Is the Future of Electricity Generation Really Distributed?

Renewable energy technologies have made outstanding progress in the last decade.  The cost of solar panels has plummeted.  Wind turbines have become massively more efficient.  In many places some forms of renewable energy are cost competitive.  And yet…just as these exciting changes are taking place, the renewables movement seems to be shifting its focus to something that has little or no connection to the fundamental environmental goals: distributed generation, particularly at the residential level.  In practice, this means rooftop solar PV.

Instead of seeking the most affordable way to scale up renewables, the loudest voices (though possibly not most of the voices) in the renewables movement are talking about “personal power”, “home energy independence”, “empowering the consumer”, and rejecting “government-created monopolies”.  In the not so distant future, residential PV may be augmented with onsite storage (as suggested by Tesla’s announcement this week of its Powerwall home battery system).


Residential is now a growing share of U.S. PV installations. Source: GTM research

The new emphasis on distributed generation has created a very unusual coalition between some traditional environmentalists and some anti-government crusaders.  Parts of the tea party movement have joined the Sierra Club in advocating for “DG-friendly” residential electricity tariffs, which mean high volumetric electricity charges in order to make rooftop solar economic.

I’m sorry, but count me among the people who get no special thrill from making our own shoes, roasting our own coffee, or generating our own electricity.  I don’t think my house should be energy independent any more than it should be food independent or clothing independent.   Advanced economies around the world have gotten to be advanced economies by taking advantage of economies of scale, not by encouraging every household to be self-sufficient.

That’s not to say that distributed generation couldn’t be the best way for some people at some locations to adopt renewables, but simply that DG should not be the goal in itself.  We desperately need to reduce greenhouse gases from the electricity sector, not just in the U.S., but around the world, including some very poor countries where affordability is a real barrier and electricity access is life-changing.  If DG is the least costly way to get that done, I’m in, but the choice should be driven by real cost-benefit analysis, not slogans about energy freedom.  TopazSolarFarm The 550 MW Topaz Solar Farm in San Luis Obispo County, California

The Pros and Cons

Compared to grid-scale renewables, DG solar has many advantages.  Generating and consuming power onsite means no line losses, which typically dissipate 7%-9% of grid-generated electricity before the power gets to your house. In addition, DG solar occupies your rooftop, a space that doesn’t have a lot of alternative uses, so the real estate cost is essentially zero.[1]  And as an extra bonus those solar panels also shade part of your roof, reducing the heat gain on hot sunny days.

In certain cases, distributed generation delays distribution system upgrades as demand on a circuit grows, because less power has to be shipped into the circuit on sunny days.  It also can reduce the need to build new transmission lines to carry power from distant grid-scale generation.

Having many small DG solar installations also spreads them around – spatial diversification – reducing the overall volatility of generation when clouds roll through.  Plus, spatial diversification and onsite generation can make the system more resilient to natural or man-made disasters, such as storms or sabotage.


The obligatory residential PV photo  (Source:

But distributed generation also has some serious drawbacks.  The first and foremost is that design, installation and maintenance of solar PV small rooftop by small rooftop costs a lot more per kilowatt-hour generated than grid-scale solar, probably about twice as much these days.  The scale economies that are lost with small systems on roofs of different size, shape, and orientation is a big disadvantage compared to grid-scale solar plants that are 10,000 to 100,000 times larger than a typical residential installation.  The size of grid-scale plants also makes tracking devices practical, which allows the panels to move throughout the day to continually face the sun and generate more electricity.

While small scale spatially-diversified generation could in theory reduce distribution upgrades and improve resiliency if the location and types of installations were optimized for those benefits, that’s not how DG solar is actually getting installed.  Systems are put in where homeowners choose to install for their private benefits regardless of the impact on the grid, and they can actually destabilize distribution circuits when they pump too much power back into the grid.  In Hawai’i, where 12% of houses now have rooftop solar, that’s already a serious concern.

Though it’s great that DG solar can contribute energy to the grid when the household doesn’t consume it all onsite, exporting power from the house reduces the DG advantage in line losses and distribution capacity upgrades.  For a typical residential system, at least one-third of the electricity generated is injected into the grid, though that may change with cheaper small-scale storage, one of the many technological factors in flux.

The technology installed with DG solar also is not optimized for the grid, so current systems aren’t contributing to resilience.  Solar PV installed today doesn’t have the smart inverters or the onsite storage that would be necessary for the systems to remain operational when the grid goes down.  Closely related, DG solar systems aren’t communicating with – or controllable by — the grid operator, so the system operator has to just guess when they might start and stop pumping power into the grid.

How do these pros and cons sort out?  Right now, I believe that residential solar loses to grid scale.  But I’m not convinced that will always be true.  And I don’t think that means households should be impeded from adopting DG solar today, just that we shouldn’t be giving it special incentives.   We need to recognize that DG’s role in the electricity future is uncertain and locking in on this (or any other) technology is unwise.  

