Disruptive Innovation of Solar Energy

1. Defining Disruptive Innovation

What is a disruptive innovation? Disruptive innovation is a term popularized by Clayton Christensen’s widely known book The Innovator’s Dilemma. Christensen pointed that a disruptive innovation delivers currently neglected value metrics which are different from value metrics by mainstream markets. For example, think of Tesla’s automobile value metrics: self-driving and “green”; in contrast with value metrics of traditional automobile: acceleration and top speed.

Hence, is solar energy a disruptive innovation? To answer the big question, let us examine what value metric does the solar energy bring to the table.

2. New Value Metrics of Solar Energy

Mainstream value metrics of the energy sector are:

  • Costs (how cheap is its per kWh of electricity production?)
  • Demand Response (how fast can it satisfy sudden spike in load demand?)

Solar Energy on the other hand, can be used in all parts of the world, including in areas without access to an electricity grid. This new value metric of “location independence” could be observed in off-grid applications globally. (See Exhibit 1.)

Off-Grid Solar PV Capacity increases from 13% of total renewable capacity in 2008, to 41.7% in 2017

Christensen also added that a common pattern of a disruptive innovation is that it would first conquer the new value metric, then proceed to conquer the mainstream value metrics. Hence, our next question is, how is solar PV performing in terms of the mainstream value metrics: costs and demand response?

Mainstream Value Metric 1: Costs

As shown in the graph below, cost of solar PV has been dropping sharply from 0.36 USD/kWh in 2010 to 0.10 USD/kWh in 2017. While solar PV is not the cheapest renewable energy today, it is projected to be the cheapest renewable energy in the near future. This outlook is driven by the 17% annual cost reduction for solar PV while other renewable energy sources are stagnant in costs. (See Exhibit 2.)

Solar PV has experienced 17% annual cost reduction while other renewable energy sources are stagnant in costs

Mainstream Value Metric 2: Demand Response

This is perhaps the area where solar PV is the weakest because its generation is solely reliant on the availability of sunlight, which is not correlated with electricity demand. However, this issue may be mitigated by using a battery storage which can store solar energy and satisfy sudden demand in electricity. In terms of its cost, battery is becoming economical due to the increased productions for electric vehicles batteries, ultimately driving down the learning curve. (See Exhibit 3.)

Energy storage cost has decreased from 1000 USD/kWh in 2010 to 273 USD/kWh in 2016.

3. Conclusion

Solar PV is disruptive due to its new value metric: “location independence”. Additionally, it is getting more competitive in the mainstream value metrics:

  • Cost: Solar PV cost reduces by an average of 17% annually. Continuing its learning curve, solar PV will likely become the cheapest renewable energy source in 2024.
  • Demand Response: Decreasing cost of storage means demand response is more economical as more storage may be deployed in the future.

Therefore, at the point where these two mainstream value metrics reach parity with other energy sources, solar PV disruption will likely proliferate from off-grid applications to on-grid residential and commercial uses. Consequently, utility grids are facing the threat of disruption as consumers defect to solar PV. Unless they find new business models, they will not be able to offset the depreciation costs of installed transmission and distribution systems.

Furthermore, the value metric of “location independence” gives solar the opportunity to rewire our very own capitalism. By solar energy, we can now power decentralized means of productions assisted by IoT and 3D printing. This brings us into the prospect of the solar energy being capable to shift us to a post-capitalism economy.

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