Economic and Environmental Consequences of Widespread Deployment of Solar
Photovoltaics
Jevgenijs Steinbuks, Department of Agricultural Economics, Purdue University, 765-494-5837, jsteinbu@purdue.edu
Gaurav Satija, School of Mechanical Engineering, Purdue University, gsatija@purdue.edu
Fu Zhao, School of Mechanical Engineering, Purdue University, fzhao@purdue.edu
Overview
Solar photovoltaics (PV) have emerged as a promising renewable technology for mitigating greenhouse gas
emissions and curbing climate change. The total installed PV capacity in the world has increased from 1.5 GW in
2000 to 39.5 GW in 2010, which corresponds to an annual growth rate of 40% [1]. This rapid growth is largely due
to the significant cost reduction that resulted from advances in technologies and economies of scale. The fact that PV
generated electricity has reached or become close to grid parity in several countries has stimulated new investment
[2]. In addition, many countries have introduced policies (e.g. feed-in tariffs, higher electricity purchasing price, and
rebates on installation) to further encourage the development of the solar PV market [3,4].
Though solar PV seems to be an attractive energy solution, it has its own challenges. For a solar PV panel to work,
photons in sunlight hit the panel surface and are absorbed by semiconducting materials. Manufacturing of solar PV
panels thus competes with semiconductor industry for raw materials and resources. For example, in 2006, the
booming solar panel production led to a short supply of polysilicon wafers resulting in a significant price hike, which
affected both the solar PV industry and computer chip manufacturers [5]. The production of thin film solar panels
directly competes for indium with the manufacturing of liquid crystal displays [6,7]. The increasing demand of PV
raw materials in the globalized world can lead to greater resource scarcity and higher prices, all of which can hinder
the further cost reduction potential of PV panels and challenge its economic sustainability.
On the other hand, although PV panels generate electricity solely using solar energy and thus do not cause any direct
emissions, this is not the case for the production of PV panels. In fact, both the raw-material-extraction and panelmanufacturing processes are energy intensive and carry significant environmental impact. In addition, many metals
needed to produce thin film PV cells have low natural reserves and are currently extensively used by electronics
industry. For example, indium has an economical reserve of 2800 tons and there is serious concern about its
depletion [8]. To maintain a sustainable supply, it is very likely that more complicated processes are needed to
extract these metals. This will not only increase the production cost but also lead to larger environmental footprints.
Methods
There are two key interconnected issues that have to be considered when modeling the economic and environmental
effects of widespread deployment of solar PV technologies. The first issue is how the manufacturers of solar PV
respond to the changes in cost and demand conditions. The other is how solar PV competes against other renewable
energy technologies under different policy scenarios. To address these issues we adopt a dynamic partial equilibrium
(DPE) model. This global forward-looking model analyzes the economic decisions in five sectors critical to
deployment of solar PV technologies in the long run. The mining sector extracts rare metals (e.g., indium) necessary
for production of semiconducting materials, and coal, which is further combusted to satisfy electricity demand. The
mining sector is characterized by Hotelling model of optimal resource extraction with limited potential reserves. The
materials engineering sector produces intermediate components (e.g., indium tin oxide, ITO) that can be used for
either solar panels or in consumer electronics. The electronic equipment sector uses these intermediate components
to produce the final consumer goods (e.g. flat-screen TVs or LCD monitors) and solar PV panels. We assume that
expansion of the electronic equipment sector brings advances in material science, which, in turn, further extends the
efficiency of intermediate components in production of LCD monitors and solar PV panels. The solar electricity
sector uses the solar PV equipment to produce electricity. The conventional electricity sector produces electricity
from combustion of coal.1 The electricity sector combines the services from the solar and the renewable electricity
sectors to produce electricity services used in final demand. We assume that energy services from the conventional
and renewable electricity are close imperfect substitutes.2 The model chooses optimal path of indium and coal
extraction, and production of intermediate inputs to maximize consumption of electricity and LCD screens over the
course of this century.
1
We ignore electricity from hydro and nuclear sources. This is because this electricity is always used in the
baseload, and does not directly compete against solar electricity. In further version of the model we aim to include
electricity from combustion of natural gas.
2
This is because solar electricity is typically used as a shoulder or peaking service in the final dispatch, whereas
fossil fuels can also be used a baseload factor.
Results
Figure 1 demonstrates key interactions between different sectors associated with the deployment of solar PV. Rising
coal extraction costs lead to decline in production of electricity from coal (panel d), and rapid expansion of solar
electricity sector (panel a) in near decades. This development coupled with strong growth in LCD production (panel
b) raises indium extraction costs. This, in turn increases the costs of generating solar electricity relative to
conventional electricity, and the sector expansion slows down, although continues to grow as coal scarcity continues
to increase. Rising indium extraction costs and continued growth of solar sector result in a decline in LCD
production in mid-century (panel b). The share of intermediate components (ITO) used in solar PV grows
significantly in the long term (panel c).
Figure 1. Model Results.
Conclusions
Our study demonstrates the importance of resource scarcity for global potential of Solar PV deployment in the long
run. These issues were generally neglected in previous studies, which focused mostly on short- and medium- term
effects, such as e.g. adaptation of transmission grids to intermittent power supply of Solar PV.
References
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