An economically resilient system for renewables adoption

Well, then, how should we decided whether to go with DG renewables or grid-scale technologies?  We shouldn’t decide.  Instead we should design incentives that reflect the real benefits and costs of each type of system and then let them battle it out.  This has two big advantages.  First, it reduces the political fighting that comes with policymakers choosing one technology over another, or even the share that each technology should get.  Second, it pushes all alternative technologies to keep innovating and lowering their costs.

Designing such science-based incentives isn’t easy.  It requires detailed examination of each of the costs and benefits I’ve listed (and probably others that commenters will suggest).  It will not be possible to nail down each of these factors exactly, but we can’t make good electricity policy if we don’t carefully study what benefits and costs each technology brings to the table.  Tying renewables incentives to the best engineering and economic analyses of their net benefits will involve some heated debates about those analyses, but at least we will then be arguing about the right issues.

Then we should craft incentives that accurately reflect the net benefits each alternative technology offers.  I’m not sure exactly how those incentives should be structured.  But I can tell you that they don’t involve paying households retail rates for power injected into the system, as net metering policies currently do.  And they don’t involve maintaining retail rates that are many times higher than avoided costs — even including pollution costs — in order to create artificially high savings for PV adopters, as the current tiered electricity rates do in many states, especially in California.

They do include much greater use of time-varying pricing and, probably, location-varying pricing to reflect the real value of power on the grid.

Smart incentives based on careful analyses can reflect the dynamic value of distributed solar and distributed storage.  Curtailing net metering would boost the value of battery storage.  A lower cost of storage would smooth out prices over time and location, which would reduce the production timing advantage solar has, but would also reduce the problems of load balancing on individual circuits as DG solar ramps up.  Lowering volumetric residential rates would make end-user storage less valuable by closing the gap between retail and wholesale prices.

If DG solar with incentives that reflect its true benefits wins, that will be great, because we will know we’ve got the least-cost approach to reducing the externalities of electricity generation.  If it sputters, that will be fine too, because it will indicate that there are other less-expensive ways to achieve our environmental goals.  Either way, it’s time for incentives that are truly calibrated to costs and benefits, not to achieving penetration of one low-carbon technology over another.

[1] Though many people don’t have a roof for solar, either because they live in multi-family housing or, in the developing world, because the roof can’t hold the weight of solar panels.

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About Severin Borenstein

Severin Borenstein is E.T. Grether Professor of Business Administration and Public Policy at the Haas School of Business. He has published extensively on the oil and gasoline industries, electricity markets and pricing greenhouse gases. His current research projects include the economics of renewable energy, economic policies for reducing greenhouse gases, and alternative models of retail electricity pricing. In 2012-13, he served on the Emissions Market Assessment Committee that advised the California Air Resources Board on the operation of California’s Cap and Trade market for greenhouse gases. Currently, he chairs the California Energy Commission's Petroleum Market Advisory Committee and is a member of the Bay Area Air Quality Management District's Advisory Council.
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62 Responses to Is the Future of Electricity Generation Really Distributed?

  1. Karen Street says:

    Are home PV systems really protection against storms? My understanding is that after Sandy, home PV came back online much more slowly than other electricity, as the utilities weren’t responsible for the repairs.

    • Robert Godes says:

      I think the idea is that if you have home storage that provides whole house UPS functions it will keep the lights on in those houses. It can also lower the load as they bring the grid back up. Attempting to bring an entire fully loaded substation(s) back on line is more difficult due to the large step size of the load.

  2. This whole post is fantastic, but I my favorite part was this:

    “I’m sorry, but count me among the people who get no special thrill from making our own shoes, roasting our own coffee, or generating our own electricity. I don’t think my house should be energy independent any more than it should be food independent or clothing independent. Advanced economies around the world have gotten to be advanced economies by taking advantage of economies of scale, not by encouraging every household to be self-sufficient.”

    Hahahaha, this is the perfect response to the “home energy independence” advocates.

    • John Talbott says:

      Agreed with a smile. We know that Dr. B. has condensed a lot of economics into that sound bite.

    • Ian says:

      Spoken by a true consumer! There are lots of things households still do for themselves, they cook for themselves, clean for themselves, wipe their own behinds, drive themselves to work or charity organisation. The solar panels on homeowner’s roofs would certainly be mass produced economically and not homemade. In the analogy solar panels would be the shoes and the electricity generated the walking in those shoes. Surely the author is not suggesting the walking should be carried out by professionals at economy of scale or that people should be watching marathons on TV rather than exercising for themselves.

  3. Robert Godes says:

    You state that “In Hawai’i, where 12% of houses now have rooftop solar, that’s already a serious concern.” Actually they are mitigating that problem by specifying inverters. This also addresses the “Solar PV installed today doesn’t have the smart inverters” issue.

  4. Frank Graves says:

    I suspect the geographic diversity benefits of distributed renewables is overrated, because often enough, there are big storms that cast a shadow over thousands of square miles for many hours at a time, causing most or all of the local solar to shutdown. The benefit from dispersed exposure to scattered cloudiness is slight compared to this widespread problem when a big storm comes through.

