Modeling cascading diffusion of new energy technologies: case study of residential solid oxide fuel cells in the US...

Subsidy programs for new energy technologies are motivated by the experience curve: increased adoption of a technology leads to learning and economies of scale that lower costs. Geographic differences in fuel prices and climate lead to large variability in the economic performance of energy technologies. The notion of cascading diffusion is that regions with favorable economic conditions serve as the basis to build scale and reduce costs so that the technology becomes attractive in new regions. We develop a model of cascading diffusion and implement via a case study of residential solid oxide fuel cells (SOFCs) for combined heating and power. We consider diffusion paths within the U.S. and internationally. We construct market willingness-to-pay curves and estimate future manufacturing costs via an experience curve. Combining market and cost results, we find that for rapid cost reductions (learning rate = 25%), a modest public subsidy can make SOFC investment profitable for 20-160 million households. If cost reductions are slow however (learning rate = 15%), residential SOFCs may not become economically competitive. Due to higher energy prices in some countries, international diffusion is more favorable than domestic, mitigating much of the uncertainty in the learning rate.