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What is distributed generation's real worth for the grid?
2020-10-01
What is distributed generation’s real worth for the grid?
A thought experiment by UC Berkeley energy economist Severin Borenstein suggests how much rooftop solar could reduce transmission and distribution costs in the United States.


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California and other locations are moving to renewable energy at high speed. But even in these forward-leaning areas, there is still an active debate about which renewables and where. Part of that debate centers on the role of distributed generation (DG), which almost exclusively means rooftop solar. (Batteries are storage, not generation, but I will get to them shortly.)


The benefits and costs of DG continue to be debated, a topic I have written about here a number of times. (If you are suffering from insomnia, try my blogs from 2013, 2015, 2015 again, 2016, and 2016 again.) Per kilowatt-hour (kWh), rooftop solar costs more than power generated from large-scale solar farms, but advocates argue there are advantages that such a simple comparison misses. Among the first they mention is the savings in transmission and distribution costs that result from generating electricity at the location where it is used, a topic that Lucas dug into in June 2018. Lucas discussed some research that looks at specific circuits of a specific utility and studies what the savings might be. That research found that the grid benefits were substantial in a few locations, but were quite small for the grid overall.


Today I want to take a macro approach, looking at just how much the savings could be for the entire grid.


To begin with, building a grid is very expensive. The U.S. has spent trillions of dollars on its own grid. But those are sunk costs; nothing we do now will recover any of that money. So, those costs are not relevant when asking whether to build additional distributed versus grid-scale renewables going forward. Similarly, the country has sunk billions into rooftop solar that’s already installed, including some very expensive projects during the technology’s nascent stage, which is also irrelevant for policy going forward. The critical question now is: how much of the expenditures that the country is likely to make on the grid in the future could be avoided by installing more distributed solar in the future?


One guide that I have heard referenced by two different leaders in the rooftop solar industry is the estimate that the U.S. will have to spend $1.1 trillion over the next 25 years to maintain, expand, and modernize its grid. The source is this 2015 DOE report (page 3). That’s a daunting number, but 25 years is also a long time, and a lot of electricity. (National expenditures on many things are impressive over 25 years: if current trends hold, it looks like the U.S. will spend about $0.9 trillion on cheese in the next 25 years.)



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