Interpreting Interim Deviations from Cost Projections for Publicly Supported Energy Technologies

Widespread public funding of nascent energy technologies, combined with recent increases in the costs of those that have been most heavily supported, has raised the stakes of a policy dilemma: should policy makers sustain these programs anticipating that recent cost increases are temporary disturbances or should they eliminate them to avoid risking billions of dollars of public funds on technological dead ends? This paper uses experience curves for photovoltaics (PV) and wind to (1) estimate the range of possible policy outcomes and (2) introduce new ways of assessing near term cost dynamics. For both technology cases, the costs of the subsidies required to reach cost targets are highly sensitive to the choice of the historical time series used. The variation in the discounted social cost of subsidies exceeds an order of magnitude. Vigilance is required to avoid the very expensive outcomes contained within these distributions of social costs. Two measures of the significance of recent deviations are introduced. Both indicate that wind costs are within the expected range of prior forecasts but that PV costs are not. The magnitude of the public funds involved in these programs heightens the need for better analytical tools with which to monitor and evaluate cost dynamics