host of innumerates who assure us that they know best when in fact they know less than nothing. And perhaps to coin a phrase, I would add that they are ineconimate, i.e., know nothing about economics. Arrogance and ignorance is a lethal combination. Such people will make us poor, and likely shivering in the dark.

Alas, the mind eating virus has even infected many who were once sensible, or at least periodically sensate or sentient. Such as the FT’s Tim Harford. (I am guessing that the brain eating ameobae at the FT have finally gotten to him.)

Harford wrote that instead of saying “I could’ve had a V8” 40 years ago, we should have said “I could’ve subsidized solar and then all our energy and climate problems would have been already solved.”

In a nutshell, Harford invokes learning by doing, which he refers to as Wright’s Law in honor of an aeronautical engineer in the 1930s who first identified this phenomenon. It has since been documented in numerous other areas, starting probably with Liberty Ships in WWII.

Yes, LBD is a thing. It has been part of the theory of economic growth since at least the 1970s, starting most notably with Paul David’s work on the antebellum cotton spinning industry in the US, and earlier than that even with work by Kenneth Arrow. Robert Lucas taught about it in the economic growth undergraduate (!) course I took as a small child at Chicago in 1981, FFS. (What a privilege and experience it was to be in that course.) I was so taken by the subject that my paper for George Stigler’s economic policy course in 1982 (when he won the Nobel Prize) examined empirically learning by doing at the Springfield and Harpers Ferry Arsenals prior to 1860. It’s hardly a new idea, or an unexplored one.

Alas, there are numerous problems with Harford’s application of LBD/Wright’s Law to solar.

One issue is: who is to say that the highly touted reductions in the cost of solar aren’t due to LBD?

That is, since cumulative output in solar panels has indeed increased dramatically over the years, learning would presumably have taken place and that plausibly accounts for some of the cost reductions. Harford himself says “PV is now so cheap that the question is moot.” So, perhaps LBD did its work.

Empirical evidence would be nice. And at most what Harford is saying is that we could have learned earlier. But if the learning has taken place (as evidenced by it being “so cheap”), albeit belatedly, solar should be taking over the world now, without subsidies, right?

Further, if Harford really means that too little learning has taken place, or it has occurred too late, then that would require (a) externalities/spillovers in learning, (b) the large subsidies to solar (which Harford pooh-poohs) were in fact too small and/or too late to generate the right amount of learning at the right time, and (c) market participants were unaware of the spillovers and did not take obvious steps to internalize them. He provides support for none of these.

With respect to externalities, it is not obvious that LBD effects are largely external to firms. Firms may be able to keep the benefits of their experience largely to themselves. To the extent they are internalized, there is no rationale for subsidies, and competitive firms will treat current production in part as an investment in future lower costs and expand output accordingly without need for government support or protection.

(NB. Non-compete agreements may be one way firms attempt to keep the benefits of experience internalized. I will soon write a post on the idiocy of the FTC’s ban of such agreements.)

I have analyzed LBD in the US shale sector in detail. I have found extensive learning effects, but the evidence for learning spillovers is weak. A firm’s own experience contributes more to its productivity than collective industry experience. This is evidence that learning is internalized.

Further, firms respond rationally to spillovers–by trying to internalize them. Mergers, consolidation, and concentration are means of internalizing learning. I note that consolidation is coming to shale only after more than a decade after the industry dramatically increased output and drilling experience.

In shale, it is plausible that much of the learning is done by service firms who internalize the benefits. Thus, even to the extent that industry experience explains productivity improvement, to the extent that service firms who, well, service the industry are the ones who generate this learning, these industry experience effects may be internalized as well.

That is, just because there is learning by doing, doesn’t necessarily mean that there are learning spillovers of the type that justify subsidies (or tariffs) to increase output (and hence learning). And if there are, there are strong economic incentives to internalize them. And if there aren’t, there’s no justification for subsidization. (David’s work on the cotton industry addressed the question of whether tariffs to stimulate domestic cotton cloth output were justified because of learning spillovers.)

All of these factors undercut the argument that the PV industry learned too little, too late. Where is the evidence that PV is unlike shale, and characterized by large learning spillovers which industry participants did not attempt to internalize through merger or other means? (I would also like to highlight the irony that Harford’s argument would imply that shale, for which there is actual evidence of LBD, should have been subsidized decades ago.)