  5. Robert says:

    Cloudiest major US cities, where over half the days a year cloud covers more than three-quarters of the sky

  6. Love this post. Severin Borenstein, the only honest man in renewables. When you are cursed by all sides, you’re onto the truth! I’m not saying this is exactly what will happen nor that I even support every bit of what you’ve said as there are political realities in all policy, but this is the voice that is so sorely needed in all of our energy policy debates.

  7. nicholbrummer says:

    The German FIT pays already much less than net metering does.

    • jmdesp says:

      Yes, and most of the profitability of solar panel for individual users in Germany now comes from self-consumption, and the reduction on the cost of electricity it brings.

  8. Jack Ellis, Tahoe City, CA says:

    Severin, this is a terrific post and I violently agree with most of it. However I’d like to comment on a couple of points.
    First, rooftop solar actually may make good sense in places where there’s not much flat land for PV, like Hawaii, Taiwan or Japan. Second, the grid operator lacks visibility and control over individual distributed load nodes, so I’m not sure why the lack of detailed visibility over DG is more problematic. The fact that grid operators rely heavily on a tool called a state estimator is indicative of the fact that they’re a lot less certain of the state of individual devices on the high voltage network than they lead many people to believe. It may actually make more sense for them to increase the density of sensors that sit on the wires than to insist on invasive monitoring and control at each node in the network.

    The tow factors that could swing the balance toward rooftop solar more than any other is the difficulty of permitting large scale solar, which has already move development for sales to California away from the desert areas, and the cost, time and difficulty of permitting additional transmission.

  9. I am in agreement that the rules that specify the rates which an owner of rooftop solar pays for grid power purchases or receives for sale of excess power should be based on solid economic grounds to avoid the creation of inefficient investments or to encumber other electricity users with charges they are not responsible for. In my view, this issue goes beyond roof top solar to include utility scale renewables. It even goes further in my view to include non-renewable DG whether industrial, commercial, as well as utility scale DG. A question that was put to me as an energy consultant in Saudi Arabia was to comment on the rules for the pricing of power purchases and sale of excess power of roof top solar. I share the basic elements we addressed:
    • Net metering is being practiced as a method to charge or pay a roof top solar owner for power purchases and sales. The rate being the same rate whether the home owner has rooftop solar or not.
    • At the same time, any DG facility including roof top solar needs to determine:
     Supplementary power requirements in case roof top capacity is not sufficient to meet peak demand,
     Standby power requirements to meet breakdowns, and
     Required interconnection or changes to interconnection to the grid.
    • A home basically has a contract with the power provider at set rate, for a maximum connected load, and no minimum consumption levels.
    • The power provider integrates in their planning process the household impact on a broad range of key measures: baseload generation, peaking capacity, and reserve margin.
    • A household adopting rooftop solar would: 1) reduce its demand on the grid to residual power only, 2) establish demands for standby power, 3) create a burden for the utility in treating the intermittent nature of power exported to the grid, and 4) may require changes to interconnection to the grid.
    • The introduction of rooftop solar would reduce the demand on grid power reducing revenue and increasing the cost of ancillary services. Both of which are not accounted for by net metering. The net effect is increase to utility costs and grid based rates.
    • The rooftop application at the same time is contributing to reduction in peak demand for power and benefits in addressing externalities whether reduction in line losses and emissions.

    In the event rooftop solar is broadly adopted, the parameters described here can result in major losses to utilities, major increase in rates, and ultimately the imposition of subsidies. This is the situation Germany finds itself in today. Much more can and need to be said on this issue.

  10. Severin, thanks for the thoughtful post. I think most in the solar industry are in violent agreement that compensation to DG customers should be based on actual costs and benefits of DG solar. A variety of studies have shown that, depending on what you assume, what you count, and local issues such as current rates, net benefits can either exceed the retail rate (NV, ME), or come in below retail rates (E3/CA).

    I’d love to engage you and your colleagues in an effort to standardize evaluation of costs and benefits, as these issues are live in many states now. RMI has done some useful work here that could be extended,

    It’s also worth noting, as Jack Ellis points out, that utility scale renewables are increasingly difficult to permit and site, which drives some of the interest in expanding DG.

  11. mcubedecon says:

    OK, I’m going to run counter to affirmations post here. ;^)

    I agree that getting the rate/price signals right is the preferred solution, but I’m afraid based on my experience with the sausage making of utility rates that arriving at the “right” answer can be very difficult. As one example in SCE’s general rate case, SCE is proposing that agricultural rates increase by 6%, while we’re proposing that they decrease by more than 15%. Which one of is “right”?

    Too often I see estimates based on engineers’ economic perspectives on the current system. That usually doesn’t include how technologies might change and makes simplistic assumptions about cost responsibility. Economists usually take a more holistic view that sees many more costs as avoidable and consideration of differences in timing.

    If in the 1990s we had relied on AT&T’s claims about cost causation for cell phones, we may have delayed or never seen the telecommunications decentralization that we’ve seen. We’re in much the same situation now. Who are we to believe about projected costs and benefits?

