{"id":1603,"date":"2014-12-01T08:18:46","date_gmt":"2014-12-01T07:18:46","guid":{"rendered":"https:\/\/blog.iese.edu\/doing-business\/?p=1603"},"modified":"2015-03-17T11:14:02","modified_gmt":"2015-03-17T10:14:02","slug":"innovation-and-energy","status":"publish","type":"post","link":"https:\/\/blog.iese.edu\/doing-business\/2014\/12\/01\/innovation-and-energy\/","title":{"rendered":"Innovation and Energy"},"content":{"rendered":"

In a series of posts about shale gas<\/strong> back in January, I made the point that one of effects of the increase in gas production in the United\u00a0States<\/strong> was to suppress the price of natural gas and make it more difficult for utility scale wind and solar energy to compete<\/strong> with natural gas.<\/p>\n

Last week, the New York Times<\/em><\/a> ran a story<\/a> which cited a report<\/a> by Lazard released this September which has made me re-think my position. While the Lazard report is a bit technical, the bottom line from both is that depending on the location and the level of currently available subsidies in place, the price of wind energy and solar energy has dropped by 50%<\/strong> or more in the last few years through a combination of engineering, financing, and better operations.<\/p>\n

According to Lazard, subsidies continue to\u00a0play an “important” role but even without them renwables are competitive in certain parts of the country <\/span><\/a>\u00a0where the sun shines and the wind blows.<\/p>\n

The basic narrative is that since Shale Gas has emerged<\/strong> as a major contributor to the production of natural gas in the United states it has depressed prices and put tremendous pressure on competing technologies such as Wind<\/strong>. Uncertainty over whether the federal government would continue to provide incentives combined with lower cost gas killed the business in 2013<\/strong> as shown in data from the Wind Energy Foundation<\/a>.<\/p>\n

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What we teach in business school is that faced with competition, firms will either react through innovating better ways of doing things or disappear and according to the data from Lazard, the wind and solar industries have reacted with their levelized\u00a0cost of energy<\/strong>, a way of comparing the different technologies, dropping by 58% and 78% respectfully over the last five years<\/strong>.<\/p>\n

\"Screen<\/a><\/p>\n

What’s new?<\/strong><\/h3>\n

While wind generators are evolving into taller, larger diameter structures with better software and mechanical systems, the innovation on the solar side is much broader and it seems that a technological paradigm, that is an essentially similar approach, has yet to emerge. Below are some interesting examples:<\/p>\n