Growth and competition in renewable energy industries: Insights from an integrated assessment model with strategic firms

• An integrated assessment modeling framework featuring technology markets with strategic firms is developed.
• It captures market forces omitted by traditional formulations of technological change.
• Competitive markets and learning spillovers enable greater solar PV adoption and lower emissions.
• The relationship between spillovers and producer profit depends on the availability of cost-competitive substitutes.
• Price learning rates vary with climate policy, market structure, and learning spillovers.

This article describes the development, implementation, and application of an integrated assessment modeling framework featuring renewable technology markets with producers engaged in Cournot competition. Scenario results reveal how climate policy and inter-firm learning spillovers interact with market structure to affect wind and solar PV prices, adoption, producer profits, and carbon emissions. Competitive markets yield consistently lower markups than concentrated markets, leading to significantly more adoption and lower emissions. Widespread solar PV adoption is a key component of the largest emissions reductions, but this requires substantial price reductions that only occur if the solar PV market is competitive and learning spills over across producers. Whether a leading firm has a profit incentive to facilitate or obstruct learning spillovers depends on the availability of cost-competitive substitute technologies. If such a substitute exists, the firm prefers strong spillovers that help its industry compete against the substitute; if not, the firm prefers weak spillovers that prevent competitors in its industry from seizing market share. The relationship between price and cumulative capacity is endogenous in the modeling framework. Regression analysis of scenario results yields price learning rates which are similar to unit production cost learning rates in competitive markets, but substantially lower – even negative – in concentrated markets.