    And with regards to leading edge technology adoption, we often have to “subsidize” early use so that we can generate large benefits later. That certainly happened with cell phones. I don’t think we’re at a tipping point either in a stability threat to the grid from solar DG or on our way to universal rooftop installation.

    On the issue of scale for solar, costs drop remarkably over a relatively small range. Projects in the 300-1,000 kW range are only about 1/3 more expensive than utility scale plants. (We looked at this for the CEC.) While single rooftops may not be as cost effective, community solar gardens are. The utilities should be required to fully implement SB 43 to the maximum extent to take advantage of all local resources, and to allow tenants and others who can’t install solar rooftops to get similar benefits.

    One big advantage of solar not discussed here is the contractual term–it delivers power at a fixed price for 20 or more years. A ratepayer will not be offered that deal by a utility. Rate assurance, as Severin has written before, has a premium value. Given the prospect for large rate increases, this is an important element in the cost-benefit analysis.

    Finally, why do assume that utility is guaranteed to recover all grid costs? If instead we recognize that the utility may no longer be a monopoly and that it should have to compete with other alternatives, then we should put utility investments at risk just as they are for most businesses. Facing that risk, utilities should make more prudent investments in their grids (and I assure you looking at PG&E and SCE plans, they are not currently prudent.) Grid costs should come down and they should be more flexible in response to the ability of load to exit. Right now the utilities have little incentive to change their grids to accommodate DG; let’s change that. Then we might get the right price signals.

    • mcubedecon says:

      One other point I forgot: There is a potential for legacy stranded costs if we focus solely on developing utility scale renewables that look cost-effective now, but may lose their advantage in just a few years. The rapid fall of solar panels since 2008 should be a harbinger of what we might face. Once large scale utility plants are built, we continue to pay for them for 20-30 years even if we don’t need them. Currently we don’t have a means in the utility industry (unlike other industries) of telling some investors that they lost their money and to go away. So those potential legacy costs need to be considered, which differs from a typical cost-benefit analysis.

    • “And with regards to leading edge technology adoption, we often have to “subsidize” early use so that we can generate large benefits later.”

      Yes, nearly, everyone agrees with this in principle. The debate is primarily around how long should that subsidization last. If the solar industry’s public relations hype is to be believed, solar is already radically successful and saving ratepayers boatloads of money. That would imply that it is now time to start ratcheting back the subsidies. However, if the solar industry’s lobbying is to be believed, solar’s future remains precarious and is threatened at every turn by evil fossil fuel and utility lobbyists desperate to deny solar the chance to gain a firm foothold in the marketplace. All current “policies to encourage solar energy” (i.e. subsidies) must be maintained or else you hate solar energy.

      Whichever story is actually correct, it’s hard for me not to find the solar industry’s messaging around subsidies highly duplicitous. It should be interesting to watch them fight to preserve the investment tax credit in 2016. I’m hoping they lose, so we can finally have a semi-controlled policy experiment for the sensitivity of solar investment to tax credits, like we saw repeatedly with the wind production tax credit in the previous decade. It would give us a better sense of how close solar is to genuine market competitiveness, and hopefully provide a guide to better future policies.

    • “Finally, why do assume that utility is guaranteed to recover all grid costs? If instead we recognize that the utility may no longer be a monopoly and that it should have to compete with other alternatives, then we should put utility investments at risk just as they are for most businesses.”

      Utilities are no longer a monopoly in the *generation* of electricity. They are still monopolies in the *delivery* of electricity. Grid-related cost-recovery should be guaranteed for the same reason it always has: the regulatory compact. The utility is given monopoly business model, but must serve all customers at reasonable rates and offer grid connections in an undiscriminatory fashion to both generators and load. Just because one person has both generation AND load co-located doesn’t make their desire for access to the grid disappear. Many DG owners find that their generation and load do not temporarily coincide. A grid connection offers them an opportunity to sell surplus energy to other people and buy energy from other people to meet shortfalls, rather than paying up the wazoo for sufficient energy storage to meet their reliability needs. DG owners should be guaranteed access to the grid at reasonable rates. I would argue that it’s perfectly reasonable for utilities to be guaranteed cost recovery for providing guaranteed grid access.

      Also, aren’t you effectively arguing that utility revenue should be re-coupled with the volume of electricity sales? Didn’t California decide that those two things should be decoupled in 1983 because it’s evil and immoral for a business to have any incentive to promote consumption of its product?

      • mcubedecon says:

        “Utilities are no longer a monopoly in the *generation* of electricity. They are still monopolies in the *delivery* of electricity. Grid-related cost-recovery should be guaranteed for the same reason it always has: the regulatory compact.”

