Demand-Pull and Innovation in the U.S. Solar Market

It is widely known that demand-pull policies in the United States, especially the federal investment tax credits (ITC) and the California Solar Initiative (CSI), have led to a rapid escalation in the installation of solar photovoltaic (PV) systems. But there has been little systematic study into the impacts of the ITC and CSI on technological innovation. To understand the extent and nature of innovations spurred by major solar demand-pull policies, we examine patent activity in four categories of the distributed solar PV balance of system (BOS) — inverters, mounting systems, monitoring, and site assessment. Using patent counts from a unique dataset, we find that patent activity for each of these four BOS categories has increased substantially since 2005-06: ~200-400% increase in 2006-08 and ~100-200% increase in 2009-10 over prior periods (2002-05 and 2006-08, respectively). Through examining correlations of measured patent activity with cost trends of BOS and with the timing of major demand-pull policies, we conclude that demand-pull policies have largely engendered the new wave of innovations in PV BOS. We also find that new entrants account for a significant portion (34% - 74%) of patent activity in all four BOS categories. New business model innovations that tap into the large markets created through ITC and CSI have driven demand for new technological innovations in areas that had largely been untouched by incumbents, thereby allowing new entrants the opportunity to compete in and shape the market landscape.

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