In the Shift to Clean Energy, New Technologies Beat Old Commodities

Commodities, like coal or oil, are lumps of matter we dig out of the ground. Technologies, like solar or batteries, are things we make in factories. Technologies are the meeting of matter and knowledge. Adding human ingenuity into the mix is enough to alter the economics profoundly.

Knowledge evolves and grows, matter does not; a lump of coal is fixed, the design of a battery is not.

In economic parlance, we say knowledge exhibits increasing returns: the more we discover, the more we realize there is to find out. Commodities, on the contrary, exhibit decreasing returns: the more oil we dig, the more onerous our efforts need to become. These decreasing returns from oil or coal are offset by improvements in the technologies that extract them. The net effect, however, is no structural decline in cost. Oil prices today, in real terms, are roughly the same as they were 140 years ago, and coal electricity prices are the same as they were 100 years ago.

Solar and battery prices, on the other hand, fall by about 20 percent for every doubling of deployment. And deployment has been doubling every two to three years. As a result, prices have plummeted. Solar prices are down 99.9 percent since the 1950s. Batteries prices are down 97 percent since the 1990s.

The more solar panels and batteries we make, the more we learn how to make them, and the cheaper they get… and the more we can afford and thus the more we demand.

Developing an energy source that gets cheaper the more we make of it is a milestone for humanity. The positive repercussions of which will be a defining thread of our era.

The energy transition can be seen as a shift from commodities to technologies; from digging to manufacturing; and from hunting to harvesting. It is a story of brains beating brawn.

This chart is taken from The Cleantech Revolution. See the full report here.