        I made this statement explicitly to raise the flag that ALL utility functions are now being challenged. And it’s not only from DG. Aggressive energy efficiency, such as ZNE homes, undermine the utility monopoly. The momentary delivery of electricity may be a monopoly service, just as land-line telephone service is still a monopoly, but from a long-term perspective, investment in the grid around a house is in fact dependent on the forecasted load in the area. Up to now the utilities have used unchallenged forecasts, overinvested in distribution because they face no risk, and now we’re stuck overpaying for distribution services. We must end the regulatory compact because utility investors are abusing it and ratepayers are not getting real benefits from it. The utilities see the obvious challenge and are trying to convince us otherwise. Don’t believe them.

    • Jack Ellis, Tahoe City, CA says:

      “And with regards to leading edge technology adoption, we often have to “subsidize” early use so that we can generate large benefits later.”

      This is a convenient rationale I hear all the time but I’m not convinced the many problems with subsidies justify their use in other than very exceptional circumstances. For one thing, like cockroaches subsidies are almost impossible to get rid of once they’re in place (see for example, the motor fuel ethanol standard). For another, the presence of subsidies encourages developers to focus on capturing the subsidies at the expense of economic merit (see, for example, Bloom Energy). The can also take focus away from furthering cost reductions and performance improvements (see for example

      Subsidies are easy because they don’t require much careful thought and they rely on the ability to use other people’s money without asking. Moreover, they often assume the activity being subsidized is an end unto itself and that a small group of policymakers are smarter than everyone else. If the reason for subsidizing solar is to reduce GHG emissions, they why aren’t policymakers setting GHG reduction targets and getting out of the way?

  12. mcubedecon says:

    Reblogged this on Economics Outside the Cube and commented:
    Severin Borenstein at UC Energy Institute blogs about the push for distributed solar, perhaps at the expense of other cost-effective renewables development. My somewhat contrary comment on that is here:

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  14. Jack Ellis, Tahoe City, CA says:

    I’m not sure it’s possible to get the prices exactly right, but neither does it make sense to pick favorites at this point in time. Small scale PV with or without storage is still a pretty expensive proposition, so the only ones who will cut the cord are those with plenty of spare cash who want to poke their local utility in the eye.

    I agree that utilities should have more skin in the game. It’s absurd that they earn the generous returns on equity they’re allowed to while taking none of the ordinary business risks faced by most firms. Moreover, because they’re made whole no matter what, the notion that customers can save money via conservation is tantamount to false advertising.

  15. sethengel says:

    Today we enjoy distributed dishwashing and distributed cooking (as opposed to dining out in a restaurant or food hall), distributed television watching (as opposed to getting our media from a public theater), distributed transportation (in our own personal automobiles as opposed to taking the bus). Although each of these activities might be cheaper to do collectively, doing them at home is a fixture of modern society. Why not also then have distributed generation from solar?

    • Distributed cooking & dishwashing is popular because people value many attributes of being able to prepare a meal to their exact specifications, in the company that they so chose, at the time they so desire, and without having to travel any farther than their kitchen and dinning room to do it. It also happens to be supported by gratuitous tax subsidies (no sales tax on groceries, no payroll or income tax on in-home labor).

      The above could also largely be said of distributed television watching (when you want, where you want, with whom you want). Plus, televisions can provide not only passive media consumption, but they can also be hooked up to video games consoles for interactive entertainment with multitudes of choice. In this sense, TVs + videogame consoles compete with arcades, which are frequently limited in their selection of games and hours of operation.

      I think most people agree that there is too much distributed transportation for a variety of policy failures and historical accidents, but even in a perfect world, distributed transportation offers locational and temporal flexibility that centralization transportation never will.

      Distributed generation from solar, however, ultimately provides a product that is 100% undistinguishable from the centralized alternative (unlike all the examples above): electrons. Sure, the production methods, environmental impacts, and cost might be different, but the end product is exactly the same, which is why it gives Severin “no special thrill.”

      • Ian says:

        Your argument is that the end justifies the means.’ No difference in the electrons’ but you might say that about transportation there is no difference between position A or final Position B people and goods were at A and after transportation at B, or Entertainment a person requires some distraction to pass the time and he or she ultimately satisfies tha
        t goal either at home watching TV or at a movie theatre. The endorphins produced would be equivalent to electrons. If you can’t enjoy the journey because you are so focused on the destination Zen there is no thrill.

    • Karen Street says:

      Distributed transportation does not “work” except in cities where many of the middle class use public transportation. Even in one car per capita California, 1/3 of adults don’t drive. Although perhaps half of CA cars are SUVs, voters find the cost of paying for road repairs onerous, and road infrastructure is only poorly maintained. Given that there is no extra benefit to distributed generation, and so many extra costs, including greenhouse gas costs, I don’t see the attraction. I don’t have much interest in shelling out huge sums of money for my own solar power or my own car.

  16. I love the post, but I am still left a little confused about the quickest and most effective (cheapest and fast) way to cut carbon out the power system and role of roof top solar in that. Seems like that thread was lost. If it is cheaper and faster for utility scale clean power to do this versus distributed (driven for non-economic reasons), then this is an important point. When issues of reliability are added in (for which we still need a transmission grid, extra capacity and the like) is this essentially a strong case for making sure distributed generation pays its full costs?

