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Experience Curves: Why expanding renewable energy output will lower the cost of supply

Geoff Riley

15th April 2021

For many products, increases in cumulative production are associated with decreasing unit cost as suppliers move down the experience curve.

New analysis of the military equipment economy during the Second World War shows that the boost in experience that producers gained during the war accounted for about half the equipment’s subsequent price drops.

This strong ‘learning by doing’ effect suggests we can make renewable energy significantly cheaper by boosting renewable technology production.

That is the conclusion of François Lafond, Diana Greenwald and Doyne Farmer at the Institute for New Economic Thinking at Oxford University in a research study presented to the 2021 RES conference that gathered and analysed an unprecedented amount of data on US military production during the war, covering over 500 products.

They find that experience accounted for about half of the price decline.

Although this relationship between experience and costs is unlikely to be the same across all goods, the findings are broad confirmation that investing in a specific product in order to boost experience will cause production costs to decrease.

The Experience Curve (Business Growth)

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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