The Economic Competitiveness of Renewable Energy: Pathways to 100% Global Coverage

Chapter 7

The Astonishing Predictive Power of Price Experience Curves

7.1 Basics about Price Experience Curves

The phrase “learning curve” was first used at the end of the 19th century by the German psychologist Hermann Ebbinghaus [7-1] when conducting experiments on how fast human beings acquire information. The first quantitative description is linked to an observation by T. Wright [7-2] from the Wright-Patterson Air Force Base in the US in the early 1930s that every time the total aircraft production doubled, the required labor time decreased by a constant percentage, which was in this case 10–15% (the learning factor).

The term “experience curve” was later used in a much broader scope. It states that each time the cumulative volume of produced goods or a service doubles, the value added costs fall by a constant and predictable percentage (the experience factor). If one plots (Figure 7.1) in a double logarithmic scale the number of units on the x-axis and the cost on the y-axis one obtains a straight line, where the slope represents the experience factor.

Figure 7.1 Principles of a Cost Learning- and Price Experience Curve.

This was first described for single products or services in a single company. In the late 1960s Bruce Henderson of the Boston Consulting Group (BCG) began to emphasize the implication of the experience curve for strategic considerations [7-3]. Research by ...