    • Jack Ellis, Tahoe City, CA says:

      ” am still left a little confused about the quickest and most effective (cheapest and fast) way to cut carbon out the power system and role of roof top solar in that”

      I don’t think you’re alone. No one really knows, although politicians and certain interest groups seem to think they have the answers. In the context of this discussion, I think customers who remain connected should be expected to pay for a share of the cost of building and maintaining the wires. They can avoid paying for the wires by disconnecting, but they incur other costs (value of lost service or the cost of an alternative to the wires, such as storage). The tough part of the conversation is determining how to price an inidividual costomer’s share of the costs.

      Trying to arrive at an “optimal” solution that trades off distributed vs central station generation in order to quickly minimize carbon emissions is an exercise in futility. There are too many variables, too many competing economic and political interests, and there’s too much uncertainty about how various technologies will unfold. Central station PV may be cheaper to build due to its scale, but the transmission required to move it to load is expensive, politically contentious, enormously difficult to site and build, and not as robust as we might think

      If the reason for building renewables is to reduce CO2 emissions, then I’d like to see California policymakers set emissions reductions goals and then stop trying to micromanage the process. However I suspect the more important but unstated goal has less to do with CO2 reductions and more to do with economic development.

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  18. David Jacobowitz says:

    I really appreciate articles like this, that refocus people on the fundamental values of the competing technologies/approaches. That said, I think to understand the popularity / noise level of the push for DG, you have to look at political economy, consumer preferences (a new thing in this business, I guess), and the marketing needs of the residential PV industry.

    I know many dispute this, but in high-solar penetration places, the value of a marginal kWh during solar hours is low. Moreover, the capacity value of the installed solar during peak demand hours is also be low. Whether you believe the operational scenario depicted in the “curve whose name shall not be spoken” is coming to CA this year or in 10, PV without storage does lead to such a scenario. Which is just a long way of saying that the rates for residential PV are going to have to change to reflect its value – that is, unless you somehow manage to unlock some special value in distributed resources itself. And that is the task to which the residential PV industry has rightly set itself.

    In this perspective we see, for example, the labor-inefficiency of installing residential solar portrayed as a virtue. We see the rejection of new transmission and solar plant siting on aesthetic and ideological grounds. (And indeed, the difficulty of siting solar plants is treated in most comments here as if it were some exogenous fact, when … come on.) We also see an industry tapping into the deep affinity among Americans for autonomy and self-reliance, even when they may be illusory.

    All that said, I’m as red-blooded a the next American, and I must admit that I find the idea of a single decision that will meet my energy needs for a decade or more, made privately and bilaterally, and no more complex than choosing a new washer/dryer, rather appealing, particularly if it contributes to the unraveling of an entire unlovable industry and its attendant regulatory apparatus. It’s not hard to understand the greenie / conservative coalition there. Can we all agree that it’s a very compelling story, even if we can’t agree on its truth?

    Utility scale solar costs are lower than DG solar, and one might expect that storage costs will follow a similar pattern. The real question is whether they will be enough so to overcome the real, imagined, and preferential benefits of DG among those whose opinion matters. It’s not looking likely right now, but these pendulums swing.

    • Jack Ellis, Tahoe City, CA says:

      I’m among those who “find the idea of a single decision that will meet my energy needs for a decade or more, made privately and bilaterally, and no more complex than choosing a new washer/dryer, rather appealing, particularly if it contributes to the unraveling of an entire unlovable industry and its attendant regulatory apparatus”. On the other hand, a little math – perhaps oversimplified – shows why this is an expensive indulgence. At $3500/kW installed for a residential system, the price per kWh works out to around 15 cents (30 year mortgage amortization), which is competitive in most parts of the country and at or near retail rate parity in California based on average prices. However when you add enough storage to carry a household through the night but not necessarily across several days of adverse weather, the installed cost of a system roughly doubles, making PV plus storage substantially more expensive than grid power. These are all back-of-the-envelope numbers but they’re close enough to be valid.

      Interestingly enough California has adopted a policy that will force owners of newly built homes to embrace DG whether it makes sense or not through the state’s Zero Net Energy Buildings policy. I’ve just begun digging into this but on the surface at least, it appears to be almost punitive in the costs it will impose on homeowners, including the cost of enough renewable energy production to offset electric and gas usage. Even with Net Energy Metering, homeowners will find themselves buying gas at the retail rate and selling surplus solar at something approximating the wholesale rate, which is unlikely to sit well once people discover what’s really going on.

      • David Jacobowitz says:

        You’ll get no disagreement here; it is true that getting utility-level reliability out of DG PV+battery is going to be much more expensive then simply adding a battery to better time-arbitrage one’s PV generation. However, prices for PV and batteries fall, and who knows where they may end up. Others have pointed out path dependence and the influence (and long term problems) of subsidies for early adopters.

        ZNE is interesting. At least it is cheaper to add PV to a new house than to retrofit. Same goes for making a house more efficient overall, so its energy use, including gas, is much lower. (Should be interesting to see if ZNE encourages a switch back to all-electric homes.)

