The Falling Cost of Solar and Wind

How learning curves, mass manufacturing and cheaper finance drove one of the fastest price declines in energy history.

Within a little over a decade, solar panels and wind turbines went from being among the most expensive ways to make electricity to, in many places, the cheapest. Economists explain much of this with the idea of a learning curve: the pattern in which the cost of a technology falls by a fairly steady percentage each time the total amount ever produced doubles. This lesson looks at why solar and wind followed that pattern so strongly, and what it means for energy markets.

Learning by doing

The total amount of a technology that has ever been installed is called its cumulative capacity. Each time cumulative solar capacity has doubled, the price of solar modules has fallen by roughly a fifth. That steady percentage drop is called the learning rate. The reasons are practical. Factories find ways to use less silicon and less energy per panel. Engineers make each cell convert more sunlight into electricity. Suppliers compete, machines improve, and installers get faster at mounting panels and connecting them. Over the 2010s, estimates suggest solar module prices fell by roughly 90 percent, and onshore wind costs also dropped sharply.

Why solar and wind learned so fast

Solar and wind are modular technologies, meaning they are built from many small, identical units rather than a few giant custom projects. A solar farm is made of thousands of identical panels, and a wind farm of many identical turbines. Making the same product millions of times gives manufacturers endless chances to improve, and small projects can be built in months rather than years, so lessons feed back quickly. Compare that with a large dam or a nuclear plant, where each project is unique and takes many years, leaving far fewer chances to learn.

Government policy also mattered. Early support in countries such as Germany created demand when the technology was still expensive, and large-scale manufacturing in China then drove prices down further. Competitive auctions, used widely in India, pushed developers to bid the lowest price they could for supplying power, revealing just how cheap solar had become.

A learning curve in numbers

Imagine a solar module costs 100 rupees per unit of capacity, and the learning rate is 20 percent. When cumulative production doubles, the cost falls to 80 rupees. After another doubling, it falls to 64 rupees, then to about 51, then to about 41. After ten doublings, which is roughly a thousandfold increase in total production, the cost would be around 11 rupees, close to a tenth of where it started. Fast-growing technologies can pass through many doublings in just a few decades.

The role of cheaper finance

Solar and wind farms have no fuel bill; nearly all their cost is paid up front to build them. That makes them very sensitive to the cost of capital, which is the interest rate or return that lenders and investors require. As solar and wind proved reliable, banks began treating them as lower-risk, and borrowing costs fell, cutting the cost of their electricity further. The flip side is that when interest rates rise, as they did in many countries from 2022, new projects become more expensive, and some temporarily slowed.

What cheap solar and wind change

Cheap wind and solar have changed the question from whether they can compete to how best to fit them into the grid. Because their output depends on the weather, their value falls when many farms produce at the same time, such as at sunny midday. The next challenges, covered in later lessons, are storage, transmission lines and flexible demand.

Assuming falling costs happen automatically

Learning curves describe a pattern, not a guarantee. Costs fall because people keep building, improving and competing. Supply chain problems, higher interest rates or trade barriers can slow or briefly reverse the decline, as happened with some solar and wind prices around 2021 and 2022.

Key takeaways

A learning curve means costs fall by a steady percentage each time cumulative production doubles.
Solar module costs have fallen by roughly a fifth with each doubling of installed capacity.
Modular technologies learn fast because they are built as many small, identical units.
Because solar and wind are paid for up front, the cost of capital strongly affects their price.
Cheap solar and wind shift the challenge to storage, transmission and flexible demand.