Distributed Generation in the US Set to Grow

This blog was coauthored by Jesse Broehl

The US Energy Information Administration (EIA) recently released its 2019 Annual Energy Outlook (AEO) report and projects distributed generation technologies will experience significant growth out to 2050, predominantly led by solar PV.

In this extensive time range, which AEO began using last year, AEO projections estimate more than 120 GW and nearly 60 GW of solar PV in the residential and commercial sectors, respectively. The report states that “rising incomes, declining system costs, and social influences accelerate the adoption of residential PV” while “declining installation costs and stable retail electricity rates drive steady commercial PV adoption.” For context, the current combined capacity of residential and commercial solar PV is less than 30 GW in total cumulative installations to date.

Solar is certainly poised to dominate, but non-solar PV is set to contribute about 24% of future commercial distributed generation capacity, largely driven by increasing natural gas-fired combined heat and power. 

Solar on the Rise and Small Wind on the Wane

The AEO report offers no insight on generation sources outside of solar PV for the residential sector, but the slow growth of distributed wind in the commercial sector is notable and in line with Guidehouse Insights’ expectations. Five to 10 years ago, the wind energy market was bifurcated with large commercial wind installations and a minor but healthy market of small and midsize wind turbines installed at residential and onsite commercial settings. Over the past few years, the wind power market has shifted in two starkly different directions with the commercial-scale multi-megawatt wind turbines and large wind plants growing at a steady pace while small and midsize wind plants face market declines. 

The leading reason for solar outgrowing wind is that small distributed wind has not experienced the rapid cost declines that solar has experienced—by some measures, solar costs have declined 84% in the past 7 years (for additional information, learn more about comparative levelized cost of energy between technologies). Contributing to solar outpacing wind is that small and midsize wind is only cost-effective in very windy locations, and more homes and businesses are located in areas that have better solar resources than onsite wind resources. Lastly, markets in Europe and North America have seen reductions and eliminations of regulatory and financial incentives to support small and medium wind. 

For comparison, and as noted in the chart below, EIA projects that in 2019 there will be more than 11,096 MW of new solar PV capacity added for distributed generation and only 581 MW of wind capacity for distributed generation. 

Commercial Distributed Generation Capacity

(Source: US Energy Information Administration)

Distributed Generation vs. Centralized: Implications and Takeaways

Distributed generation brings elements to the energy sector that centralized power (coal, natural gas, nuclear plants) does not. Benefits of distributed generation tech include:

• Increased reliability

• Increased efficiency through avoidance of energy loss through transmission

• Grid balancing

• Peak load reduction

• Reduced vulnerability to cyber attacks in the era of cybersecurity

• Onsite local self-reliance for power generation needs
  

In addition to these benefits, distributed generation from renewables has the potential to reduce carbon emissions as the US commercial and residential sectors account for nearly 40% of energy consumption. 

It’s evident that distributed generation is going to be a key piece of the US energy sector going forward, regardless of generation source. Similar to the technological innovations that induced the shift to centralized power, advancements today are swinging the pendulum back toward decentralization. Although distributed generation makes up only a fraction of total energy consumption, it will be interesting to monitor how utilities, governments, and other players in the industry adapt as distributed generation is increasingly implemented.