        I have heard folks from the building industry complain that they are compelled to pursue increasingly low marginal-value efficiency improvements when there are so many cheaper untapped alternatives around. I haven’t studied the issue, but I think it’s fair to say that’s just about always the case when you have technical regulation by sector rather than performance regulation that applies uniformly.

        On the other hand, if it sounds like I am against ZNE, I’m not necessarily. I can think of good reasons for a program like that, not the least of which is the principal/agent problem between builders and owners, and questions about whether those making decisions do a good job given the exceedingly long life of housing.

        A uniform carbon- or non-green- energy tax would be a better foundation for sure, but we have to make policy with the politics we have, not the ones we wish we had. 🙂

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  20. mcubedecon says:

    I am going to reiterate a point that may have been too buried in my earlier comment:

    Community scale DG, such as solar, is nearly as cost effective as utility scale solar generation. This is another challenge to the utility monopoly. It also allows communities to consider taking over smaller portions of the utility grid while leaving higher level components to the incumbent utility. Thus the center of decision making can be further distributed. This fits with the independent distribution operator that several are advocating.

    The other important aspect attractive for DG is the greater variety of contractual terms available. Right now utilities force ratepayers to pay short term prices that vary each year. Solar providers offer both outright ownership and different types of lease arrangements, and even purchase through a utility. Maybe if the utilities started acting like businesses that truly care about keeping their customers we wouldn’t be having this discussion.

  21. Forsberg says:

    MIT just released its Future of Solar Energy study with cost numbers. The cost of roof-top solar more than twice that of large-scale utility solar. Furthermore, distributed solar on a large scale significantly increases grid costs. Analysis was done for different parts of the U.S. with the same results. Energy costs are about 10% of the Gross National Product so doubling energy costs has a massive impact on standards of living. If somebody wants a solar panel on their roof–that is fine. However, any taxpayer or ratepayer subsidies should be per kWh produced based on its market value to reflect benefits to all of society.

  22. peter stavrianos says:

    Fascinating technical and environmental ideology driven discussion, but surprisingly politically barren. The apparent (and very important in discerning proper policy) assumption of many here that environmental PC politics trump big money politics is a joke to one who spent a career in Congress. The massive underlying subsidization of wealth and the wealthy inherent in US energy policies which have guaranteed profit to grid scale operators and their investors for generations dwarf the minuscule favoritism for roof top DG which so troubles you here.

    A discussion as to whether the politics of energy will allow the transmission of technically achievable lower unit grid scale costs from Wall Street to the general populace is required for any of the above discussion to have real world meaning. Based on 40 years experience I would suggest that the building of the political transmission line that could carry those profits to the public may prove even more difficult than the permitting of a power line from the desert to the coast. And, if that political line cannot be constructed and maintained, then the technically cheaper cost of grid scale power will simply pad the pockets of the currently powerful as it has for decades, and be used by them via the Citizens United pipeline to insure that objective cost criteria may be applied to the generation of power, but that the benefits of so doing will continue to flow disproportionately to them.

    The core of the case for DG is in fact, as some contributors here have argued, and have uniformly viewed as a negative, political. DG will help do for electric power what the internet has done for information and the cellphone for communication. It will help disperse the political power that controlled each of these fields for generations. In my view the benefit of so doing vastly outweighs any small, temporary increase in the per unit cost of power because it will permit the introduction of more, not less, objectivity into our energy and environmental policy decisions going forward.

    • Ian says:

      There’s an environmental factor that has not been discussed and that is the land pollution that utility scale solar imposes. Distributed solar is on rooftops which are already built and double up the use of land already spoilt by housing. The political benefit of transferring wealth and power back to real people from ‘Blackbox’ corporations is worth every cent spent on DG but is mitigated by the unpleasant fact that solar panels and batteries need to be purchased from big corporations. Is being reliant on big business for electrons any different to being reliant on other corporations for the domestic appliances to make and store electricity?

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  29. (1) I continue to be frustrated by the confounding of capital investment on the part of utilities (and presumably their ratepayers) with capital invested by individuals who choose to put solar on their own roofs. THEY ARE NOT THE SAME. Indeed, the generation capacity provided by individuals comes free of charge to the other group, and any rationalization to the contrary requires some tortured, extended logic, like the money that was used is no longer available for other purchases therefore is a loss to society, etc. The cost of that capital is also borne by the individuals in the home.
    (2) There is no discussion of the inherent Sankey efficiencies of consuming close to generation. (See
    (3) The notion of “incentives” as discussed is naive. Our home has deliberately moved away from all fossil fuels, for heating, for heating water, and for general energy. (We have an oil burner, orphaned and idle, with 120 gallons of oil in its tank. It sits there, and is turned on once per month to give it a brief workout and for a test. In full disclosure, because of the rules of interconnection in Massachusetts, because we are on the grid, our PV system goes out when the grid does, so we have a limited propane generator to back that up.) And now we have a 10 kW array generating all of our power, integrated over a year. The grid serves as energy storage. SHOULD the legislature be foolish enough to tamper with our net metering provisions, this will motivate us to investigate energy storage solutions for our home, even if that means giving up SRECs. We would prefer to share electrons, but will happily move to a hoarding model if it costs us too much. We can also do demand shifting of our home if that aligns with our cost interests.
    (4) “Energy storage” is not (just) “batteries in the basement”. It includes storage as a business model, perhaps in 5+ years, where power aggregators buy excess power from a large number of homes and businesses, and sell it back to them at the same rate, but have, as a result, a store of 10 MWh they are sitting on which they can grant “the grid” at a price should it be necessary.

