Wright's Law



Wright's law describes an empirical regularity stating that for every doubling in production of a particular good, costs fall by a constant factor, often in the range of 10 to 25 percent.
As the name suggests, it was first formulated by American engineer Theodore Paul Wright in 1936 who found that for every doubling in aircraft production, labor costs fell by about 20 percent. 


Does Wright's Law hold for Solar Energy?

This specific effect is also called the learning curve effect, meaning that the more times a task has been performed, the better it is remembered, and thus the less time is required for each subsequent iteration - the big question is whether Wright's law extends beyond labor costs.

Bruce D. Henderson, founder of the Boston Consulting Group (BCG), argued yes and attributed the further cost savings to the experience curve, calling the two effects “related but quite different” as he points out that while the learning curve applies exclusively to labor costs, the experience curve refers to the entire costs structure of the company. Research by BCG in the 1960s and 70s observed experience curve effects for various industries ranging from 10 to 25 percent.

Another related yet different concept is Moore's law, first stated by then Intel-CEO Gordon Moore in 1965, saying that the number of transistors in an integrated circuit double about every two years (and as a result, costs are cut in half).

Moore's law was long celebrated as indeed it seemed to hold for many decades after first being stated. More recently, however, research conducted by Ark Invest criticized Moore's law, claiming that it is nothing but a special case of Wright's Law and that the determining factor of costs declines is not time but cumulative demand. As evidence, they point to a graph plotting Lithium-Ion Battery cost by time and by volume. As can be seen, no learning or experience curve effects can be observed in the years 2005 until 2013. Upon the introduction of the Tesla Model S, however, costs started to decline rapidly - a trend that is expected to continue. 


Wright's Law Graph 7Wright's Law Graph 8


So, if Wright's law holds for Lithium-Ion Batteries, does it hold for renewable energy like wind and solar as well? When looking at the data, one can indeed observe an exponential decrease in costs over time for both technologies. A 2011 article suggests that if the costs declines for solar cells continue for the rest of the decade, renewable energy in the United States will be cheaper than coal by 2020. Was the prediction correct? Yes, it was! indeed, just last year, our blog has been writing repeatedly about this very phenomenon. (Check out Newsletter 4, Newsletter 7 and companies drive transition from coal to green)


Rapid wind and solar cost declines keep pushing fossil fuels out



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The Experience Curve—Reviewed (Part II)