8. Experience Curves and Disruptions Flashcards
Experience Curve
Explains relationship between cost of production (or price) and cumulative production quantity. Shows the investment necessary to make a technology competitive, but it does not forecast when the technology will break-even
Learning
Learning in experience curve occurs as scale increases, technology improves, and input prices decrease. Occurs through refinement of production processes where the skill of workers increases with cumulative production. It depends on market deployment of the technology in order to generate substantial price reductions.
Learning Investments
Investments needed to make the technology cost-efficient, after which they will be recovered as the technology continues to improve
Cumulative Production
Total production over a period of time
Disruption
Structural change in the way a technology is deployed, either through a new variant or in the way it is produced
Parity
BEP or point at which renewable energy is competitive with conventional grid-supplied electricity. Parity does NOT guarantee market uptake at a pace that would satisfy financial investors. If grid parity means imbedded cost of energy on a per kWh-basis that is the equivalent of the grid, hurdle can be easily met while still incurring very long pay-back times and low or negative IRRs.
Market Shakeout
Occurs in market when prices fall faster than cost. It is one of the factors which causes rapid shifts in technology cost progression (together with technology disruption).
Price Umbrella
Pricing effect often created by a dominant company, in which competing firms can find buyers as long as they set their price at or below the level of the dominant one
Normalization
Process of removing non-recurring expenses or revenue from a financial metric like EBITDA, EBIT or earnings. Once earnings have been normalized, the resulting number represents the future earnings capacity that a buyer would expect from the business
Distributed generation
Distributed generation refers to power generation at point of consumption. Generating power on-site, rather than centrally, eliminates the cost, complexity, interdependencies, and inefficiencies associated with transmission and distribution.
Insolation
Level of solar radiation received at a given location
Soft Costs
All non-hardware-related costs (For example of installing solar PV system). Include:
- Customer Acquisition Costs
- Design and Approvals
- Financing
- Monitoring and Billing
Bankability
Describes degree of financial risk. Degree of bankability of any project, solution, technology or supplier will affect the availability and cost of capital (efficiency/bankability-adjusted-supply-stacks give clearest indication of competitive positioning landscape)
Pecuniary Costs
When producing solar, costs are created for other people. 1) Loss of revenue for fixed charge coverage, 2) administrative charges, 3) firming expense for intermittent renewables, and 4) change in fixed asset lifetime and performance
Pecuniary Benefits
Benefits received by others such as less congestion less line looses, T&D capacity, merit order effect (load reduction= value → transfer from generators to consumers → prices decreases for everybody (participants and not). 1) Transmission and distribution investment offsets, 2) line losses and congestion, 3) merit order effect, 4) fuel price hedge, and 5) grid hardening.