    I find in many of these articles that there is a decided lack of imagination about what an energy future could mean and how it could work. The parameters of these discussions are over-informed with how things work now, and less informed by realizing that homes are not just distributed power plants but intelligent participants who feel for a communal approach to things, but will look out for themselves if need be.

    And, yes, we’ll probably add another 5 kW of solar PV on our home down the road.

    And, yes, we own it all:

    • Darron Burow says:

      To add to the distributed grid model concept of efficiency. As stated in the article ‘DG solar occupies your rooftop, a space that doesn’t have a lot of alternative uses, so the real estate cost is essentially zero’ BAM. The hottest, most valuable and ever decreasing global commodity is real estate,. Utilizing this network of available rooftop real estate is not a gee whiz option, but a requirement in order to meet global needs in the future. Unless of course, the World is ok with clearing large plates of land to accommodate. The cost of solar on large centralized plots per panel is less, but forgot the real estate investment costs in that model. Those that have net-metering and grid tied personal systems would be happy to install data linked power filters to help the grid manage power. Power management in a distributed grid is about information. I think we can handle that with today’s technology. We don’t have transmit power with brute force anymore.

  30. Oh, I should have said, too, that this “destabilization” worry, per the quoted Hawaii situation, is a crock. Pilgrim Nuclear in Massachusetts generates 635 MW. (It will be going offline permanently in 2019.) It, like any other power plant, but especially nuclear, can go offline in 10 seconds without notice.

    Any grid that can handle such fluctuations is PLENTY stable to handle fluctuations from a flock of homes, especially if they are complemented by rich wind turbines, whether on coast or in ocean.

    • jmdesp says:

      It’s a completely inadequate and misleading comparison. In the US, there’s around a 100 nuclear reactor. Any one of them can go offline brutally, but there’s no correlation between the reactors, if one of them goes off-line that’s no reason why the other will (there’s a small correlation when several reactors are on the same site, but even there a very wide majority of shut downs affect only one of the reactors and not the others).
      So the effect on the total generation is very small, the fleet was generating 90 GW and suddenly it’s generating only 89,3. It’s not a big problem to have this capacity in reserve to handle it ; especially since if you are using coal or gas plant, you have the same issue, they can shut down any time.

      When you look at Hawaii, the trouble is not a solar panel or a wind turbine that breaks, the effect would not be perceptible, but it’s the coordinated effect weather changes have on all the generator simultaneously. It’s not exactly the same kind of issue, it won’t be a brutal change within 10 seconds, but an extremely large change happening within a few hours. When the nuclear fleet generates 90GW it will never, just never have an uncontrolled change to 30 GW 4 hours later. It’s easy to check the German data and see this kind of factor three variation *everyday* with their 83 GW of solar and wind.

      • mcubedecon says:

        jmdesp: The US grid is far from complete interconnection. Often nuclear plants are located in load pockets where they are important local resources. So losing a 1,000 MW resources is often a very high percentage of local resources which is why they are so risky. The cost of achieving sufficient interconnection is much higher than investing in alternative resources.

      • My understanding is Pilgrim going offline is an event that needs to be contained within the relatively small ISO-NE.

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  34. Sam Maslin says:

    Really like this post (discovered a year late). I’m excited by DG, hold a job partly to do with it, but also find the tautologies of DG proponents annoying. ‘Everything’s hip, distributed, and empowering and that’s what has to happen with energy! …Why do we have 15 million wooden poles!?’ Superficially tying DG to other tech trends is a lame argument, but I had the thought that you could point out that the major trend of cloud computing would actually be a pretty close analogy for the OLD utility model. In computing we started with a distributed model (personally held data and processing power in machines of uneven reliability) and are now moving pretty quickly to the cloud model where most of our data and computing happens on centrally-managed servers (ie AWS). Why wouldn’t the same logic of specialization and scale driving the cloud apply to the electric system? I do believe there are some solid answers to that question but lets at least have a rational discussion.

    • jmdesp says:

      In computing, the movement has been continuously going one way and then the opposite for a long time. Terminals and mainframe originally were the centralized model, then individual computing was the way to go, then cloud computing now goes the reverse direction. Depends on what the cost of connection is with regard to the cost of individual systems.

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  38. James F Cook says:

    Thanks for including the picture of Topaz, Professor Borenstein!

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