Harford also has a myopic focus on PV cost, and fails to consider the total cost of renewables, including solar. Like other renewables, solar has intermittency and diffusiveness problems. Moreover, it has large and predictable output fluctuations (e.g., the “duck curve” problem in which solar output plunges when the sun starts to set). Due to these inherent features, useful solar will require beyond revolutionary innovations in battery technology (something Menton has analyzed in detail) that are not anywhere on the horizon.

(I note that battery technology has been the subject of massive research. It has also experienced tremendous growth in cumulative output, which has presumably contributed to learning. Yet it is nowhere even close to being an economical way to address output variability for renewables.)

Word to the wise: we are not going to be able to learn our way out of the sun rising, and more importantly setting. Or out of rain, clouds, and hailstorms. Or out of voracious needs for land to site renewables. Or out of the difficulties of disposing defunct panels.

Solar is part of a complex energy system. The cost of solar panels is actually among the least important aspects of the cost of relying on solar as a source of energy.

And talk about hindsight. Harford laments our failure to gaze into the distant future and foresee with precision the obsession with CO2 and climate change, and supersize solar panel output in time to provide cheap solar power when those obsessions became manifest. Yeah, and I should have invested in Apple when Harford says we should have subsidized solar. Or Bitcoin in 2013.

In sum, Harford’s woulda, coulda, shoulda lament in the FT is yet another example–as if more were needed–of the intellectual vacuity of those hyping the “energy transition.” Harford invokes a respectable economic concept–learning by doing–but does so in a superficial way that betrays a complete lack of understanding of it. And in a way that also betrays a lack of understanding of the real challenges of transforming an extremely complex energy system. Cheap solar panels may be a necessary condition for a cheap transition, but it’s hardly a sufficient one, or indeed, even likely an important one.

Alas, learning by doing doesn’t appear to apply in the writing of newspaper columns.

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13 Comments »

  1. He’s wrong of course. I have solar on my house in Nevada now. It’s regulated, only can put 98% of power needs on your house. If this was a crisis, why couldn’t I put as much as I want? I did it because it’s subsidized and the payback is 5 years. Without subsidies, 10 yrs and who knows how many years if the manufacture of panels wasn’t subsidized too.

    I think that if we would have actively pursued nuclear power in 1970, we wouldn’t be where we are. Nuclear is cleaner than solar. Plus, if we had lots of cheap nuclear power, it would create room to experiment and perfect the process of Nuclear Fusion!

    We should not do all of the above either going forward. We are an on demand information economy. Nuclear is the only way forward. It will power everything cheaply, cleanly, and as people adopt more electric appliances (induction vs gas), EVs etc, only nuclear can power the grid. If we want quantum computing, only nuclear can power it.

    Comment by Jeff Carter (@pointsnfigures1) — April 29, 2024 @ 11:12 am

  2. Learning by doing sounds great-
    But if you do no doing then we’re back to square one, learning nothing.
    As far as I can see no one is recycling wind turbine blades, and GRP boat hulls have been cluttering up yards for half a century.
    If solar panels are becoming super cheap and much more efficient then people will swap out the old panels for new – and we’ll need to learn pretty fast how to deal with the waste panels.

    Comment by philip — April 29, 2024 @ 3:56 pm

  3. All fair points, and I would suggest one more possible argument: There is a big overlap between solar panel tech and the semi-conductor industry. So investing in the solar panel industry earlier might not have achieved anything extra without ready access to matured tech from their well-funded sister industry.

    Comment by HibernoFrog — April 30, 2024 @ 2:35 am

  4. ‘Harford himself says “PV is now so cheap that the question is moot.” ‘

    A word of warning: “moot” in the British sense has a quite different meaning from its American sense. Those British youngsters who speak subAmerican use it – if they ever use it – in the American sense.

    But, really, I end up guessing which is meant by a British writer unless he’s clearly well educated. I have no idea which meaning Harford is espousing there; does the FT use it in the American sense as a matter of policy?

    British: a moot point is one that that’s open to argument, debatable or uncertain. So if someone in meeting says “that’s a moot point” it’s an invitation to try to resolve the issue.
    American: yah, boo, sucks, your point is utterly trivial. (Or so I understand.)

    Comment by dearieme — April 30, 2024 @ 5:11 am

  5. Two questions for all renewable energy enthusiasts:

    (i) If it’s so wonderful why does it rely on huge subsidies?
    (ii) Who on earth taught you thermodynamics?

