Learning by Doing in Wind Power

Each additional ... wind project that the developer and the manufacturer build together decreases unit costs by about 0.25 percent.

China's wind power industry has developed rapidly during the past ten years, in part because of financial support through the Clean Development Mechanism (CDM). The CDM is a project-based carbon trade mechanism that subsidizes the users of climate-friendly technologies and encourages technology transfer between developed and developing countries. In The Learning Process and Technological Change in Wind Power: Evidence from China's CDM Wind Projects (NBER Working Paper No. 19921), Tian Tang and David Popp examine the determinants of technological change in wind power in China. Using pooled cross-sectional data on 486 registered CDM wind projects in China that started construction from 2002 to 2009, the authors assess whether technology transfer and learning drive down renewable energy costs in China.

They test the effects of learning through different channels: learning-by-searching through R&D in wind turbine manufacturing, learning-by-doing from previous experience of installation, and learning-by-interacting through collaboration between wind turbine manufacturers and project developers.

Their findings suggest that experience matters. Learning-by-doing by developers significantly reduces the project unit costs. Given the average size of a CDM wind project, a developer's completion of a typical CDM project reduces the future unit costs for similar projects by the same developer by around 0.23 percent. However, what reduces project costs the most is repeated collaboration experience between a developer and a manufacturer: the learning-by-interacting effect. Each additional CDM wind project that the developer and the manufacturer build together decreases unit costs by about 0.25 percent. These results suggest potential cost benefits from recent trends toward integrating turbine manufacturing with wind project development in China's wind industry. Interestingly, the learning-by-interacting effect is strongest when collaboration occurs between domestic developers and foreign manufacturers. Cost savings are almost four times as high in this case as when the collaboration is between domestic firms, suggesting that knowledge transfer between foreign manufacturers and project developers is important.

In contrast to the learning-by-interacting effect, the learning-by-searching effect, while significant, is relatively small. One more patent by a manufacturer reduces unit costs by just 0.04 percent. The authors explain that the small effect might be attributable to the short time frame of the analysis. It may take a substantial amount of time for patents to be commercialized and to have their full effect on costs.

-- Claire Brunel

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