government incentives, especially feed-in tariffs that guaranteed utility buy-backs of PV-generated electricity.

The second innovation was a set of technological advances that increased PV efficiency from 17 to about 19 percent in crystalline cells. Behind this progress, he said, was companies’ understanding of the production process of the entire cell, and good links or even internal lines between the module components and wafer components. “You have to make adjustments across this entire process when you introduce a big innovation into the technology. If you look at the industry structure, both in Germany and China, you see quite a few companies that were able to do this.”

A third behavior that has been helpful is that many of these companies were competing “in parallel,” or seeking to innovate in the same areas. When one company succeeded in perfecting a technology, the others were able to adopt it quickly, benefiting the industry as a whole.

The fourth set of innovations was the arrival of new expertise in the PV industry. For example, Dr. Neuhoff said, Applied Materials bought Varian Semiconductor Equipment Associates in May 2011 for $4.5 billion. One of the stated goals for Applied Materials, a major equipment supplier in PV, was to gain access to the new technology of ion implantation, which was not yet used in the PV area. Such buying of companies to gain new technology increased the efficiency of the final products, and therefore of PV.

Finally, over the past two years, equipment supply companies had entered the PV arena, which had traditionally been dominated by the solar cell manufacturers. For example, cell producers had been experimenting with the use of selective emitter cells in solar arrays without notable success. Suddenly, two large global equipment suppliers, Gebrüder Schmidt, followed quickly by Centrothem, developed equipment of their own to produce selective emitter cells. They soon found an Asian partner willing to take some risk in adjusting the production process for this change, and in exchange the Asians—a and the industry—has an innovative technology a few percent more efficient.

Dr. Neuhoff said that some cost reductions over the last two years were also generated by moving production to China, where input materials are cheaper. At the same time, innovations to the input materials, especially the pads used to fasten the conductors to the wafer cell, have brought higher quality. “They have become better,” he said, “so you can make the cells thinner, you lose less light, and you have better contact between materials.”

Some challenges have emerged as well, he said. Previously, demand effectively created incentives to select different technologies and invest in those with highest efficiencies and lowest cell costs. Now, for both the United States and Germany, the cost of modules has come down to the extent that the installation and system integration costs of PV account for less than half the total cost of the PV. And yet, he said, the costs of putting a PV panel on the roof are still significantly higher in the United States than in Germany.

One implication of this changing cost structure, Dr. Neuhoff said, it that it is very difficult to anticipate what it will cost to install a PV panel. “If you

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