    Comment by dearieme — April 30, 2024 @ 5:13 am

  6. Comment by dearieme — April 30, 2024 @ 5:11 am

    @dearime
    “Moot” is generally considered one of those “contranym” words: words that can have opposite meanings. See here:

    https://www.mentalfloss.com/article/57032/25-words-are-their-own-opposites

    (I should note that when I first bookmarked that page (in the long-ago), the word “moot” was included; MF has apparently updated & revised the page since then….)

    Brits and Yanks may have opposing preferences as to usage, as you claim, but if that is in fact the case, it’s a simple binary option, not an error.

    Comment by ColoComment — May 1, 2024 @ 1:04 pm

  7. Menton’s “Manhattan Contrarian” blog is a voice of informed sanity and common sense in a world where those attributes often seem sadly lacking.

    Comment by ColoComment — May 1, 2024 @ 1:07 pm

  8. @ Carter: Oh yeah, nukes, that subsidy-free source of electricity (with the grand-daddy of all externality tails). I wonder what their MwH rate would be were we to factor in the costs of decommissioning, supervision of waste storage sites for a hundred or so millennia etc etc?

    Talking of waste, Craig is a funny bunny, holding forth on his subject of choice then going weirdly off-reservation with a throwaway factoid he’s clearly gleaned from Truth Social or someplace. Difficulties of disposing defunct panels?? Here’s me thinking you just take them off and chuck them into landfill, or even better incinerate them in those EfW plants. Not a problem, surely?

    (Given most PV panels are manufactured in China, surely we should welcome any subsidies from the Chinese CCP?)

    Comment by David Mercer — May 2, 2024 @ 11:42 am

  9. @Deari – which law in particular? The 2nd? From a physics perspective I can assure you they do work. I did challenge some denier nitwit who claimed wind turbines “didn’t work” to go to our local windfarm and take the case of the substation unit and have a play inside.

    On topic, we have an ongoing debate locally regarding what is reportedly going to be Europe’s largest solar farm, with the Blenheim estate proposing to glaze over a goodly portion of west Oxfordshire. What makes it particularly fun is the fact that the Green party has very strong support in this area. You would be amazed at how many have ditched their deeply-held beliefs in favour of preserving their house prices.

    Comment by David Mercer — May 2, 2024 @ 11:43 am

  10. @Philip – One of the vagaries of FiTs here in the UK is that you’re not allowed to replace the panels during the life of the contract. You’re basically stuck with them for the duration.

    Comment by David Mercer — May 2, 2024 @ 11:50 am

  11. A little insight from Lee Gerhard: Climate Ideology Ignores Science, Threatens Humanity

    Climate scientists would be less likely to issue dire warnings of planetary doom if they gave more credence to the geological history of the past several million years. Instead, they rely on computer models that are biased by the preconceptions of their manipulators and incapable of accounting for the myriad factors influencing global temperatures.

    Minuscule recent warming, whatever the cause, is inconsequential in light of the long record of data found in Antarctica ice cores that go back 800,000 years. The bottom line is that Earth is colder by nearly 3 degrees Celsius than it was 3,000 years ago and is just now climbing out of its longest cold spell of the last 10,000 years. Blaring headlines about record heat waves of the past 100 years are meaningless, hysterical blather.

    Further reading: https://wattsupwiththat.com/2024/05/05/climate-ideology-ignores-science-threatens-humanity/

    Much of what passes for thinking these days, is what I’ve come to call rational insanity

    The insanity is hidden in the assumptions. And then the nutters build a pseudo-rational superstructure upon them that invariably rationalizes the insanity that produced them.

    So it is with the climate crisis™ hysteria, and with critical race theory.

    You’ve got a bad case of it David, but nice to see you back in any case.

    Comment by Pat Frank — May 6, 2024 @ 8:57 am

  12. “The world’s most viewed site on global warming and climate change”: LOL – yeah of course it is, courtesy of the Pat Franks of the world repeatedly hitting the F5 key.

    Yup, back again. Shiny new contract – it’s an election year, after all…

    Comment by David Mercer — May 13, 2024 @ 3:29 pm

  13. @12 “courtesy of the Pat Franks of the world repeatedly hitting the F5 key.

    One-note Mercer – snark not knowledge.

    Comment by Pat Frank — May 14, 2024 @ 7:40 am

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