14 Jun 2012Working Paper Summaries

“Power from Sunshine”: A Business History of Solar Energy

by Geoffrey Jones and Loubna Bouamane

In each generation, the concept of getting "power from sunshine" has attracted entrepreneurial visionaries who encountered a perennial problem: Solar energy was expensive compared to conventional fuels that were not priced to incorporate wider environmental costs. This paper by Geoffrey Jones and Loubna Bouamane provides a business history of solar energy between the nineteenth century and the present day. Its covers early attempts to develop solar energy, the use of passive solar in architecture before World War II, the subsequent growth of the modern photovoltaic (PV) industry, and alternative non-PV technologies such as parabolic collectors. As the authors argue, building viable business models proved crucially dependent on two factors: the prices of alternative conventional fuels and public policy. Key concepts include:

The potential of solar power has attracted entrepreneurs for well over a century, but they have all struggled to build commercial businesses.
The invention of PV cells in the 1950s, the "space age electronic marvel," transformed the potential of solar energy, but also vastly raised the financing stakes as the new technology was complicated and capital-expensive.
Niche markets were found, especially among end-users such as satellites, pocket calculators and roof tops, but the widespread use of solar to generate electricity in large grid systems required government subsidies and other support, especially because the environmental costs of fossil fuels were not included in pricing.
Subsidies and feed-in tariffs drove the growth of the solar industry over the last decade, especially in Europe and China, but they also distorted incentives and sometimes encouraged rent-seeking.
Regular and unpredictable shifts in government policies, influenced by lobbying and shifts in the price of conventional energy sources, were especially damaging to renewable energy, with shifting Federal and state policies in the United States providing a prime example.

Author Abstract

This working paper examines the business history of solar energy between the nineteenth century and the present day. Its covers early attempts to develop solar energy, the use of passive solar in architecture before World War 2, and the subsequent growth of the modern photovoltaic industry. It explores the role of entrepreneurial actors, sometimes motivated by broad social and environmental agendas, whose strategies to build viable business models proved crucially dependent on two exogenous factors: the prices of alternative conventional fuels and public policy. Supportive public policies in various geographies facilitated the commercialization of photovoltaic technologies, but they also encouraged rent-seeking and inefficiencies, while policy shifts resulted in a regular boom and bust cycle. The perceived long-term potential of solar energy, combined with the capital-intensity and cyclical nature of the industry, led to large electronics, oil and engineering companies buying entrepreneurial firms in successive generations. These firms became important drivers of innovation and scale, but they also found solar to be an industry in which achieving a viable business model proved a chimera, whilst waves of creative destruction became the norm.