Novel Measure of Innovation: Application to the Onshore Wind Energy Sector in the US

Abstract

When technological innovations are implemented in the wind energy sector, one should observe reductions in the production cost of electricity. However, the accuracy of inferring the rate of innovation from production cost reductions is open to challenge when those costs change due to factors not attributable to technological innovation. To control for such factors, this study applies engineering models and derives production cost reduction trends through changes in the technical parameters of wind turbines. The obtained innovation measure is unlikely to be affected by the noninnovative determinants of the production cost as long as the underlying engineering models are accurate. The usefulness of the generated innovation measure is illustrated in the context of learning curve literature.