The Seeds of Solar Innovation: How a Nation can Grow a Competitive Advantage by Donny Holaschutz B.A. Hispanic Studies (2004), University of Texas at Austin B.S. Aerospace Engineering (2004), University of Texas at Austin M.S.E Aerospace Engineering (2007), University of Texas at Austin Submitted to the System Design and Management Program In Partial Fulfillment of the Requirements for the Degree of Master of Science in Engineering and Management ARCHIVES MASSACHUSETTS INSTITUTE at the OF TECHNOLOGY Massachusetts Institute of Technology February 2012 © 2012 Donny Holaschutz. All rights reserved The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part in any medium now known or hereqfter reated. Signed by Author: Donny Holaschutz Engineering Systems Division and Sloan School of Management January 20, 2012 Certified by: James M. Utterback, Thesis Supervisor David . McGrath jr (1959) Professor of Management and Innovation and Professor of neering SysemsIT oan School of Management Accepted by: Patrick C.Hale Director otS ystem Design and Management Program THIS PAGE INTENTIONALLY LEFT BLANK Table of Contents Fig u re List ...................................................................................................................................................... 5 T ab le List........................................................................................................................................................7 Executive Su mm ary ....................................................................................................................................... 9 Ackno w ledgem ents.....................................................................................................................................11 Chapter 1 - The Seeds of Solar Innovation ............................................................................................ 13 Chapter 2 - M ethods & Explanation of Key Concepts............................................................................ 19 The Solar Innovation Leading Enterprise and Its Evolution ................................................................ 20 Value Creation, Spillover, and Capture in the Power Sector .............................................................. 22 The Solar Cluster and the Solar Innovation Leading Enterprise........................................................ 24 Informal Organizations (Solar Innovation Tribes) to Solar Innovation Leading Enterprise ................ 25 Solar Innovation Leading Enterprise and the Dynamics of Innovation ............................................... 26 Chapter 3 - The Solar Innovation Leading Enterprise and its Relationship to the Cluster.....................29 Characteristics of the Solar Innovation Leading Enterprise ............................................................... 29 The Impact of the new Solar Innovation Leading Enterprises on the Clusters ................................... 33 Emergence of the Local Innovation Leading Enterprise as Local Solar Innovation Tribe .................. 43 Essential Resources and Dynamic Capabilities for the Solar Innovation Tribe ................................... 48 Evolution of Capabilities and Resources Required by Solar Innovation Tribe to become an Established Solar Innovation Leading Enterprise .................................................................................................. 50 The Impacts of the Location of the Cluster on the Solar Innovation Leading Enterprise ................... 53 Factors that Impact the Solar Leading Innovation Enterprise and that Change the Value Network Po rtio n of the Cluster .............................................................................................................................. 57 Chapter 4 - Solar Innovation Cluster Formation and Emergence..........................................................63 Location of Established Solar Innovation Clusters .............................................................................. 63 Cadm ium Telluride (CdTe) Cluster - Toledo Ohio............................................................................ 63 Crystalline Silicon (c-Si) Cluster - Silicon Valley CA ........................................................................ 63 Em erging Solar Innovation Clusters .................................................................................................. 64 Cadmium Telluride (CdTe) Solar Innovation Leading Enterprise Investment ................................. 65 Concentrated Photovoltaic (CPV) Solar Innovation Leading Enterprise Investment......................66 Copper Indium Gallium (di)Selenide (CIGS) Solar Innovation Leading Enterprise Investment...........67 Organic Photovoltaic Solar Innovation Leading Enterprise Investment ........................................ 68 Other Solar Innovation Leading Enterprise Investment................................................................. 69 Future of Solar Innovation, Solar Innovation Leading Enterprise, and Solar Innovation Cluster ........... 70 Chapter 5 - Conclusions and Recom mendations ................................................................................... 73 Co nclusio ns..............................................................................................................................................7 3 The solar innovation leading enterprise drives the change of the value network portion of the solar innovatio n cluste r................................................................................................................................73 The solar innovation leading enterprise has developed and produced architectural forms with a higher scalability potential and a greater ability to satisfy the needs of the electricity consumer....73 The complementary network of the solar innovation cluster has given the solar innovation leading enterprise an advantage in its early stages................................................................................... 73 Solar innovation clusters focused on specific architectural forms are emerging and have formed w ithin the U.S ...................................................................................................................................... 73 Most of the time, the solar innovation leading enterprise begins as an innovation tribe in the professional enviro nm ent. .................................................................................................................. 74 In its infancy stage, the solar innovation leading enterprise relies mostly on local resources and kno w ho w ............................................................................................................................................. 74 Most of the time, the location where the solar innovation leading enterprise emerges is determined by location where the founders were working right before the founders started the enterprise.....74 The formation and change of solar innovation clusters is influenced by the solar innovation leading ente rp rise ............................................................................................................................................ 74 For the heavier and bulkier solar technologies transportation costs are becoming a greater com ponent of the overall cost for the final product...................................................................... 75 Recommendations to the Decision Maker at the Department of Energy .......................................... 75 Engage the local to build a global competitive advantage ........................................................... 75 Use new insights to im prove risk management............................................................................ 77 Design support systems for the solar innovation tribe ................................................................... 78 Re-architect strategy to support the solar innovation leading enterprise and push the current solar in novatio n bo undary ........................................................................................................................... 79 Bib lio gra phy.................................................................................................................................................8 3 Figure List Figure 1 - How solar innovation leading enterprises could build dynamic capabilities and resources to generate rents and capture value (Created by Author).......................................................................... 21 Figure 2 - Direction set by solar innovation leading enterprise in cluster (Created by Author).............24 Figure 3 - Economic value created by many types of companies in solar industry in 2010 (Created by Author using [21-27] and com pany websites)....................................................................................... 29 Figure 4 - Private investment by type of company in solar industry (Created by Author using [21-27] and co mpany w ebsites)......................................................................................................................................30 Figure 5 - Solar innovation enterprise shaping the value network portion of cluster (Created by Author). ....................................................................................................................................................................